Johnson and Johnson (NYSE:JNJ): Firmly on the Big Pharma M&A bandwagon

Johnson and Johnson (NYSE:JNJ) is arguably one of the big pharma companies least at risk from the Patent cliff. It doesn’t have the lowest share, at 33% but is below the average at 38% and below peers like Amgen and Merck which are both over 50%. But what’s more is that Johnson and Johnson is on a spending spree to immunise itself in the years ahead.

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Overview of Johnson and Johnson and its histry

Johnson and Johnson began in 1886 in New Brunswick, New Jersey where it remains based today. New Brunswick is roughly halfway between Newark and Princeton University, although New Brunswick has Rutgers University nearby.

It is named after the brothers who founded it – two of whom fought in the Civil War and another worked as a pharmacist’s apprentice. True to the brothers’ experiences, its first focus was wound care where early innovations included sterile absorbent cotton and surgical sutures. Further innovation was not just making these products, but teaching physicians how to use them as well as making them on a mass scale.

Other highlights in the company’s history included aiding in the disaster relief of multiple disasters including the 1900 Galveston Hurricane, the 1906 San Francisco Earthquake as well as the Great Depression. It listed in 1944 and expanded overseas in the 1950s. Later innovations included leukaemia treatment Leustatin and the Acuvue Brand contact lenses. The innovations in the 21st century continued included treatments for cancer and other infections including gastrointestinal infections.

These days its 4 key drugs are:

• Darzalex (accounting for 13.1% of revenue),
• Stelara (11.6%)
• Tremfya (6.4%)
• Erleada (5.3%).

In 2024, it made US$88.8bn revenue (up 4.3%) and net earnings of US$14bn (up 6%).

The 2020s are a decade of transition

2021 was a key year for Johnson and Johnson. The spin would allow J&J to concentrate on its higher-margin businesses: Innovative Medicine (pharma) and MedTech. J&J has recently announced plans to spin off its orthopedics business (DePuy Synthes), but more on that shortly.

2022 saw the hiring of current CEO Joaquin Duato, who was only the 8th CEO in history and worked his way up having begun his career with the company in Spain in 1989.

The company is facing the Patent Cliff like its peers and it is relatively better positioned than other companies. Merck for instance faces 56% of its revenue coming off patent, the bulk of which is Keytruda. For Johnson and Johnson, it is not the case that a huge portion of its revenue is off patent, but some is. Stelara is a big risk.

But more importantly, the company has been dealmaking to the extent few other peers have been. It spent US$16.6bn on Abiomed in 2022, adding a heart pump business to its stable. Then it bought Shockwave Medical for US$13.1bn, adding cardiovascular technology. In 2025, it bought Intra-Cullular Therapies for US$14.6bn and Halda Therapeutics for US$3.05bn which is focused on precision oncology.

J&J continues to invest heavily in R&D; its long-term plan (per its “Enterprise Business Review”) targets 20+ novel therapies and 50+ product expansions by 2030.

The short term outlook

Johnson and Johnson expects at least 3% operational sales growth in 2025, despite biosimilar pressure on Stelara. In the longer term, the company is targeting 5-7% CAGR for its Innovative Medicine and MedTech through to 2030. The company expects its pipeline (via innovation + M&A) to generate multiple >US$5bn potential assets” by 2030.

Analysts covering Johnson and Johnson shares have a mean price roughly in line with the current share price, despite expecting $5bn revenue growth to $93.7bn and for EPS to grow from US$5.79 t0 $11.06. But it’s P/E for 2026 is just 17.4x.

Of course, there is no guarantee that all the company’s bets will all pay off, at least not quick enough to stave off the impact of the patent cliff. Other risks include competition from other Big Pharma company, integration risk, and also broader political and regulatory risks.

However, strong cash flow and a diversified business give J&J the financial firepower to make big bets. The company’s disciplined capital allocation (balancing R&D, M&A, and dividends) will be key towards supporting long-term innovation without compromising stability.

And so overall, we think there is more to like than loathe about this stock.