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 first quarter of 2026, worldwide sales were $24.1 billion, a total increase of 9.9%, which included operational* growth of 6.4% and a positive currency impact of 3.5% as compared to 2025 fiscal first quarter sales of $21.9 billion. In the fiscal first quarter of 2026, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 1.1%, primarily related to CAPLYTA. In the fiscal first quarter of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition, on worldwide operational sales was approximately 5.4%.

Sales by U.S. companies were $13.3 billion in the fiscal first quarter of 2026, which represented an increase of 8.3% as compared to the prior year. In the fiscal first quarter of 2026, the net impact of acquisitions and divestitures on U.S. operational sales growth was a positive 2.1%. In the fiscal first quarter of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition on U.S. operational sales was approximately 7.5%. Sales by international companies were $10.7 billion, a total increase of 11.9%, which included operational growth of 3.9% and a positive currency impact of 8.0%. In the fiscal first quarter of 2026, the net impact of acquisitions and divestitures on international operational sales growth was a negative 0.1%. In the fiscal first quarter of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition, on international operational sales was approximately 3.0%.

In the fiscal first quarter of 2026, sales by companies in Europe achieved growth of 14.5%, which included operational growth of 2.7% and a positive currency impact of 11.8%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 10.8%, which included operational growth of 2.5% and a positive currency impact of 8.3%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 8.5%, which included operational growth of 6.1% and a positive currency impact of 2.4%.

Q1 2026 Sales by Geographic Region (in billions)

Q1 2026 Sales by Segment (in billions)

Note: values may have been rounded

*operational excludes the effect of translational currency

Form 10-Q			27

Analysis of sales by business segments

Innovative Medicine

Innovative Medicine segment sales in the fiscal first quarter of 2026 were $15.4 billion, an increase of 11.2% as compared to the same period a year ago, including an operational increase of 7.4% and a positive currency impact of 3.8%. U.S. Innovative Medicine sales increased 9.6% as compared to the same period a year ago. International Innovative Medicine sales increased by 13.4%, including an operational increase of 4.3% and a positive currency impact of 9.1%. In the fiscal first quarter of 2026, the net impact of acquisitions and divestitures on the worldwide Innovative Medicine segment operational sales growth was a positive 1.8%, primarily related to CAPLYTA. In the fiscal first quarter of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition, was an approximate 9.2%, 12.0% and 5.3% on worldwide, U.S. and international Innovative Medicine segment operational sales, respectively.

Major Innovative Medicine therapeutic area sales — Fiscal First Quarter Ended

(Dollars in Millions)			March 29, 2026						March 30, 2025						Total Change			Operations Change			Currency Change
Oncology			$6,973						$5,678						22.8		%	17.8		%	5.0		%
DARZALEX			3,964						3,237						22.5			17.8			4.7
CARVYKTI			597						369						62.1			57.4			4.7
TECVAYLI			202						151						33.5			30.1			3.4
TALVEY			152						86						76.7			72.8			3.9
RYBREVANT/ LAZCLUZE			257						141						82.7			80.5			2.2
ERLEADA			949						771						23.1			16.2			6.9
IMBRUVICA			660						709						(6.9)			(13.9)			7.0
Other Oncology(1)			192						214						(10.6)			(12.5)			1.9
Immunology			3,380						3,707						(8.8)			(11.8)			3.0
TREMFYA			1,608						956						68.3			63.8			4.5
SIMPONI/ SIMPONI ARIA			647						659						(1.7)			(5.7)			4.0
REMICADE			422						467						(9.5)			(11.2)			1.7
STELARA			656						1,625						(59.7)			(61.7)			2.0
Other Immunology			46						1						*			*			*
Neuroscience			2,175						1,647						32.0			29.3			2.7
SPRAVATO			468						320						46.4			44.5			1.9
CAPLYTA(2)			270						—						*			*			—
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA			1,038						903						15.0			13.2			1.8
CONCERTA/ methylphenidate			136						148						(8.0)			(11.7)			3.7
Other Neuroscience			262						277						(5.4)			(11.3)			5.9
Pulmonary Hypertension (PH)			1,135						1,025						10.7			8.7			2.0
UPTRAVI			483						451						7.1			5.4			1.7
OPSUMIT/ OPSYNVI			606						522						16.1			14.0			2.1
Other Pulmonary Hypertension			46						52						(12.1)			(14.5)			2.4
Infectious Diseases (ID)			889						802						10.8			4.1			6.7
EDURANT/rilpivirine			409						358						14.1			2.8			11.3
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA			443						403						10.0			7.4			2.6
Other Infectious Diseases			37						41						(10.4)			(16.5)			6.1
Cardiovascular / Metabolism / Other (CVM)			876						1,013						(13.6)			(14.7)			1.1
XARELTO			642						690						(7.0)			(7.0)			—
Other			233						323						(27.8)			(31.2)			3.4
Total Innovative Medicine Sales			$15,426						$13,873						11.2		%	7.4		%	3.8		%

