Despite a full-year Q4 2024 earnings beat, Johnson & Johnson stock piled up.

Johnson & Johnson ( JNJ ) beat its fourth-quarter and full-year 2024 results, but the stock fell to $143 per share Wednesday morning.

Although the company beat Wall Street’s revenue expectations by $70 million and reported earnings per share in line with estimates, many negative effects were highlighted in hindsight and on the earnings call.

J&J expects total sales of $88.8 billion for 2024, up 4.3 percent from 2023. That includes declining sales of the Covid-19 vaccine — a theme that other vaccine makers are expected to see slow during this year’s respiratory virus season.

The company reported 5.79 earnings per share for 2024, up 11% year-over-year.

Meanwhile, fourth-quarter earnings were mixed, with sales of $22 billion, up 5.3 percent year over year, and earnings per share down 1.41 percent from last year.

But the good news is tempered somewhat by the ongoing talc issue weighing on its growth potential. The case in Texas is scheduled to go to trial on February 18 and last up to a month.

“The company then expects the plaintiffs’ attorneys to appeal (if affirmative) to the Texas 5th Circuit, which may be more favorable on the bankruptcy standard (this additional exception is prepackaged bankruptcy),” JPMorgan analysts wrote in a recent note to clients. .

Ahead of earnings, analysts at Bank of America Securities lowered the company’s price target to $160 per share in 2025 from $166 on ongoing concerns over the talc lawsuit.

In addition to the lawsuit, J&J is expected to have some negative effects of foreign exchange during the year, as well as a slowdown in medical equipment sales, a slowdown in China’s operations may bring the company’s earnings.

As Stelara launches a generic for its blockbuster anti-inflammatory arthritis drug, the company is moving into a competitive market. The drug is currently facing price pressures from renegotiated pricing with Medicare, one of its largest customer bases.

Meanwhile, growth in the fourth quarter came from a multiple myeloma drug, Darzalex, and several cancer drugs. Combined sales of the top six drugs were about $4.5 billion, or 20 percent of revenue in the quarter.

J&J announced it will acquire mental health disorder drug maker Intra-Cellular (ITCI) for $14.6 billion at JPMorgan’s annual healthcare conference earlier this month.

The company reported full cash flow of $20 billion last year, up from $1.6 billion in 2023.

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It has a drug called Intracellular Capleta that J&J hopes will soon be approved for use in mental health disorders. But the company expects the deal to be largely debt-financed.

“We plan to finance it primarily with debt. We are not planning any immediate cost combinations. Instead, we will accelerate our entry into the markets in Capilla, explore additional geographies to commercialize the portfolio, accelerate research and development, and look forward to expansion. New indicators,” CFO Joe Wolk said on the earnings call. .

Although Intra-Cellular set the baseline for the year’s M&A in biotech as the biggest deal, experts believe J&J hasn’t passed it. It has been slowly acquiring smaller biotechs in recent years.

“The company has the potential to expand into either pharma or medtech, and it’s understood very well in both areas over the past several years. Net debt now stands at $12 billion, which will be paid off at FCF over the next several quarters. It hasn’t found meaningful business development,” Mizuho healthcare expert Jared Holz told clients. he wrote in a memo on Wednesday.

CEO Joaquin Duato dropped a lot of hints on the earnings call.

“External innovation is a very important part of our capital allocation strategy for Johnson & Johnson … and in fact we are one of the top investors not only in M&A but also in R&D. We are always looking for opportunities to grow our portfolio and our pipeline,” Duato said.

According to a recent report by BofA analysts, J&J spends 17% of its revenue on R&D, which is less than the US peer group average of 19%.

Anjali Kemlani He is a senior health reporter at Yahoo Finance, covering all things pharma, insurance, managed care, digital health, PBMs, and health policy and politics. It certainly includes GLP-1s. Follow Anjalee on social media platforms X (Twitter), LinkedIn Bluesky @AnjKhem.

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