J&J's drug business is outgrowing its Stelara loss, but the early deals are unproven

The technology

J&J's drug portfolio spans several approaches. Icotyde (icotrokinra) has started more than 20,000 patients. Talvey, which targets GPRC5D, got a CHMP recommendation with daratumumab in October on MonumenTAL-3 data showing a progression hazard ratio of 0.28 for the three-drug regimen. Carvykti, a CAR-T therapy licensed from Legend Biotech, showed 10 of 20 early-line patients progression free at five years in a small cohort.

The new bets are earlier. J&J agreed in June to buy Firefly Bio for $1 billion for its Firelink degrader antibody conjugate platform aimed at KRAS tumors. In July it signed a collaboration with Sail Biomedicines for in vivo CAR-T in immune-mediated disease, with $785 million in initial payments and an option to buy Sail for $2.58 billion. Neither release cited human data.

The odds

For marketed products, the question is growth and label breadth. Caplyta's first mania trial was positive, with a 4.8-point YMRS advantage over placebo, and a second trial has completed. Success there would extend a drug that already has sales above $1 billion this year.

For early assets, base rates apply. BIO, Informa and QLS data show that 52.0% of programs advance from phase I to phase II and 7.9% reach approval across indications. Preclinical platforms start before that. In vivo CAR-T has no disclosed clinical results in J&J's materials.

The money

Third-quarter sales were $25.4 billion, up 5.9%, with Innovative Medicine up 7.7% and MedTech up 2.5%. The 10-Q shows $16.91 billion of cash and $318 million of marketable securities against loans and notes of $8.85 billion and long-term debt of $35.80 billion. Management guided 2026 adjusted EPS to $11.05 to $11.15 and free cash flow to about $21 billion.

Deals cost earnings. Firefly and Sail together reduce 2026 reported EPS by $0.64 and 2027 EPS by $1.36, management said.

The risks

Talc is the largest one. J&J has agreed to pay $5.5 billion to resolve ovarian talc litigation, but only if at least 95% of the remaining ovarian claimants take part. Management says the company is trending to meet that threshold, and the outcome is not final.

Stelara cost Innovative Medicine about 690 basis points of growth in the third quarter. MedTech growth of 2.5% fell short of management's expectations, and the planned separation of DePuy Synthes, on track for mid-2027, adds execution work, with a spin as the leading option. The Talvey three-drug regimen also carried grade 3 or 4 adverse events in 94.9% of patients in MonumenTAL-3.

Our read

J&J's drug business is the stronger half of the story. It lost a major product and still grew, and its newer medicines carry the growth. The unresolved items are talc and MedTech, and both are specific and dated. The early deals are the part to watch carefully: J&J has committed about $1.8 billion in upfront and acquisition cash ($785 million to Sail and $1 billion for Firefly) to in vivo CAR-T and KRAS degraders, with no human data public, and has told investors they will cost earnings through 2027. The next dated checks are the Q4 readouts and the December 8 business review, where management has said it will give 2027 outlook details.

One more point on cash. Management said third-quarter free cash flow was above $6 billion and full-year free cash flow should be about $21 billion, which gives J&J room to fund talc payments, deals and its dividend while it works through the Stelara decline. It also gives the company more room than most to pay for options that may take years to resolve.