*percentage greater than 100% or not meaningful

28

(1) Includes sales of ZYTIGA which were previously disclosed separately

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

Oncology products achieved operational sales growth of 17.8% as compared to the same period a year ago. Contributors to the growth were: DARZALEX (daratumumab) driven by strong share gains and market growth partially offset by inventory dynamics, CARVYKTI (ciltacabtagene autoleucel) driven by continued share gains and site expansion, TECVAYLI (teclistamab-cqyv) driven by launch uptake and share gains from expansion in the community setting and recent U.S. TECVAYLI + DARZALEX FASPRO approval, TALVEY (talquetamab-tgvs) driven by share gains from expansion in the community setting, RYBREVANT (amivantamab)/LAZCLUZE (lazertinib) driven by launch uptake and share gains and ERLEADA (apalutamide) due to continued share gains and market growth. Growth was partially offset by IMBRUVICA (ibrutinib) share loss due to competitive pressures and unfavorable patient mix.

Immunology products experienced an operational decline of 11.8% as compared to the same period a year ago due to the sales decline of STELARA (ustekinumab) driven by the impact of biosimilar competition, increasing adoption of novel classes and unfavorable patient mix as well as declines of SIMPONI/SIMPONI ARIA and REMICADE (infliximab) driven by share loss, biosimilar competition, and unfavorable patient mix partially offset by market growth. The decline was partially offset by growth of TREMFYA (guselkumab) due to share gains across all indications with significant IBD launch momentum and market growth.

Biosimilars are pursuing regulatory approval for SIMPONI, which would likely result in a reduction in future sales, potentially in the first half of 2026 in Europe and second half of 2026 in the U.S.

Third parties have filed biologics license applications with the U.S. FDA, the European Medicines Agency, and other government authorities seeking approval to market biosimilar versions of STELARA around the globe. The Company expects continued launches of biosimilar versions of STELARA globally which will continue to negatively 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 29.3% as compared to the same period a year ago. Growth of SPRAVATO (esketamine) was driven by continued increased physician and patient demand. Growth of INVEGA SUSTENNA / XEPLION / INVEGA TRINZA / TREVICTA was primarily driven by favorable patient mix.

Pulmonary Hypertension products achieved operational sales growth of 8.7% as compared to the same period a year ago. The sales growth of UPTRAVI (selexipag) was driven by market and share growth partially offset by inventory dynamics. The sales growth of OPSUMIT (macitentan)/OPSYNVI (macitentan/tadalafil) was driven by share gains, market growth and favorable patient mix. The Company expects generic competition for OPSUMIT in the U.S. in the second half of 2026, which would likely result in a reduction in future sales.

Infectious disease products achieved operational sales growth of 4.1% as compared to the same period a year ago. The sales growth of PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA was driven by favorable patient mix.

Cardiovascular / Metabolism / Other products experienced a sales decline of 14.7% as compared to the same period a year ago. The sales decline of XARELTO (rivaroxaban) was primarily driven by continued share erosion.

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			29

MedTech

MedTech segment sales in the fiscal first quarter of 2026 were $8.6 billion, an increase of 7.7% as compared to the same period a year ago, which included operational growth of 4.6% and a positive currency impact of 3.1%. U.S. MedTech sales increased by 5.9%. International MedTech sales increased by 9.7%, including operational growth of 3.2% and a positive currency impact of 6.5%. In the fiscal first quarter of 2026, the impact of divestitures on the MedTech segment operational sales growth was a negative 0.1%.

