Item 2. Management’s discussion and analysis of financial condition and results of operations

Results of operations

Sales to customers

Analysis of consolidated sales

For the fiscal six months of 2025, worldwide sales were $45.6 billion, a total increase of 4.1%, including an operational* increase of 4.4% as compared to 2024 fiscal six months sales of $43.8 billion. Currency fluctuations had a negative impact of 0.3% for the fiscal six months of 2025. In the fiscal six months of 2025, acquisitions and divestitures had net positive impact of 1.3% on worldwide operational sales growth. In the fiscal six months of 2025, the negative impact of the Stelara sales decline, due to biosimilar competition, on worldwide operational sales was approximately 5.9%.

Sales by U.S. companies were $25.8 billion in the fiscal six months of 2025, which represented an increase of 6.9% as compared to the prior year. In the fiscal six months of 2025, acquisitions and divestitures had net positive impact of 2.2% on U.S. operational sales growth. In the fiscal six months of 2025, the negative impact of the Stelara sales decline, due to biosimilar competition on U.S. operational sales was approximately 6.7%. Sales by international companies were $19.8 billion, which represented an increase of 0.7%, including an operational increase of 1.4%, partially offset by a negative currency impact of 0.7% as compared to the fiscal six months sales of 2024. In the fiscal six months of 2025, the net impact of acquisitions and divestitures on international operational sales growth was a positive 0.3%. In the fiscal six months of 2025, the negative impact of the Stelara sales decline, due to biosimilar competition, on international operational sales was approximately 5.0%.

In the fiscal six months of 2025, sales by companies in Europe achieved growth of 1.1%, which included an operational increase of 0.2% and a positive currency impact of 0.9%. Sales by companies in the Western Hemisphere, excluding the U.S., experienced a decline of 1.3%, which included an operational increase of 7.7% offset by negative currency impact of 9.0%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 0.9%, including operational growth of 0.9% and a currency impact of 0.0%.

Fiscal six months 2025 sales by geographic region (in billions)

Fiscal six months 2025 sales by segment (in billions)

Note: values may have been rounded

*operational growth excludes the effect of translational currency

Form 10-Q			41

For the fiscal second quarter of 2025, worldwide sales were $23.7 billion, a total increase of 5.8%, which included operational growth of 4.6% and a currency impact of 1.2% as compared to 2024 fiscal second quarter sales of $22.4 billion. In the fiscal second quarter of 2025, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 1.6%. In the fiscal second quarter of 2025, the negative impact of the Stelara sales decline, due to biosimilar competition, on worldwide operational sales was approximately 7.1%.

Sales by U.S. companies were $13.5 billion in the fiscal second quarter of 2025, which represented an increase of 7.8% as compared to the prior year. In the fiscal second quarter of 2025, the net impact of acquisitions and divestitures on U.S. operational sales growth was a positive 2.8%. In the fiscal second quarter of 2025, the negative impact of the Stelara sales decline, due to biosimilar competition on U.S. operational sales was approximately 8.5%. Sales by international companies were $10.2 billion, a total increase of 3.2%, which included operational growth of 0.6% and a positive currency impact of 2.6%. In the fiscal second quarter of 2025, the net impact of acquisitions and divestitures on international operational sales growth was a positive 0.2%. In the fiscal second quarter of 2025, the negative impact of the Stelara sales decline, due to biosimilar competition, on international operational sales was approximately 5.4%.

In the fiscal second quarter of 2025, sales by companies in Europe achieved growth of 3.3%, which included an operational decline of 1.9% offset by a positive currency impact of 5.2%. Sales by companies in the Western Hemisphere, excluding the U.S., experienced a sales decline of 0.5%, which included operational growth of 6.2% offset by a negative currency impact of 6.7%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 4.4%, which included operational growth of 2.4% and a positive currency impact of 2.0%.

Q2 2025 Sales by Geographic Region (in billions)

Q2 2025 Sales by Segment (in billions)

Note: values may have been rounded

42

Analysis of sales by business segments

Innovative Medicine

Innovative Medicine segment sales in the fiscal six months of 2025 were $29.1 billion, an increase of 3.6% as compared to the same period a year ago, with an operational increase of 4.0% and a negative currency impact of 0.4%. U.S. Innovative Medicine sales increased 7.0% as compared to the same period a year ago. International Innovative Medicine sales decreased by 0.9%, including an operational decline of 0.1% and a negative currency impact of 0.8%. In the fiscal six months of 2025, the net impact of acquisitions and divestitures on the Innovative Medicine segment operational sales growth was a positive 0.7%, primarily related to CAPLYTA. In the fiscal six months of 2025, the negative impact of the STELARA sales decline, due to biosimilar competition, was an approximate 9.9%, 11.0% and 8.6% on worldwide, U.S. and international Innovative Medicine segment operational sales, respectively.

