Despite beating third-quarter estimates with adjusted earnings of $2.59 per share versus the expected $2.53, Johnson & Johnson shares fell more than 5% on Tuesday. According to reports from LSEG, the pharmaceutical giant raised its sales forecast, yet the market reaction was primarily driven by weakness in its medical device unit. The company's drug unit generated $16.76 billion, representing about 66% of quarterly sales, while drug sales rose 7.7% during the quarter. The GAAP earnings figure of $0.09 per share reflects a one-time special charge for proposed talc litigation resolution and acquisition costs, while adjusted EPS also absorbs the impact of M&A deals.
The medical device segment emerged as the primary concern, with sales rising only 2.5% to $8.64 billion, falling short of analyst expectations of $8.71 billion. As reported by LSEG, device sales in the U.S. rose 4.8%, while sales elsewhere remained essentially flat. Chief Financial Officer Joe Wolk attributed the weakness to Gulf governments shifting budgets to defense, European austerity, and pricing pressure in China. Additionally, Abiomed, J&J's heart pump unit, faces scrutiny from a U.K. study questioning the device's benefits in high-risk procedures. Cardiovascular is now MedTech's largest and fastest-growing unit through electrophysiology, Shockwave and Abiomed, but the market wanted acceleration there to offset Stelara biosimilar erosion on the pharma side.
While the drug unit delivered strong results with Tremfya treatment jumping 68.3% to nearly $2.4 billion and Darzalex reaching $4.24 billion, it fell short of analyst expectations of $4.4 billion. According to reports from LSEG, the pharmaceutical segment's 7.7% growth was unable to offset the medical device unit's underperformance. Only Merck has outperformed J&J among the largest holdings of the iShares US Pharmaceuticals ETF this year, highlighting the sector's current challenges. Pipeline news was dense, with J&J highlighting market authorization for OTTAVA, described as the world's first table-integrated soft tissue robotic surgical system, approval of IMAAVY in warm autoimmune hemolytic anemia, and priority review for RYBREVANT FASPRO in advanced head and neck cancer.
Looking ahead, J&J raised full-year guidance with 2026 reported sales expected at $101.2 billion at the midpoint, representing 7.4% growth, up from the $101.1 billion midpoint set in July. This puts the company on track for its first year above $100 billion in annual revenue in its 140-year history. Adjusted EPS guidance rose by $0.06 to $11.10 at the midpoint, 2.9% growth, though it includes dilution from acquisitions. The company plans to spin off DePuy Synthes, its orthopedics unit, by mid-2027, following the Kenvue consumer health spinoff. As reported by CNBC, Chief Financial Officer Joe Wolk indicated that depressed medtech valuations favor buyers, making a spin-off more attractive than a sale. The stock pattern repeats J&J's July print, when the company beat and raised guidance but the stock fell 2.7% before recovering 7.7% over following weeks, with health care investors learning to treat guidance raises as expected and trade the segment mix instead.
