J&J's unstoppable profit engine sputters after $6.9B talc litigation charge

Johnson & Johnson is typically a profit-generating machine. That is until a massive litigation-related bill hits the books.

A $6.9 billion charge tied to J&J’s talc defense spurred a net earnings loss of $68 million in 2023’s first quarter, the company reported Tuesday.

J&J is currently defending itself against tens of thousands of lawsuits claiming its popular talc-based products cause cancer. The company continues to maintain that its products are safe and that its attempts to resolve the cases aren’t an admission of wrongdoing.

The crux of J&J’s strategy comes down to a controversial maneuver known as the Texas two-step, under which the pharma is attempting to funnel lawsuits into a new company, LTL Management, which it aims to declare bankrupt. After one unsuccessful try with LTL, the company is doubling down. A hearing on the company's second attempt is set for Tuesday.

LTL is working through the bankruptcy process and expects to present its reorganization plan in mid-May, J&J's CFO Joe Wolk said on a conference call Tuesday. That plan has garnered “significant support from claimants” and includes a payment worth $8.9 billion over a 25-year stretch, he added. The company recorded a $6.9 billion charge related to the proposed deal in its first-quarter financial results.

Regarding that payout, Wolk said that from his position as CFO, “it is unfortunate that we’ve got to put dollars towards, quite frankly, baseless scientific claims.”

The executive’s comments came as J&J reported worldwide first-quarter sales of $24.7 billion, a 5.6% increase from the same period last year.

Despite “many pushes and pulls,” J&J is sticking by its plan to deliver around $60 billion in pharma sales by 2025, Wolk said. While drugs like Darzalex, Erleada, Carvykti and Xarelto are growing, the CFO flagged competition to the company’s AbbVie-partnered cancer med Imbruvica “above what was anticipated in 2021.”

Elsewhere, Legend Biotech-partnered CAR-T drug Carvykti pulled down $72 million for the three-month stretch. Nasal depression spray Spravato generated $131 million over the period, and J&J also got a surprise revenue bump from its COVID-19 vaccine overseas.

J&J's vaccine pulled down $747 million worldwide in the first quarter, a 63.4% jump from $457 million for the same period in 2022.

One unknown in the immediate future is Stelara, J&J’s immunology blockbuster, which the company continues to assume will lose U.S. exclusivity late in the third quarter or early in the fourth, according to Wolk.

For the full year, J&J has ratcheted up its revenue guidance by about $1 billion. The company now expects to earn between $97.9 billion to $98.9 billion for the 12-month period, up from a previously forecasted range of $96.9 billion to $97.9 billion.

J&J is also in the process of spinning out its consumer health arm under the name Kenvue. The company unveiled the spinoff plan back in November 2021 and set up Kenvue's leadership in May 2022. J&J has said the process should be complete by later this year.