Major Innovative Medicine therapeutic area sales — Fiscal Six Months Ended

(Dollars in Millions)			June 29, 2025						June 30, 2024						Total Change			Operations Change			Currency Change
Oncology			$11,990						$9,904						21.1		%	21.3		%	(0.2)		%
CARVYKTI			808						343						*			*			*
DARZALEX			6,776						5,570						21.7			22.0			(0.3)
ERLEADA			1,679						1,425						17.8			17.9			(0.1)
IMBRUVICA			1,444						1,554						(7.0)			(6.6)			(0.4)
RYBREVANT/ LAZCLUZE(1)			320						116						*			*			*
TALVEY			192						127						52.0			52.4			(0.4)
TECVAYLI			317						268						18.2			18.7			(0.5)
ZYTIGA/ abiraterone acetate			270						346						(21.7)			(21.9)			0.2
Other Oncology			182						156						16.4			16.8			(0.4)
Immunology			7,700						8,969						(14.1)			(13.6)			(0.5)
REMICADE			922						827						11.5			12.4			(0.9)
SIMPONI/ SIMPONI ARIA			1,349						1,091						23.7			25.1			(1.4)
STELARA			3,278						5,336						(38.6)			(38.2)			(0.4)
TREMFYA			2,142						1,714						25.0			25.4			(0.4)
Other Immunology			9						2						*			*			—
Neuroscience			3,698						3,585						3.2			3.6			(0.4)
CAPLYTA(2)			211						—						*			*			—
CONCERTA/methylphenidate			312						340						(8.3)			(7.1)			(1.2)
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA			1,895						2,110						(10.2)			(9.9)			(0.3)
SPRAVATO			734						496						48.1			48.4			(0.3)
Other Neuroscience			547						639						(14.4)			(13.9)			(0.5)
Pulmonary Hypertension			2,138						2,088						2.4			2.5			(0.1)
OPSUMIT/ OPSYNVI			1,104						1,072						3.0			3.1			(0.1)
UPTRAVI			927						894						3.7			3.8			(0.1)
Other Pulmonary Hypertension			107						123						(12.5)			(12.3)			(0.2)
Infectious Diseases			1,605						1,786						(10.1)			(10.2)			0.1
EDURANT/rilpivirine			718						620						15.9			14.9			1.0
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA			799						856						(6.6)			(6.3)			(0.3)
Other Infectious Diseases(3)			88						311						(71.7)			(71.3)			(0.4)
Cardiovascular / Metabolism / Other			1,943						1,721						12.9			13.3			(0.4)
XARELTO			1,311						1,105						18.6			18.6			—
Other			632						616						2.7			3.9			(1.2)
Total Innovative Medicine Sales			$29,075						$28,052						3.6		%	4.0		%	(0.4)		%

*percentage greater than 100% or not meaningful

Form 10-Q			43

(1) Includes the sales of RYBREVANT and RYBREVANT + LAZCLUZE

(2) Acquired with the Intra-Cellular Therapies acquisition on April 2, 2025

(3) Includes the Covid-19 Vaccine in 2024

Innovative Medicine segment sales in the fiscal second quarter of 2025 were $15.2 billion, an increase of 4.9% as compared to the same period a year ago, including an operational increase of 3.8% and a positive currency impact of 1.1%. U.S. Innovative Medicine sales increased 7.6% as compared to the same period a year ago. International Innovative Medicine sales increased by 1.0%, including an operational decline of 1.6% offset by a positive currency impact of 2.6%. In the fiscal second quarter of 2025, the net impact of acquisitions and divestitures on the worldwide Innovative Medicine segment operational sales growth was a positive 1.4%, related to CAPLYTA. In the fiscal second quarter of 2025, the negative impact of the STELARA sales decline, due to biosimilar competition, was an approximate 11.7%, 13.8% and 9.1% on worldwide, U.S. and international Innovative Medicine segment operational sales, respectively.

Major Innovative Medicine therapeutic area sales — Fiscal Second Quarter Ended

(Dollars in Millions)			June 29, 2025						June 30, 2024						Total Change			Operations Change			Currency Change
Oncology			$6,312						$5,090						24.0		%	22.3		%	1.7		%
CARVYKTI			439						186						*			*			*
DARZALEX			3,539						2,878						23.0			21.5			1.5
ERLEADA			908						736						23.4			21.0			2.4
IMBRUVICA			735						770						(4.5)			(6.6)			2.1
RYBREVANT/ LAZCLUZE(1)			179						69						*			*			*
TALVEY			106						69						55.0			54.3			0.7
TECVAYLI			166						135						23.1			22.4			0.7
ZYTIGA/ abiraterone acetate			145						165						(11.6)			(14.9)			3.3
Other Oncology			93						83						11.7			9.7			2.0
Immunology			3,993						4,722						(15.4)			(16.0)			0.6
REMICADE			455						393						15.9			15.9			0.0
SIMPONI/ SIMPONI ARIA			690						537						28.6			27.5			1.1
STELARA			1,653						2,885						(42.7)			(43.2)			0.5
TREMFYA			1,186						906						31.0			30.1			0.9
Other Immunology			8						2						*			*			—
Neuroscience			2,051						1,782						15.1			14.4			0.7
CAPLYTA(2)			211						—						*			*			—
CONCERTA/ methylphenidate			164						163						0.2			(0.2)			0.4
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA			992						1,054						(5.9)			(6.3)			0.4
SPRAVATO			414						271						53.3			53.0			0.3
Other Neuroscience			270						294						(8.4)			(10.7)			2.3
Pulmonary Hypertension			1,113						1,039						7.1			6.2			0.9
OPSUMIT/ OPSYNVI			582						548						6.4			5.4			1.0
UPTRAVI			476						426						11.7			11.3			0.4
Other Pulmonary Hypertension			55						67						(16.9)			(19.0)			2.1
Infectious Diseases			803						965						(16.8)			(19.0)			2.2
EDURANT/rilpivirine			360						297						21.6			15.5			6.1
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA			396						438						(9.4)			(10.0)			0.6
Other Infectious Diseases(3)			47						233						(79.8)			(79.9)			0.1
Cardiovascular / Metabolism / Other			930						892						4.2			4.0			0.2
XARELTO			621						587						5.6			5.6			—
Other			309						305						1.4			0.9			0.5
Total Innovative Medicine Sales			$15,202						$14,490						4.9		%	3.8		%	1.1		%

