Johnson & Johnson is doing 'great things for patients,' CFO says

Key Concepts

• Drug Pricing & Rebates: The complex system of discounts, rebates, and co-pays impacting patient costs.
• Pharmacy Benefit Managers (PBMs): Intermediaries between drug manufacturers, insurance companies, and pharmacies, and their role in pricing.
• Stellara Patent Expiration: The impact of losing patent exclusivity on a blockbuster drug and strategies for mitigating revenue loss.
• Electrophysiology & Ablation: A medical procedure to correct irregular heartbeats using electrical impulses. Pulse Field Ablation (PFA) is a newer, potentially safer technique.
• Innovation & R&D: Johnson & Johnson’s focus on research and development across pharmaceuticals, medtech, and vision care.
• MFN (Most Favored Nation) Deals: Agreements to reduce drug prices for patients.
• Co-pay Accumulators: Insurance practices preventing co-pay assistance from counting towards deductibles.

Johnson & Johnson: Navigating Drug Pricing, Patent Expiration & Future Growth

Introduction

This discussion features Joseph Woke, CFO of Johnson & Johnson (J&J), addressing concerns surrounding President’s initiatives to cut drug prices, the impact of patent expirations, and the company’s strategies for sustained growth. The conversation highlights the complexities of the pharmaceutical pricing system and J&J’s commitment to innovation.

Drug Pricing & the Role of Intermediaries

The core of the discussion revolves around President’s push to lower drug prices by 90%. Woke acknowledges the benefit to patients and consumers but emphasizes the intricacies of the current system. He points out that 50-60% of every drug dollar is already returned to the system through discounts and rebates, yet patients aren’t seeing those savings.

Woke argues the focus needs to shift to Pharmacy Benefit Managers (PBMs) and insurance companies, advocating for greater transparency. He specifically cites “co-pay accumulators” – a practice where insurance companies don’t count patient co-pay assistance programs towards their deductible, effectively negating the benefit. He stated, “We actually provide a voucher to the patient to reduce their co-pay. That is not allowed by the insurance companies to count against their deductible.” President’s stated intention to “get rid of the middlemen” is acknowledged as a potentially positive development.

Recent MFN Deals & Price Reductions

J&J has proactively engaged in reducing drug prices through “MFN (Most Favored Nation) deals,” resulting in hundreds of millions of dollars in savings for patients. These reductions are already factored into the company’s 2026 forecast, which is exceeding Wall Street expectations.

Addressing the Stellara Patent Expiration

The expiration of the patent for Stellara, a blockbuster autoimmune treatment, was a significant concern. Woke reports a 45% reduction in Stellara sales, equating to $4.4 billion. However, despite this loss, J&J’s pharmaceutical unit grew by 5% operationally in the past year, reaching $60 billion in revenue. The company anticipates a “steady cadence of growth” with a projected double-digit earnings and sales cadence by the later years of the decade.

Revitalizing Electrophysiology Sales

The discussion addresses a deceleration in sales within J&J’s electrophysiology division. Electrophysiology involves monitoring the heart’s electrical pulses and using ablation to correct malfunctions. Woke explains that J&J was previously a market leader but fell behind in innovation, specifically regarding “pulse field ablation” (PFA).

PFA is a newer technique considered faster and safer than traditional “RF ablation.” J&J has now launched a PFA product and plans to release one to two new catheters annually for the next few years, aiming to regain market leadership. He described the procedure as, “we see where the circuit is um kind of malfunctioning and then ablate it to repair the hard procedure so that it's pumping appropriately on the right cadence.”

Innovation as a Core Strategy & Future Growth Areas

Woke emphasizes J&J’s commitment to innovation as a 140-year cornerstone of the company. Under the leadership of CEO Waqen, the company is focused on three key areas within pharmaceuticals: oncology, immunology, and neuroscience.

In medtech, J&J is prioritizing cardiovascular (as the fastest-growing segment), surgery (with a pending FDA approval for a digital robot), and vision care. Woke stated, “We’re going to do what we’ve done for 140 years, and that’s continue to innovate and go to where there’s areas of unmet medical need.” The company is shifting towards not just treatments, but also cures.

Stock Performance & External Factors

Despite recent challenges, J&J’s stock has performed well, increasing by over 47% in the past year. Woke acknowledges potential headwinds from tariffs, but reiterates the company’s long-term focus on innovation and patient care.

Conclusion

J&J is actively navigating a complex landscape of drug pricing pressures, patent expirations, and evolving medical technologies. The company’s strategy centers on continued innovation across its core business segments, a commitment to addressing unmet medical needs, and a proactive approach to adapting to changing market dynamics. Woke’s message underscores J&J’s long-term perspective and dedication to delivering value to patients and investors. He concluded with, “We’re there for the long term, Liz.”