Big shake-up for J&J as it opts to split units

Bengaluru — Johnson & Johnson (J&J) plans to spin off its consumer health division that sells Listerine and Baby Powder to focus on pharmaceuticals and medical devices in the biggest shake-up in the US company’s 135-year history.

The move by the world's largest health products company comes hot on the heels of similar announcements this week by industrial conglomerates Toshiba and General Electric and underscores how big, diversified corporations are under pressure to simplify.

This has particularly been the case in healthcare, where the slow-and-steady business of selling products such as shampoos and moisturisers has increasingly diverged from the high-risk, high-reward work of developing and marketing blockbuster drugs.

“The new J&J and the new consumer health company would each be able to more effectively allocate resources to deliver for patients and consumers, drive growth and unlock significant value,” said Joaquin Duato, who is expected to become CEO in January.

The company said it was aiming to complete the separation in 18 to 24 months, sending its shares up 4% before the bell.

J&J’s Band-Aids and cough remedies have long been the face of the company.

Now its pharmaceutical and medical equipment business, which makes cancer treatments, vaccines and surgical tools, is on track for nearly $80bn in sales this year, way ahead of the $15bn its consumer products are expected to bring in.

The higher growth outlook comes despite disappointing sales of J&J’s Covid-19 vaccine following a string of production setbacks and fierce competition from rivals such Pfizer and Moderna.

Money for deals?

J&J’s plan to hive off its consumer health business into a publicly traded company echoes a move by GlaxoSmithKline and Pfizer, which also plan to spin off their joint consumer health business in 2022.

German drugmaker Merck, meanwhile, sold its consumer health division to Procter & Gamble in 2018.

J&J’s consumer division has faced a spate of lawsuits alleging its talcum powder for babies causes cancer, which the company has denied.

It has created a subsidiary to manage the multibillion-dollar claims and CEO Alex Gorsky said on Friday the decision to separate the consumer division had nothing to do with the lawsuits. It stopped selling the baby powder in the US and Canada in 2020.

The medical device and pharmaceutical division has also faced lawsuits for some of its products.

J&J said in October it had settled most of the lawsuits it faced from thousands of men who claimed its antipsychotic drug Risperdal caused them to develop excessive breast tissue. The company has recorded $800m in expenses in connection with the agreement.

Jeff Jonas, asset manager at Gamco Investors, said a spin-off would allow the company to be more acquisitive.

“Ultimately, when they do finish the consumer spin-off, they'll probably raise a little bit of cash and put a little bit of debt on the consumer business, which would give them more money to do deals,” he said.

Reuters