J&J: Still a Defensive Giant, or Too Dependent on Pharma?

Johnson & Johnson is no longer the diversified consumer-plus-healthcare conglomerate it once was. With the spin-off of Kenvue, nearly two-thirds of sales now come from pharmaceuticals, raising a critical investor question: has J&J become more vulnerable to patent cycles, or does this sharper focus make it stronger?

About the company

Johnson & Johnson is a globally diversified healthcare conglomerate with two main operating segments. The Innovative Medicine division (pharmaceuticals and biologics in areas like immunology, oncology, neuroscience, infectious diseases, cardiology, ophthalmology, etc.) accounted for roughly 64% of 2024 sales. The MedTech division (medical devices orthopaedics, surgery, cardiovascular, vision, etc.) made up the remainder. J&J traditionally also had a large Consumer Health business (Tylenol, Band-Aid, Neutrogena, etc.), but this was spun off into Kenvue Inc. in 2023. Kenvue became an independent company on August 23, 2023 (JNJ retains about 9.5% of Kenvue) and is now the world's largest pure-play consumer health company. Management says the Kenvue split sharpens Johnson & Johnson's focus on transformational innovation, specifically in Pharmaceutical and MedTech. J&J is a leader in healthcare R&D; in 2024, it invested $17.2 billion in R&D, and products introduced in the past 5 years generated about 25% of sales.

J&J's First Quarter 2025 Earnings Analysis

Johnson & Johnson reported Q1 FY2025 revenue of $21.893 billion, reflecting a 2.4% year-over-year increase and modestly surpassing the consensus estimate of $21.56 billion. The company maintained a stable operating margin of approximately 28.3%, broadly in line with Q1 FY2024. On a non-GAAP basis, adjusted EPS came in at $2.77, marking a 2.2% increase from the prior year and exceeding the Street's expectation of $2.56. While core profitability remained steady, GAAP net income and margins saw an exceptional spikenet margin surged from approximately 15% in the prior-year quarter to nearly 50% in Q1 FY2025. This increase was primarily driven by significant one-time accounting adjustments, including the reversal of talc-related litigation accruals, which materially inflated bottom-line results on a GAAP basis.

In short, J&J delivered a steady quarter: revenue and EPS modestly exceeded expectations, margins held firm, and the GAAP profit surge was accounting-driven, not operational.

J&J's Near-term Catalyst

We maintain a constructive near-term view on Johnson & Johnson JNJ, supported by steady fundamentals across its core Pharmaceutical and MedTech businesses, offset by residual headwinds from FX and litigation risks. For FY2025, management guides for organic sales growth of 33.5% (vs. 3.2% in FY2024) and adjusted EPS of $10.6010.70 (+6% y/y at midpoint).

Pharmaceuticals (55% of sales) remains the primary growth driver, with mid-single-digit growth projected. Key contributors include Darzalex (+20% y/y), Tremfya (+18%), and Stelara (+8%), supported by market share gains in immunology and oncology. Pipeline catalysts in 2H2025, including expanded Spravato indications and oncology readouts (Lazertinib and TAR-200), could unlock incremental upside. However, pricing pressure in the U.S. (~200 bps impact) and the looming Stelara patent expiration in 2028 are notable risks, though unlikely to materially affect near-term performance.

MedTech (~30% of sales) is poised for stronger momentum in 2025, benefiting from elective procedure recovery and the upcoming launch of Ottava, JNJ's robotic surgery platform. Management targets mid-single-digit growth for the segment, driven by advanced wound closure and interventional oncology devices. We see the potential for MedTech operating margin expansion (~150 bps) as scale improves and mix shifts toward higher-value procedures.

Consumer Health (Kenvue) is now largely deconsolidated following the spin-out, with only a residual equity stake (~9.5%). Near-term financial contribution is minimal, but the separation allows JNJ to redeploy capital toward higher-growth, higher-margin Pharmaceutical and MedTech assets.

Growth Drivers for Long-term

J&J's diversified platform, large pipeline, and balance sheet underpin a constructive long-term outlook. The company invests heavily in R&D and external innovation; approximately 50% of the pipeline is sourced via acquisitions or partnerships, according to CEO Joaquin Duato. Kenvue's spin-out has further buoyed J&J's financial firepower; the separation generated roughly $13.2 billion in cash that J&J can deploy for pharma deals. J&J already has a voracious appetite for M&A (mid-sized biotech tuck-ins and partnerships) to supplement organic growth. In 2024, new product approvals and label expansions (e.g. in oncology, immunology, neurology, and surgery) helped fuel 5-7% operational growth in each segment. Demographic trends such as aging populations and higher healthcare spending also support demand for innovative drugs and devices. J&J's financial strength (net cash of ~$30B, conservative balance sheet) and its Credo-driven culture (emphasis on consumers, patients, employees, and communities) suggest stable execution. J&J's key risks remain the notably ongoing litigation (talc, product liability) and biotech competition, but these are largely legacy issues and are accounted for in guidance.