Major MedTech franchise sales — Fiscal First Quarter Ended

(Dollars in Millions)			March 29, 2026						March 30, 2025						Total Change			Operations Change			Currency Change
Cardiovascular			$2,377						$2,103						13.0		%	10.5		%	2.5		%
Electrophysiology			1,489						1,323						12.6			9.5			3.1
Abiomed			488						420						16.3			14.4			1.9
Shockwave			305						258						18.5			18.1			0.4
Other Cardiovascular			94						103						(9.1)			(11.9)			2.8
Surgery			2,511						2,396						4.8			1.2			3.6
Advanced			1,123						1,073						4.6			1.2			3.4
General			1,388						1,323						4.9			1.1			3.8
Vision			1,365						1,279						6.7			3.6			3.1
Contact Lenses/Other			969						919						5.5			2.7			2.8
Surgical			396						361						9.7			6.0			3.7
Orthopaedics			2,383						2,241						6.3			3.2			3.1
Hips			436						409						6.5			3.5			3.0
Knees			420						389						7.9			4.6			3.3
Trauma			833						772						8.0			5.0			3.0
Spine, Sports & Other			694						671						3.5			0.2			3.3
Total MedTech Sales			$8,636						$8,020						7.7		%	4.6		%	3.1		%

The Cardiovascular franchise achieved operational sales growth of 10.5% as compared to the prior year fiscal first quarter. Electrophysiology sales growth was driven by procedure growth, commercial execution, new product performance (VARIPULSE, TRUPULSE, NUVISION and CRYSTAL) and inventory dynamics outside the U.S. partially offset by competitive pressures in Pulsed Field Ablation catheters. Abiomed sales growth was driven by the continued strong adoption of Impella 5.5 and Impella CP. Shockwave sales growth was driven by strong adoption of Coronary and Peripheral portfolios and new product launches.

The Surgery franchise achieved operational sales growth of 1.2% as compared to the prior year fiscal first quarter. The operational growth in Advanced Surgery was primarily due to the strength of the portfolio and commercial execution in Biosurgery and new product launches in Energy. This was partially offset by China volume-based procurement across all platforms and competitive pressures in Endocutters. The operational growth in General Surgery was primarily driven by technology penetration and upgrades within the differentiated Wound Closure portfolio coupled with market expansion partially offset by timing of tenders outside the U.S.

The Vision franchise achieved operational sales growth of 3.6% as compared to the prior year fiscal first quarter. The Contact Lenses/Other operational growth was driven by strong performance in the ACUVUE OASYS 1-Day family of products and strategic price actions partially offset by inventory dynamics outside the U.S. The Surgical operational growth was primarily driven by the strength of recent product innovations, robust demand and strong commercial execution partially offset by competitive pressures in the U.S.

The Orthopaedics franchise achieved operational sales growth of 3.2% as compared to the prior year fiscal first quarter. The operational growth in Hips was due to new product launches. The operational growth in Knees was driven by the strength of the ATTUNE portfolio and pull through related to the VELYS Robotic assisted solutions. The operational growth in Trauma was primarily driven by recently launched products. The operational growth in Spine, Sports & Other was driven by new product innovations and growth in shoulders partially offset by competitive pressures and inventory dynamics.

30

In October 2025, the Company announced its intention to separate its Orthopaedics business. The Company continues to explore multiple paths to effect the planned separation with a targeted completion within 18 to 24 months after the initial announcement.

Analysis of consolidated earnings before provision for taxes on income

Consolidated earnings before provision for taxes on income for the fiscal first quarter of 2026 was $6.0 billion representing 24.9% of sales as compared to $13.6 billion in the fiscal first quarter of 2025, representing 62.3% of sales. The fiscal first quarter of 2025 includes approximately $7.0 billion related to the talc reserve reversal.

Cost of products sold

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

Q1 2026 versus Q1 2025

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

• Tariffs and other operational drivers in the MedTech business

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

partially offset by

• Favorable translational currency in the Innovative Medicine business

The intangible asset amortization expense included in cost of products sold for the fiscal first quarters of 2026 and 2025 was $1.2 billion and $1.1 billion, respectively.