*percentage greater than 100% or not meaningful

44

(1) Includes the sales of RYBREVANT and RYBREVANT + LAZCLUZE

(2) Acquired with the Intra-Cellular Therapies acquisition on April 2, 2025

(3) Includes the Covid-19 Vaccine in 2024

Oncology products achieved operational sales growth of 22.3% as compared to the same period a year ago. Strong sales of DARZALEX (daratumumab) were driven by continued share gains and market growth. Growth of ERLEADA (apalutamide) was due to continued share gains and market growth partially offset by the impact of Medicare Part D redesign. Increased sales of CARVYKTI (ciltacabtagene autoleucel) were driven by continued share gains and capacity expansion. Additionally, sales from the ongoing launches of TECVAYLI (teclistamab-cqyv), TALVEY (talquetamab-tgvs) and RYBREVANT (amivantamab)/LAZCLUZE (lazertinib) contributed to the growth. Growth was partially offset by ZYTIGA (abiraterone acetate) due to loss of exclusivity and IMBRUVICA (ibrutinib) declines due to competitive pressures and the impact of Medicare Part D redesign.

Immunology products experienced an operational decline of 16.0% as compared to the same period a year ago primarily due to the decline of STELARA (ustekinumab) sales driven by the impact of biosimilar competition and Medicare Part D redesign. The growth of TREMFYA (guselkumab) was due to share gains, market growth and launch-related inventory dynamics partially offset by the impact of Medicare Part D redesign. The increase in SIMPONI/SIMPONI ARIA sales was primarily driven by the Merck, Sharp & Dohme return of rights in Europe in the fiscal fourth quarter of 2024. The increase in REMICADE (infliximab) sales was due to favorable patient mix, market growth, and the Merck, Sharp & Dohme return of rights in Europe, partially offset by biosimilar competition.

Sales of STELARA in the United States were approximately $6.7 billion in fiscal 2024. Third parties have filed abbreviated Biologics License Applications with the FDA seeking approval to market biosimilar versions of STELARA. The Company has settled certain litigation under the Biosimilar Price Competition and Innovation Act of 2009. According to patent settlement and license agreements, the Company expects continued launches of biosimilar versions of STELARA in Europe and the United States in 2025 which will impact the Company’s sales of STELARA.

Neuroscience products, which include sales of CAPLYTA (lumateperone) acquired with the Intra-Cellular Therapies (Intra-Cellular) acquisition on April 2, 2025, achieved operational growth of 14.4% as compared to the same period a year ago. Growth of SPRAVATO (esketamine) was driven by continued increased physician and patient demand. Growth was partially offset by the sales decline of INVEGA SUSTENNA / XEPLION / INVEGA TRINZA / TREVICTA primarily due to the impact of Medicare Part D redesign and unfavorable patient mix.

Pulmonary Hypertension products achieved operational sales growth of 6.2% as compared to the same period a year ago. Sales growth of OPSUMIT (macitentan)/ OPSYNVI (macitentan/tadalafil) were driven by market growth, inventory dynamics, and share gains partially offset by the impact of Medicare Part D redesign. The sales growth of UPTRAVI (selexipag) was driven by market growth and inventory dynamics partially offset by the impact of Medicare Part D redesign.

Infectious disease products experienced an operational sales decline of 19.0% as compared to the same period a year ago primarily driven by declines across the portfolio including COVID-19 vaccine revenue in Other Infectious Diseases. The decline was partially offset by growth of EDURANT/rilpivirine.

Cardiovascular / Metabolism / Other products achieved operational growth of 4.0% as compared to the same period a year ago. The growth of XARELTO (rivaroxaban) sales was primarily driven by the impact of Medicare Part D redesign and market growth partially offset by continued share declines.

The Inflation Reduction Act (IRA) contains provisions that redesign the Medicare Part D benefit in various ways, including by shifting a greater portion of costs to manufacturers within certain coverage phases and replacing the Part D coverage gap discount program with a new manufacturer discounting program.

The Company maintains a policy that no end customer will be permitted direct delivery of product to a location other than the billing location. This policy impacts contract pharmacy transactions involving non-grantee 340B covered entities for most of the Company’s drugs, subject to multiple exceptions. Both grantee and non-grantee covered entities can maintain certain contract pharmacy arrangements under policy exceptions. The Company has been and will continue to offer 340B discounts to covered entities on all of its covered outpatient drugs, and it believes its policy will improve its ability to identify inappropriate duplicate discounts and diversion prohibited by the 340B statute. The 340B Drug Pricing Program is a U.S. federal government program requiring drug manufacturers to provide significant discounts on covered outpatient drugs to covered entities.

Form 10-Q			45

MedTech

The MedTech segment sales in the fiscal six months of 2025 were $16.6 billion, an increase of 5.0% as compared to the same period a year ago, with an operational increase of 5.1% and a negative currency impact of 0.1%. U.S. MedTech sales increased by 6.6%. International MedTech sales increased by 3.3%, including an operational increase of 3.6% and a negative currency impact of 0.3%. In the fiscal six months of 2025, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 2.4%, primarily related to the Shockwave acquisition.

