J&J to spin off orthopedics business, sees 2026 sales growth of over 5%

The Johnson & Johnson logo appears above a trading post on the floor of the New York Stock Exchange. (AP Photo/Richard Drew, file)

Johnson & Johnson said on Tuesday it plans to separate its orthopedics business into a standalone company within the next 18 to 24 months, marking its second major spinoff in two years as it sharpens focus on higher-growth healthcare segments.

J&J also outlined expectations for faster growth into 2026, driven by new drug launches and a strengthened medical devices portfolio.

The company said it expects total revenue growth to exceed five per cent next year, above current analysts’ estimates of 4.6 per cent, and adjusted earnings to top Wall Street estimates of US$11.39 per share by as much as five cents.

J&J’s orthopedics unit, which makes hip, knee, and shoulder implants, surgical instruments, and other products, generated around $9.2 billion last year, or about 10 per cent of total revenue.

Post spinoff, the business, to be named DePuy Synthes, will be led by industry veteran Namal Nawana, the company said.

Shares of the New Jersey-based healthcare company were down 1.8 per cent. They are up 32 per cent so far this year, compared with a three per cent rise in the broader S&P Healthcare Index.

Guggenheim analysts said the stock’s recent rally could limit any further upside.

Brian Mulberry, portfolio manager at Zacks Investment Management, which owns J&J shares, said there are some valid concerns around spinning off the orthopedics division.

“It’s roughly 10 per cent of revenue generation and it is a fairly large strategic pivot to make,” he said, adding that J&J stock might also be down on revived worries around trade and tariffs with China impacting the market broadly.

Restructuring becomes spinoff plan

J&J in 2023 announced a two-year restructuring program for its orthopedics business, saying it planned to exit certain markets and stop selling some products, after having recently spun off its $15 billion consumer unit into Kenvue.

J.P. Morgan analysts said the orthopedics division represents about 30 per cent of J&J’s MedTech segment, generating growth below the rest of the portfolio, and the planned spin-off “should create a faster-growing J&J over time.”

The company said the move aligns with its focus on high-growth, high-margin areas such as oncology, immunology, neuroscience, surgery, vision care and cardiovascular products.

J&J Chief Financial Officer Joe Wolk said the company was exploring multiple paths for the separation, with a primary focus on a tax-free spinoff, but remained open to other options.

While the orthopedics business was profitable, Wolk said J&J believes the next phase of innovation in orthopedics was “beyond our scope and probably in better hands somewhere else.”

Wolk, on a call with investors and analysts, said the separation process was already underway, but the company does not expect further material updates on the transaction until mid-2026.

Slight profit beat, forecast raise

J&J on Tuesday also raised its 2025 sales forecast after reporting quarterly earnings that topped Wall Street expectations.

The company tweaked its 2025 product revenue forecast and now expects $93.5 billion to $93.9 billion, about $300 million higher than its prior view, and above analysts’ expectations of $93.4 billion, according to LSEG data.

Third-quarter sales of $23.99 billion edged past Wall Street expectations of $23.75 billion.

The drugs and medical device maker posted adjusted earnings of $2.80 per share, topping analysts’ expectations by 4 cents.

The company’s pharmaceuticals sales jumped 6.8 per cent from a year ago to $15.56 billion, slightly outpacing analysts’ estimates of $15.42 billion.

Blood cancer treatment Darzalex brought in third-quarter sales of $3.67 billion, about in line with forecasts of $3.62 billion.

Its medical device sales also rose 6.8 per cent to $8.43 billion, mainly driven by electrophysiology products.

J.P. Morgan analysts said J&J remains “one of the cleaner stories” among large healthcare companies as it moves past the loss of exclusivity for its blockbuster drug Stelara and benefits from steady growth across its core portfolio.

Separately, CEO Joaquin Duato declined to comment on reports that the company was in talks to acquire Protagonist Therapeutics PTGX.O.

J&J already “owns the majority of the value” of the biotech’s main asset through a 2017 global licensing deal, he told CNBC.

“We have a great working relationship with Protagonist, and we are very happy with that arrangement.”

(Reporting by Patrick Wingrove in New York and Mrinalika Roy in Bengaluru; Editing by Bill Berkrot)