Selling, marketing and administrative expenses

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

Q1 2026 versus Q1 2025

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

Form 10-Q			31

• Phasing of advertising expense and increased investment related to TREMFYA and the acquisition of Intra-Cellular (CAPLYTA) in the Innovative Medicine business

Research and development expense

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

			Fiscal First Quarter Ended
			2026									2025
(Dollars in Millions)			Amount			% of Sales*						Amount			% of Sales*
Innovative Medicine			$2,813			18.2		%				$2,548			18.4		%
MedTech			714			8.3						677			8.4
Total research and development expense			$3,527			14.7		%				$3,225			14.7		%
Percent increase over the prior year			9.4		%
*As a percent to segment sales

Interest (income) expense

Interest (income) expense in the fiscal first quarter of 2026 was net expense of $43 million as compared to net income of $128 million in the fiscal first quarter of 2025. Interest income in the fiscal first quarter of 2026 decreased as compared to the prior year driven by a lower average cash balance. Interest expense in the fiscal first quarter of 2026 was higher as compared to the prior year due to a higher average debt balance. The balance of cash, cash equivalents and current marketable securities was $22.1 billion at the end of the fiscal first quarter of 2026 as compared to $38.8 billion at the end of the fiscal first quarter of 2025. The Company’s debt position was $55.0 billion as of March 29, 2026, as compared to $52.3 billion the same period a year ago.

Other (income) expense, net*

Q1 2026 versus Q1 2025

Other (income) expense, net for the fiscal first quarter of 2026 reflected a decrease in income of $7.6 billion as compared to the prior year primarily due to the following:

Fiscal First Quarter
(Dollars in Billions)(Income)/Expense						March 29, 2026						March 30, 2025						Change
Litigation related(1)						$	0.3					(7.0)						7.3
Acquisition, Integration and Divestiture related						0.1						0.1						0.0
Orthopaedics separation						0.1						0.0						0.1
Employee benefit related						(0.2)						(0.1)						(0.1)
Other						0.0						(0.3)						0.3
Total Other (Income) Expense, Net						$	0.3					(7.3)						7.6

(1)The fiscal first quarter of 2026 includes charges for talc matters of $0.3 billion. The fiscal first quarter of 2025 includes approximately $7.0 billion related to the talc reserve reversal. For additional details related to talc refer to Note 11 to the Consolidated Financial Statements.

*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.

32

Segment income before tax

Income before tax by segment of business for the fiscal first quarters were as follows:

						Income Before Tax												Segment Sales												Percent of Segment Sales
(Dollars in Millions)						March 29, 2026						March 30, 2025						March 29, 2026						March 30, 2025						March 29, 2026						March 30, 2025
Innovative Medicine						$5,317						$5,210						$15,426						$13,873						34.5		%				37.6		%
MedTech						1,239						1,421						8,636						8,020						14.3						17.7
Segment total						6,556						6,631						24,062						21,893						27.2						30.3
(Income)/ Expenses not allocated to segments(1)						566						(7,000)
Earnings before provision for taxes on income						$5,990						$13,631						$24,062						$21,893						24.9		%				62.3		%

(1)Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal first quarter of 2026 includes charges of $0.3 billion related to talc matters. The fiscal first quarter of 2025 includes approximately $7.0 billion related to the talc reserve reversal. For additional details related to talc refer to Note 11 to the Consolidated Financial Statements.

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal first quarter of 2026 was 34.5% versus 37.6% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter of 2026 as compared to the prior year was primarily driven by the following:

• Unfavorable product mix in Cost of products sold, primarily driven by the decline of STELARA sales

• Phasing of advertising expense and investment related to TREMFYA and to the acquisition of Intra-Cellular (CAPLYTA)

partially offset by

• Favorable translational currency

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal first quarter of 2026 was 14.3% versus 17.7% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter of 2026 as compared to the prior year was primarily driven by the following:

• Tariffs included in Cost of products sold

• Gains on certain divestitures recorded in 2025

• Orthopaedics separation related costs

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. The pre-tax restructuring expense was $55 million in the fiscal first quarter of 2026, of which $30 million was recorded in Restructuring, $20 million in Cost of products sold and $5 million in Other income and expense on the Consolidated Statement of Earnings. The pre-tax restructuring expense in the fiscal first quarter of 2026 primarily included costs related to product exits. Total project costs of approximately $0.3 billion have been recorded since the restructuring was announced. The estimated costs of the total program are between $0.9 billion - $1.0 billion and is expected to be substantially completed by the end of fiscal year 2026.