Major MedTech franchise sales — Fiscal Six Months Ended

(Dollars in Millions)			June 29, 2025						June 30, 2024						Total Change			Operations Change			Currency Change
Surgery			$4,951						$4,904						1.0		%	1.5		%	(0.5)		%
Advanced			2,237						2,228						0.4			0.8			(0.4)
General			2,714						2,676						1.4			2.0			(0.6)
Orthopaedics			4,546						4,652						(2.3)			(2.3)			0.0
Hips			830						839						(1.1)			(1.1)			0.0
Knees			778						795						(2.0)			(2.0)			0.0
Trauma			1,540						1,524						1.1			1.0			0.1
Spine, Sports & Other			1,398						1,495						(6.5)			(6.7)			0.2
Cardiovascular			4,416						3,679						20.0			20.0			0.0
Electrophysiology			2,791						2,667						4.7			4.7			0.0
Abiomed			868						750						15.7			15.5			0.2
Shockwave (1)			550						77						*			*			—
Other Cardiovascular			207						185						11.7			11.8			(0.1)
Vision			2,648						2,543						4.1			4.2			(0.1)
Contact Lenses/Other			1,884						1,828						3.1			2.8			0.3
Surgical			764						715						6.9			7.6			(0.7)
Total MedTech Sales			$16,561						$15,778						5.0		%	5.1		%	(0.1)		%

*Percentage greater than 100% or not meaningful

(1) Acquired on May 31, 2024

46

MedTech segment sales in the fiscal second quarter of 2025 were $8.5 billion, an increase of 7.3% as compared to the same period a year ago, which included operational growth of 6.1% and a positive currency impact of 1.2%. U.S. MedTech sales increased by 8.0%. International MedTech sales increased by 6.7%, including operational growth of 4.1% and a positive currency impact of 2.6%. In the fiscal second quarter of 2025, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 2.0%, primarily related to the Shockwave acquisition.

Major MedTech franchise sales — Fiscal Second Quarter Ended

(Dollars in Millions)			June 29, 2025						June 30, 2024						Total Change			Operations Change			Currency Change
Surgery			$2,555						$2,488						2.7		%	1.8		%	0.9		%
Advanced			1,164						1,141						2.0			1.0			1.0
General			1,391						1,346						3.3			2.5			0.8
Orthopaedics			2,305						2,312						(0.3)			(1.6)			1.3
Hips			421						417						1.0			(0.2)			1.2
Knees			389						394						(1.1)			(2.3)			1.2
Trauma			768						759						1.2			(0.1)			1.3
Spine, Sports & Other			727						743						(2.1)			(3.7)			1.6
Cardiovascular			2,313						1,873						23.5			22.3			1.2
Electrophysiology			1,468						1,323						11.0			9.8			1.2
Abiomed			448						379						18.2			16.9			1.3
Shockwave(1)			292						77						*			*			—
Other Cardiovascular			104						93						10.8			9.7			1.1
Vision			1,369						1,285						6.5			4.6			1.9
Contact Lenses/Other			965						918						5.1			2.9			2.2
Surgical			403						367						9.9			8.9			1.0
Total MedTech Sales			$8,541						$7,957						7.3		%	6.1		%	1.2		%

*Percentage greater than 100% or not meaningful

(1) Acquired on May 31, 2024

The Surgery franchise achieved operational sales growth of 1.8% as compared to the prior year fiscal second quarter. The operational growth in Advanced Surgery was primarily due to the strength of the portfolio and commercial execution in Biosurgery and strategic price actions in Endocutters. The growth was partially offset by the negative impact of China volume-based procurement and competitive pressures in Energy and Endocutters. The operational growth in General Surgery was primarily driven by technology penetration and upgrades within the differentiated Wound Closure portfolio.

The Orthopaedics franchise experienced an operational sales decline of 1.6% as compared to the prior year fiscal second quarter. All platforms were impacted by revenue disruption from the previously announced Orthopaedics restructuring. The operational decline in Hips reflects the negative impact of China volume-based procurement and trade inventory dynamics partially offset by procedure growth. The operational decline in Knees was driven by competitive pressures and market headwinds, partially offset by strength of the ATTUNE portfolio and pull through related to the VELYS Robotic assisted solutions. The operational decline in Trauma was primarily driven by the lapping of the strong prior year comparator partially offset by recently launched products, procedure growth and commercial execution. The operational sales decline in Spine, Sports & Other reflects competitive pressures, price pressures in the U.S. Early Interventional segment and China volume-based procurement.

The Cardiovascular franchise, which includes sales from Shockwave Medical (Shockwave) acquired on May 31, 2024, achieved operational sales growth of 22.3% as compared to the prior year fiscal second quarter. Abiomed sales growth was driven by the continued strong adoption of Impella 5.5 and Impella CP. Electrophysiology sales growth was driven by strength in competitive mapping, new product performance, procedure growth, and lapping of prior year inventory dynamics in China partially offset by competitive pressures in Pulsed Field Ablation catheters.

The Vision franchise achieved operational sales growth of 4.6% as compared to the prior year fiscal second quarter. The Contact Lenses/Other operational growth was driven by price actions and continued strong performance in the ACUVUE OASYS 1-Day family of products (including recent launches). The Surgical operational growth was primarily driven by the continued strength of recent innovations and commercial execution.

Form 10-Q			47

Analysis of consolidated earnings before provision for taxes on income

Consolidated earnings before provision for taxes on income for the fiscal six months of 2025 was $20.1 billion representing 44.1% of sales as compared to $9.5 billion in the fiscal six months of 2024, representing 21.6% of sales. The fiscal six months of 2025 includes the reversal of approximately $7.0 billion, a significant portion of the previously accrued talc reserve. The fiscal six months of 2024 includes charges for talc matters of approximately $3.0 billion.