Expanded Pharmaceutical Outlook Post-Spin Revenue & profit concentration in Pharma

With Kenvue spun off, J&J is now ~two-thirds a biopharmaceutical company. In FY2024, Innovative Medicine (pharma) sales were ~$56.96 billion versus ~$31.86 billion in MedTech (roughly 64% pharma). Because drug divisions generally command higher margins, a disproportionate share of profit now comes from pharma. This concentration means J&J's growth and earnings largely depend on its drug pipeline and R&D.

TAM and growth (Darzalex, Tremfya, Stelara): The company's top medicines still address very large markets. Darzalex (daratumumab) is a leader in multiple myeloma; analysts forecast the global myeloma market to reach ~$33 billion by 2030, with Darzalex alone reaching ~$14.7 billion by 2030. Tremfya (guselkumab) treats psoriasis/PsA and now inflammatory bowel disease; its global market was about $3.7 billion in 2024 and is projected to grow to ~$7+ billion by 2033. Notably, Tremfya's label expansion (approved for ulcerative colitis in 2024 and Crohn's in 2025) can further enlarge its TAM. Stelara (ustekinumab) spans psoriasis, IBD, etc., and had ~$910 billion in peak sales (20222023). Its TAM is shrinking post-patent, but it remains one of the larger biologics globally.

Patents and lifecycle strategies: All three drugs have limited patents left. Stelara's main patents expired in 2023 (US) and 2024 (EU), triggering sales declines and biosimilar entry (e.g., deals delaying biosimilars until 2025). Darzalex's U.S. patents run into the late 2020s, but after that, generics/biosimilars will pressure prices. Tremfya's core patents extend into the late 2020s as well. J&J is countering by extending each drug's life cycle (e.g., new indications, formulations). For instance, subcutaneous Darzalex (Faspro) and Tremfya for GI indications help sustain use beyond original claims. Management also invests in next-gen R&D (e.g., bispecifics, CAR-T) to offset these cliffs.

Competitive positioning: J&J's top drugs are generally winning share against older standards. In multiple myeloma, Darzalex/Carvykti are projected to dominate; Bloomberg Intelligence predicts J&J will be the largest myeloma drugmaker by 2030 as BMS's Revlimid franchise withers under generic competition. In immunology, Tremfya has shown superior efficacy versus older TNF and IL-17 biologics, allowing it to take market share from legacy treatments (e.g., Humira, Cosentyx). Stelara itself displaced many first-generation therapies (anti?TNFs) in its prime, though it now ceded ground to next-generation IL-23 agents. In practice, U.S. and EU treatment trends are similar: J&J's newer biologics are steadily replacing older therapies. These positioning advantages have driven the growth J&J sees in immunology and oncology, but J&J must continue to out-invest competitors (e.g., AbbVie/Lilly in IL-23, BMS/Pfizer in myeloma) to maintain its lead.

What this means for investors: J&J's current biologics are strong but finite; lifecycle management and pipeline depth will determine sustainability.

Kenvue Spin-off Impact - trade-offs, numbers, and strategic consequences

The separation of Kenvue on August 23, 2023, removed a meaningful, lower-growth but stable revenue buffer and left Johnson & Johnson with a business mix heavily skewed to higher-margin, higher-volatility healthcare verticals. Before the spin-off, Consumer Health provided recurring, branded OTC sales that tended to be less sensitive to FDA cycles, patent cliffs, and biotech competition; post spin-off, Innovative Medicine accounts for roughly 64% of J&J's 2024 sales, with MedTech comprising most of the remainder. Management retains a minority stake in Kenvue (~9.5%), but the operating economics and thus the company's risk profile are now materially different.

The trade-off is relatively straightforward: pharma brings higher gross and operating margins and greater upside per successful launch, but it also concentrates risk around R&D execution, regulatory approvals, and the timing of patent expirations. On the upside, J&J's sharpened focus allows deeper capital allocation to high-return R&D and targeted M&A; the company reported R&D spend north of $17 billion in 2024, and management has cited more than $13 billion of post-spin firepower to deploy selectively into the pipeline and tuck-in acquisitions. That financial capacity enhances J&J's ability to replenish growth via acquisitions and accelerate late-stage programs.

On the downside, the absence of Consumer Health removes a steady, margin-stabilizing line of business that historically softened revenue volatility during patent down-cycles. With a larger proportion of profits now generated by a handful of biologics and oncology franchises, the company's earnings now more closely track (1) the timing of new approvals and label expansions, and (2) the advent of biosimilar competition as patents lapse. Real examples illustrate the point: Stelara, historically a top cash generative drug, has seen exclusivity erode; Darzalex and Tremfya are material contributors today but face finite patent protection windows, forcing J&J to rely on life-cycle management (new formulations, subcutaneous dosing, new indications) and ongoing R&D to maintain their trajectories.

Strategically, the spin-off sharpened J&J's investment thesis but raised the bar for execution. Investors should now evaluate J&J less as a diversified consumer-plus-health conglomerate and more as a concentrated pharmaceutical and medical device franchise where the magnitude of upside from successful launches is larger, and the downside from failed trials or accelerated biosimilar entry is more acute.