In fiscal 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 $55 million in the fiscal first quarter of 2025, of which $17 million was recorded in Restructuring, $30 million in Other (Income)/Expense and $8 million in Cost of products sold on the Consolidated Statement of Earnings primarily for costs related to asset impairments as well as market and product exits. Total project costs of approximately $0.8 billion have been recorded since the restructuring was announced and the program was substantially completed in the fiscal year 2025.

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

Form 10-Q			33

Provision for taxes on income

The worldwide effective income tax rate for the fiscal three months was 12.6% in 2026 and 19.3% in 2025.

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 2026 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 issued administrative guidance on the side-by-side system that will fully exclude U.S. parented groups from certain provisions of the Pillar Two Framework.

For further details related to the fiscal 2026 provision for taxes refer to Note 5 to the Consolidated Financial Statements.

Liquidity and capital resources

Proceeds from the disposal of assets/businesses, net

Dividends to shareholders

Cash flows

Cash and cash equivalents were $21.7 billion at the end of the fiscal first quarter of 2026 as compared with $19.7 billion at the end of fiscal year 2025. The primary sources and uses of cash that contributed to the $2.0 billion increase were:

(Dollars In Billions)
19.7						Q4 2025 Cash and cash equivalents balance
2.5						net cash generated from operating activities
(1.0)						net cash used for investing activities
0.5						net cash from financing activities
$	21.7					Q1 2026 Cash and cash equivalents

In addition, the Company had $0.4 billion in marketable securities at the end of the fiscal first quarter of 2026 and $0.4 billion at the end of fiscal year 2025.

34

Cash flow from operations of $2.5 billion was the result of:

(Dollars In Billions)
$	5.2					Net earnings
2.5						non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation, deferred tax provision and asset write-downs
(1.0)						an increase in accounts receivable and inventories
(3.9)						a decrease in accounts payable and accrued liabilities
0.3						a decrease in other current and non-current assets
(0.6)						a decrease in other current and non-current liabilities
$	2.5					Net cash flows from operations

Cash flow used for investing activities of $1.0 billion was primarily from:

(Dollars In Billions)
$	(1.0)					additions to property, plant and equipment
0.1						net sales of investments
(0.1)						Other and rounding
$	(1.0)					Net cash used for investing activities

Cash flow from financing activities of $0.5 billion was primarily from:

(Dollars In Billions)
$	(3.1)					dividends to shareholders
(4.0)						repurchase of common stock
7.2						net proceeds from short and long term debt
1.2						proceeds from stock options exercised/employee withholding tax on stock awards, net
(0.8)						Primarily Auris shareholder payment (described in Note 11), other and rounding
$	0.5					Net cash from financing activities

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 March 29, 2026, the Company had cash, cash equivalents and marketable securities of approximately $22.1 billion and had approximately $55.0 billion of notes payable and long-term debt for a net debt position of $32.9 billion as compared to the prior year fiscal first quarter net debt position of $13.5 billion. 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 $3.4 billion related to talc matters, $1.8 billion related to the current portion of Corporate bonds due and the remaining approximately $1.1 billion related to opioid settlements. 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 January 2, 2026, the Board of Directors declared a regular cash dividend of $1.30 per share, payable on March 10, 2026, to shareholders of record as of February 24, 2026.

On April 14, 2026, the Board of Directors declared a regular cash dividend of $1.34 per share, payable on June 9, 2026, to shareholders of record as of May 26, 2026. The Company expects to continue the practice of paying regular quarterly cash dividends.

Form 10-Q			35

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. While 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, CMS has publicly announced the maximum fair price for each of the selected drugs and has recently begun implementing the program. In December 2025, Janssen sought review by the U.S. Supreme Court of the Third Circuit's majority affirmance of the district court’s ruling in favor of the government.

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 as highly inflationary, as the 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.

The long-term implications of regional conflicts on the Company are difficult to predict. The financial impact of known existing conflicts in the fiscal first quarter of 2026 was not material.

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.

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