Consolidated earnings before provision for taxes on income for the fiscal second quarter of 2025 was $6.5 billion representing 27.3% of sales as compared to $5.7 billion in the fiscal second quarter of 2024, representing 25.6% of sales.

Cost of products sold

(Dollars in billions. Percentages in chart are as a percent to total sales)

Fiscal six months Q2 2025 versus Fiscal six months Q2 2024

Cost of products sold increased as a percent to sales driven by:

• Increased intangible asset amortization expense related to the Intra-Cellular acquisition in the Innovative Medicine business

• Unfavorable product mix driven by the decline of STELARA sales in the Innovative Medicine business

• Unfavorable transactional currency in the Innovative Medicine business

• Macroeconomic factors in the MedTech business

The intangible asset amortization expense included in cost of products sold for the fiscal six months of 2025 and 2024 was $2.4 billion and $2.2 billion, respectively.

Q2 2025 versus Q2 2024

Cost of products sold increased as a percent to sales primarily driven by:

• Unfavorable product mix driven by the decline of STELARA sales in the Innovative Medicine business

• Increased intangible asset amortization expense related to the Intra-Cellular acquisition in the Innovative Medicine business

• Macroeconomic factors in the MedTech business

The intangible asset amortization expense included in cost of products sold for the fiscal second quarters of 2025 and 2024 was $1.3 billion and $1.1 billion, respectively.

48

Selling, marketing and administrative expenses

(Dollars in billions. Percentages in chart are as a percent to total sales)

Fiscal six months Q2 2025 versus Fiscal six months Q2 2024

Selling, Marketing and Administrative Expenses decreased as a percent to sales driven by:

• Corporate administrative expense rationalization

• Planned leverage and phasing of investments in the Innovative Medicine business

partially offset by

• Increased investment in the recent acquisitions of Intra-Cellular and Shockwave

Q2 2025 versus Q2 2024

Selling, Marketing and Administrative Expenses decreased as a percent to sales primarily driven by:

• Corporate administrative expense rationalization

partially offset by

• Increased investment in the recent acquisitions of Intra-Cellular and Shockwave

Research and development expense

Research and development expense by segment of business was as follows:

			Fiscal Second Quarter Ended															Fiscal Six Months Ended
			2025									2024						2025									2024
(Dollars in Millions)			Amount			% of Sales*						Amount			% of Sales*			Amount			% of Sales*						Amount			% of Sales*
Innovative Medicine			$2,869			18.9		%				$2,722			18.8		%	$5,417			18.6		%				$5,618			20.0		%
MedTech			647			7.6						718			9.0			1,324			8.0						1,364			8.6
Total research and development expense			$3,516			14.8		%				$3,440			15.3		%	$6,741			14.8		%				$6,982			16.0		%
Percent increase/(decrease) over the prior year			2.2		%													(3.5		%)
*As a percent to segment sales

Fiscal six months Q2 2025 versus Fiscal six months Q2 2024

Research and Development decreased as a percent to sales driven by:

• Planned leverage and phasing of investments in the Innovative Medicine business

Form 10-Q			49

Q2 2025 versus Q2 2024

Research and Development decreased as a percent to sales driven by:

• Portfolio rationalization and expense phasing in the MedTech business

In-process research and development (IPR&D) impairments

In the fiscal second quarter and fiscal six months of 2024, the Company recorded a charge of approximately $0.2 billion associated with the M710 (biosimilar) asset acquired with Momenta in 2020. There was also a partial impairment of this asset for $0.2 billion in the fiscal third quarter of 2023. This asset is now fully impaired.

Interest (income) expense

Interest (income) expense in the fiscal six months of 2025 was net income of $80 million as compared to net income of $334 million in the fiscal six months of 2024. Interest income in the fiscal six months of 2025 decreased as compared to the prior year driven by lower interest rates earned on cash balances. Interest expense was higher due to a higher average debt balance at higher interest rates. Interest (income) expense in the fiscal second quarter of 2025 was net expense of $48 million as compared to net income of $125 million in the fiscal second quarter of 2024. Interest income in the fiscal second quarter of 2025 decreased as compared to the prior year driven by lower interest rates earned on cash balances. Interest expense was higher due to a higher average debt balance at higher interest rates. The balance of cash, cash equivalents and current marketable securities was $18.9 billion at the end of the fiscal second quarter of 2025 as compared to $25.5 billion at the end of the fiscal second quarter of 2024. The Company’s debt position was $50.8 billion as of June 29, 2025, as compared to $41.5 billion the same period a year ago.

Other (income) expense, net*

Fiscal six months Q2 2025 versus Fiscal six months Q2 2024

Other (income) expense, net for the fiscal six months of 2025 reflected an increase in income of $10.3 billion as compared to the prior year primarily due to the following:

Fiscal Six Months
(Dollars in Billions)(Income)/Expense						June 29, 2025						June 30, 2024						Change
Litigation related(1)						$	(6.9)					3.1						(10.0)
Acquisition, Integration and Divestiture related						0.4						0.5						(0.1)
Changes in the fair value of securities(2)						0.1						0.4						(0.3)
Employee benefit plan related						(0.3)						(0.5)						0.2
Other						(0.5)						(0.4)						(0.1)
Total Other (Income) Expense, Net						$	(7.2)					3.1						(10.3)

(1)The fiscal six months of 2025 includes the reversal of approximately $7.0 billion, a significant portion of the previously accrued talc reserve. The fiscal six months of 2024 includes charges of approximately $3.0 billion for talc matters. For additional details related to talc refer to Note 11 to the Consolidated Financial Statements.