Risk Analysis

Johnson & Johnson faces several notable long-term risks. Litigation risk is high: J&J contends with tens of thousands of talc-related lawsuits (recent reports cite over 63,000 suits, potentially ~$10 billion of exposure). Attempts to settle (e.g., a $10B bankruptcy settlement) were rejected as of early 2025, so litigation costs could persist. Regulatory/policy risk is mounting: U.S. drug pricing reforms (e.g., Medicare negotiation under the IRA) threaten pricing power. J&J is appealing recent court losses and warns that IRA price controls will constrain development of new medicines. Internationally, reference pricing and reimbursement pressures are also a factor.

Patent cliffs and competition: Several key drugs face impending patent expiries. Stelara's U.S. patent expired in 2023 (with European exclusivity ending by 2024), and biosimilars are entering markets. Tremfya and Darzalex also have finite protection; for example, Darzalex's U.S. patents extend only into ~2028, after which biosimilar entry is likely. When exclusivity ends, sales of these blockbusters are projected to fall sharply. Generic/biosimilar threats loom large: older immunology products (TNF inhibitors, IL?12/23 drugs) will face biosimilars and new rivals (e.g. IL?23 and IL?17 biologics), and newer therapies (e.g. CAR?T and bispecifics in oncology) could erode J&J's share.

Competitive and market risks: J&J's leading products must fend off aggressive competition. In oncology, for example, Darzalex must compete with BMS's and new entrants' myeloma therapies. In immunology, IL-23 drugs like Tremfya face rivals like AbbVie's Skyrizi and Eli Lilly's new agents. Finally, macro factors (e.g. R&D delays, macroeconomic downturns) could amplify these issues. Taken together, litigation exposure, pricing regulation, patent expiration, and competitive threats are material risks to J&J's outlook.

Johnson & Johnson Dividend Analysis

Johnson & Johnson's dividend appears well-supported by its cash flow. The company has kept a moderate payout (~47% of earnings) with a long history of annual raises (~6% CAGR over 510 years. Free cash flow comfortably covers the dividends (the FCF-to-dividend payout ratio is ~66% for JNJ, giving it more cushion than Pfizer (~78% FCF payout) and slightly less than Merck (~48%). For comparison, Pfizer now pays out about half its earnings and has only ~3% annual dividend growth (5?year rate), whereas Merck's payout (~42% of earnings) and growth (~6.5% CAGR) are similar to J&J's. Overall, JNJ's 3.0% yield, double?digit dividend history, and solid FCF coverage suggest its payout is sustainable.

For dividend-focused investors, J&J remains one of the few large-cap pharma names with both yield and growth consistency.

GuruFocus Investor Activity

Johnson & Johnson has seen mixed activity from prominent institutional investors over the past three months. Notable buyers include Ray Dalio (Trades, Portfolio)'s Bridgewater Associates, which modestly increased its position in Q2 2025, signaling confidence in J&J's defensive cash flow profile. In contrast, Ken Fisher (Trades, Portfolio)'s Fisher Asset Management trimmed its holdings, likely as part of broader portfolio rebalancing away from large-cap healthcare. Several other value-oriented funds, such as Dodge & Cox, maintained their positions, indicating steady long-term conviction. Overall, the pattern suggests that while some managers are taking profits following recent stock stability, the company continues to attract interest from funds prioritizing dividend reliability and resilient earnings visibility.

Valuation compared to its peers

J&J currently trades at a forward P/E of roughly 14 (as of July 2025), down from its ~5-year historical average of roughly 1517. (GuruFocus data shows J&J's forward P/E was about 14.66 at end-2023 vs ~17.0 in 2019-2022.) In other words, J&J trades below its recent valuation range. By comparison, many of its large-cap healthcare peers have a wide range of P/E ratios: Merck (MRK) and Pfizer (PFE) trade around 89 forward P/E (reflecting near-term earnings bounce-backs); AbbVie (ABBV) is about 13.5; Novartis (NVS) ~13.5; and higher-growth biotech names like Eli Lilly (LLY) are well over 25. J&J's forward P/E is roughly in the middle of this group. On dividends, J&J yields ~3.3% (3.22% trailing yield), which is above the S&P 500 average, reflecting its mature, cash-generative nature.

Source: Company data

Conclusion

Johnson & Johnson today presents a mixed but coherent investment case: it is simultaneously a cleaner, higher-margin pharmaceutical and MedTech franchise with meaningful cash generation and a traditional income orientation, and a company whose future returns are now materially more sensitive to the success or failure of drug launches, lifecycle programs, and patent timing. Investors must therefore answer the central question posed at the outset: are they buying J&J for durable, defensive income or for focused pharmaceutical upside?

If your priority is income with a conservative tilt, J&J remains an attractive holding: the firm maintains strong cash flow, a long history of dividend increases, and capital allocation flexibility to sustain payouts even through temporary product cycles. If, however, your objective is capital appreciation with a lower tolerance for biotech execution risk, J&J has become a less obvious fit; the company's earnings now depend more on the binary outcomes of trials, approvals, and biosimilar timing than they did pre-Kenvue.

J&J is no longer the ultra-diversified stalwart of old, but as a pharma-led giant with financial strength, it offers investors both resilience and exposure to high-margin growth with the caveat that execution risk is now higher.