(2)The fiscal six months of 2024 includes the loss on the completion of the debt for equity exchange of the retained stake in Kenvue

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Q2 2025 versus Q2 2024

Other (income) expense, net for the fiscal second quarter of 2025 reflected an increase in income of $0.6 billion as compared to the prior year primarily due to the following:

Fiscal Second Quarter
(Dollars in Billions)(Income)/Expense						June 29, 2025						June 30, 2024						Change
Acquisition, Integration and Divestiture related						$	0.3					0.4						(0.1)
Litigation related(1)						0.1						0.4						(0.3)
Changes in the fair value of securities(2)						0.0						0.4						(0.4)
Employee benefit plan related						(0.1)						(0.2)						0.1
Other						(0.2)						(0.3)						0.1
Total Other (Income) Expense, Net						$	0.1					0.7						(0.6)

(1)The fiscal second quarter of 2024 includes charges for talc matters.

(2)The fiscal second quarter of 2024 includes the loss on the completion of the debt for equity exchange of the retained stake in Kenvue.

*Other (income) expense, net is the account where the Company records gains and losses related to the sale and write-down of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. (JJDC), changes in the fair value of securities, gains and losses on divestitures, gains and losses on sale of assets, certain transactional currency gains and losses, acquisition-related costs, litigation accruals and settlements, investment (income)/loss related to employee benefit plans, as well as royalty income.

Segment income before tax

Income before tax by segment of business for the fiscal six months were as follows:

			Income Before Tax												Segment Sales												Percent of Segment Sales
(Dollars in Millions)			June 29, 2025						June 30, 2024						June 29, 2025						June 30, 2024						June 29, 2025						June 30, 2024
Innovative Medicine			$10,762						$10,428						$29,075						$28,052						37.0		%				37.2		%
MedTech			2,625						2,609						16,561						15,778						15.9						16.5
Segment total			13,387						13,037						45,636						43,830						29.3						29.7
(Income) Expenses not allocated to segments(1)			(6,735)						3,575
Earnings before provision for taxes on income			$20,122						$9,462						$45,636						$43,830						44.1		%				21.6		%

**(1)**Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal six months of 2025 includes the reversal of approximately $7.0 billion, a significant portion of the previously accrued talc reserve. The fiscal six months of 2024 includes charges for talc matters of $3.0 billion. The fiscal six months of 2024 includes a loss of approximately $0.4 billion related to the debt to equity exchange of the Company's remaining shares of Kenvue Common Stock.

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal six months of 2025 was 37.0% versus 37.2% for the same period a year ago. The slight decrease in the income before tax as a percent of sales for the fiscal six months of 2025 as compared to the prior year was primarily driven by the following:

• Unfavorable Product mix and the impact of Medicare Part D redesign

• Increased amortization and integration costs related to the Intra-Cellular acquisition

• Unfavorable currency in Cost of products sold

partially offset by

• An In-process research and development impairment of $0.2 billion in 2024 related to the M710 (biosimilar) asset acquired with Momenta in 2020

Form 10-Q			51

• Planned leverage and phasing of Selling, marketing and administrative expenses as well as Research & development expenses

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal six months of 2025 was 15.9% versus 16.5% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal six months of 2025 was primarily driven by the following:

• Macroeconomic factors in Cost of products sold

• Higher litigation expense of $0.1 billion in 2025

• A gain of $0.2 billion related to the Acclarent divestiture in 2024

partially offset by

• Lower acquisition and integration related costs of $0.1 billion in 2025 versus $0.5 billion in 2024 related to the Shockwave acquisition

Income (loss) before tax by segment of business for the fiscal second quarters were as follows:

						Income Before Tax												Segment Sales												Percent of Segment Sales
(Dollars in Millions)						June 29, 2025						June 30, 2024						June 29, 2025						June 30, 2024						June 29, 2025						June 30, 2024
Innovative Medicine						$5,552						$5,459						$15,202						$14,490						36.5		%				37.7		%
MedTech						1,204						1,089						8,541						7,957						14.1						13.7
Segment total						6,756						6,548						23,743						22,447						28.5						29.2
(Income) Expenses not allocated to segments(1)						265						800
Earnings before provision for taxes on income						$6,491						$5,748						$23,743						$22,447						27.3		%				25.6		%

(1)Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal second quarter of 2024 includes charges for talc matters of $0.3 billion. For additional details related to talc refer to Note 11 to the Consolidated Financial Statements. The fiscal second quarter of 2024 includes a loss of approximately $0.4 billion related to the debt to equity exchange of the Company's remaining shares of Kenvue Common Stock.

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal second quarter of 2025 was 36.5% versus 37.7% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal second quarter of 2025 as compared to the prior year was primarily driven by the following:

• Unfavorable Product mix and the impact of Medicare Part D redesign

• Increased amortization and integration costs related to the Intra-Cellular acquisition

partially offset by

• An In-process research and development impairment of $0.2 billion in 2024 related to the M710 (biosimilar) asset acquired with Momenta in 2020

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal second quarter of 2025 was 14.1% versus 13.7% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal second quarter of 2025 as compared to the prior year was primarily driven by the following:

• Shockwave acquisition and integration related costs of $0.5 billion in 2024

partially offset by

• Macroeconomic factors in Cost of products sold

• Higher litigation expense of $0.1 billion in 2025

• A gain of $0.2 billion related to the Acclarent divestiture in 2024

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Restructuring

In fiscal 2025, the company initiated a restructuring program of its Surgery franchise within the MedTech segment to simplify and focus operations by exiting certain non-strategic product lines and optimize select sites across the network. Restructuring expenses of $29 million were recorded in the fiscal second quarter and fiscal six months of 2025. The estimated costs of the total program are between $0.9 billion - $1.0 billion and is expected to be completed over the next two years.

In the fiscal year 2023, the Company initiated a restructuring program of its Orthopaedics franchise within its MedTech segment to streamline operations by exiting certain markets, product lines and distribution network arrangements. The pre-tax restructuring expense was $50 million in the fiscal second quarter of 2025, of which $35 million was recorded in Restructuring and $15 million in Cost of products sold on the Consolidated Statement of Earnings primarily for costs related to market and product exits. The pre-tax restructuring expense was $105 million in the fiscal six months of 2025, of which $52 million was recorded in Restructuring and $23 million in Cost of products sold and $30 million in Other (Income)/Expense on the Consolidated Statement of Earnings primarily for costs related to asset impairments as well as market and product exits. The pre-tax restructuring expense was $52 million in the fiscal second quarter of 2024, of which $50 million was recorded in Restructuring and $2 million was recorded in Cost of products sold on the Consolidated Statement of Earnings. The pre-tax restructuring expense was $79 million in the fiscal six months of 2024, of which $70 million was recorded in Restructuring and $9 million was recorded in Cost of products sold on the Consolidated Statement of Earnings. Total project costs of approximately $0.6 billion have been recorded since the restructuring was announced.

In the fiscal year 2023, the Company completed a prioritization of its research and development (R&D) investment within the Innovative Medicine segment to focus on the most promising medicines with the greatest benefit to patients. The pre-tax restructuring charge of approximately $0.1 billion in the fiscal six months of 2024 included the termination of partnered and non-partnered program costs and asset impairments. The program was completed in the fiscal fourth quarter of 2024.

For further details related to the restructuring refer to Note 12 to the Consolidated Financial Statements.

Provision for taxes on income

The worldwide effective income tax rate for the fiscal six months was 17.8% in 2025 and 16.1% in 2024.

On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework that was supported by over 130 countries worldwide. Several EU and non-EU countries have enacted Pillar Two legislation with an initial effective date of January 1, 2024, with other aspects of the law effective in 2025 or later. While countries continue to enact new provisions or issue new regulations this could have an impact to the Company’s effective tax rate. The Company will continue to monitor further developments to determine any potential impact in the countries in which we operate, such as the recently announced understanding between the U.S. and the G7 of a side-by-side system that would fully exclude U.S. parented groups from certain provisions of the Pillar Two Framework.

For further details related to the fiscal 2025 provision for taxes refer to Note 5 to the Consolidated Financial Statements.

Liquidity and capital resources

Acquisitions (net of cash acquired)

Proceeds from the disposal of assets/businesses, net

Form 10-Q			53

Dividends to shareholders

Cash flows

Cash and cash equivalents were $18.6 billion at the end of the fiscal second quarter of 2025 as compared with $24.1 billion at the end of fiscal year 2024. The primary sources and uses of cash that contributed to the $5.5 billion decrease were:

(Dollars In Billions)
24.1						Q4 2024 Cash and cash equivalents balance
8.1						net cash generated from operating activities
(18.6)						net cash used by investing activities
4.8						net cash from financing activities
0.2						effect of exchange rate changes on cash and cash equivalents
$	18.6					Q2 2025 Cash and cash equivalents

In addition, the Company had $0.3 billion in marketable securities at the end of the fiscal second quarter of 2025 and $0.4 billion at the end of fiscal year 2024.

Cash flow from operations of $8.1 billion was the result of:

(Dollars In Billions)
$	16.5					Net earnings
7.5						non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation, deferred tax provision, charge for in-process research and development assets and asset write-downs partially offset by the net gain on sale of assets/businesses
(2.9)						an increase in accounts receivable and inventories
(0.9)						a decrease in accounts payable and accrued liabilities
(6.2)						an increase in other current and non-current assets
(5.9)						a decrease in other current and non-current liabilities
$	8.1					Net cash flows from operations

Cash flow used by investing activities of $18.6 billion was primarily from:

54

(Dollars In Billions)
$	(1.8)					additions to property, plant and equipment
0.3						proceeds from the disposal of assets/businesses, net
(14.5)						acquisitions, net of cash acquired
(0.4)						acquired in-process research and development assets/related milestones
0.5						net sales of investments
(2.7)						credit support agreements activity, net
0.0						Other and rounding
$	(18.6)					Net cash used by investing activities

Cash flow from financing activities of $4.8 billion was primarily from:

(Dollars In Billions)
$	(6.1)					dividends to shareholders
(2.1)						repurchase of common stock
12.7						net proceeds from short and long term debt
0.6						proceeds from stock options exercised/employee withholding tax on stock awards, net
(0.3)						credit support agreements activity, net
0.0						Other and rounding
$	4.8					Net cash from financing activities

The following table summarizes cash taxes paid net of refunds:

(Dollars in Millions)			June 29, 2025						December 29, 2024
Total U.S. (1)			3,710						4,156
Total Foreign			1,331						2,558
Total cash taxes paid net of refunds			5,041						6,714

(1)Represents Federal and State taxes and includes TCJA foreign undistributed earnings payments of $2.5 billion in 2025 and $2.0 billion in 2024

The Company has access to substantial sources of funds at numerous banks worldwide and has the ability to issue up to $20 billion in Commercial Paper. Furthermore, in June 2025, the Company secured a new 364-day Credit Facility of $10 billion (expiration on June 24, 2026) which may be used for general corporate purposes including to support our commercial paper borrowings. Interest charged on borrowings under the credit line agreement is based on either Secured Overnight Financing Rate (SOFR) Reference Rate or other applicable market rate as allowed plus applicable margins. Commitment fees under the agreement are not material.

As of June 29, 2025, the Company had cash, cash equivalents and marketable securities of approximately $18.9 billion and had approximately $50.8 billion of notes payable and long-term debt for a net debt position of $31.9 billion as compared to the prior year fiscal second quarter net debt position of $16.0 billion. In the fiscal first quarter of 2025, the Company issued senior unsecured notes for approximately $9.2 billion. For additional details on borrowings, see Note 4 to the Consolidated Financial Statements. The net proceeds from this offering were used to fund the Intra-Cellular Therapies, Inc. acquisition for approximately

Form 10-Q			55

$14.5 billion which closed on April 2, 2025, and for general corporate purposes. The Company anticipates that operating cash flows, the ability to raise funds from external sources, borrowing capacity from existing committed credit facilities and access to the commercial paper markets will continue to provide sufficient resources to fund operating needs, including the Company’s remaining balance of approximately $4.0 billion related to talc matters, $3.0 billion related to the current portion of Corporate bonds due and the remaining approximately $1.1 billion to settle opioid litigation (See Note 11 to the Consolidated Financial Statements for additional details). In addition, the Company monitors the global capital markets on an ongoing basis and from time to time may raise capital when market conditions are favorable.

Dividends

On April 15, 2025, the Board of Directors declared a regular cash dividend of $1.30 per share, payable on June 10, 2025, to shareholders of record as of May 27, 2025.

On July 16, 2025, the Board of Directors declared a regular cash dividend of $1.30 per share, payable on September 9, 2025, to shareholders of record as of August 26, 2025. The Company expects to continue the practice of paying regular quarterly cash dividends.

Other information

New accounting pronouncements

Refer to Note 1 to the Consolidated Financial Statements for new accounting pronouncements.

Economic and market factors

In July 2023, Janssen Pharmaceuticals, Inc. (Janssen) filed litigation against the U.S. Department of Health and Human Services as well as the Centers for Medicare and Medicaid Services challenging the constitutionality of the IRA's Medicare Drug Price Negotiation Program. The litigation requests a declaration that the IRA violates Janssen’s rights under the First Amendment and the Fifth Amendment to the Constitution and therefore that Janssen is not subject to the IRA’s mandatory pricing scheme. The impact of the IRA on our business and the broader pharmaceutical industry remains uncertain, as litigation filed by Janssen and other pharmaceutical companies remains ongoing and while CMS has publicly announced the maximum fair price for each of the selected drugs, implementation of the program is still in progress. In April 2024, Janssen appealed the district court’s denial of its summary judgment motion to the Third Circuit.

Russia-Ukraine war

Although the long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time, the financial impact of the conflict in the fiscal second quarter of 2025, including accounts receivable or inventory reserves, was not material. As of the fiscal six months ending June 29, 2025, and the fiscal year ending December 29, 2024, the business of the Company’s Russian subsidiaries represented less than 1% of the Company’s consolidated assets and represented approximately 1% of revenues. The Company does not maintain Ukrainian subsidiaries.

In March of 2022, the Company took steps to suspend all advertising, enrollment in clinical trials, and any additional investment in Russia. The Company continues to supply products relied upon by patients for healthcare purposes.

Conflict in the Middle East

Although the long-term implications of the conflict in the Middle East are difficult to predict at this time, the financial impact of the conflict in the fiscal second quarter of 2025, including accounts receivable or inventory reserves, was not material. As of the fiscal six months ending June 29, 2025, and the fiscal year ending December 29, 2024, the business of the Company’s Israel subsidiaries represented less than 1% of both Company’s consolidated assets and revenues.

Other Macroeconomic Considerations

The Company operates in certain countries where the economic conditions continue to present significant challenges. The Company continues to monitor these situations and take appropriate actions. Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates. The Company has accounted for operations in Venezuela, Argentina, Turkey and Egypt (beginning in the fiscal fourth quarter of 2024) as highly inflationary, as the

56

prior three-year cumulative inflation rate surpassed 100%. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.

Governments around the world consider various proposals to make changes to tax laws, which may include increasing or decreasing existing statutory tax rates. In connection with various government initiatives, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. A change in statutory tax rate in any country would result in the revaluation of the Company’s deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted. This change would result in an expense or benefit recorded to the Company’s Consolidated Statement of Earnings. The Company closely monitors these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted.

The Company may be further impacted by the imposition of tariffs, trade protection measures or other policies adopted by any jurisdiction that favor domestic companies and technologies over foreign competitors.

The Company faces various worldwide health care changes that may continue to result in pricing pressures that include health care cost containment and government legislation relating to sales, promotions and reimbursement of health care products.

Changes in the behavior and spending patterns of purchasers of healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing healthcare insurance coverage, may continue to impact the Company’s businesses.

The Company faces regular intellectual property challenges from third parties, including generic and biosimilar manufacturers, seeking to manufacture and market generic and biosimilar versions of key pharmaceutical products prior to the expiration of the applicable patents. These challengers file Abbreviated New Drug Applications or abbreviated Biologics License Applications with the FDA or otherwise challenged the coverage and/or validity of the Company’s patents. In the event the Company is not successful in defending the patent claims challenged in the resulting lawsuits, generic or biosimilar versions of the products at issue may be introduced to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. There is also risk that one or more competitors could launch a generic or biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place.