Johnson & Johnson is spinning off the consumer health business that made it the world’s largest maker of healthcare products.
The company said Friday that it will separate the segment that sells Band-Aids, Listerine and over-the-counter drugs like Tylenol from its pharmaceutical and medical device businesses.
Company leaders told analysts that splitting into two publicly traded companies would make each more nimble in adapting to their respective markets. It also allows for more precise capital allocation.
CEO Alex Gorsky says that while the company’s broad focus has worked in the past, the division addresses segments that “have evolved into fundamentally different businesses.”
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“We have seen a significant evolution in these markets, particularly on the consumer side, partly referring to the shift towards online shopping that has accelerated in the past few years,” said Gorsky. COVID-19 pandemic.
Prescription drugs and medical devices – J&J’s two largest businesses – will keep the Johnson & Johnson name. Its products include the cancer drug Darzalex, a COVID-19 vaccine, and medical devices for surgery and orthopedics.
The new consumer health company has yet to be named. It will house brands including Neutrogena, Aveeno and the iconic Band-Aids, which a company employee created more than 100 years ago.
Pharmaceuticals and medical devices brought in total sales of $19.6 billion in the company’s recently ended third quarter, better-than-expected results than analysts expected. Consumer health brings in $3.7 billion.
The consumer health business has more than 20 brands, each with more than $150 million in annual revenue, Gorsky said. He added that a portfolio that includes well-known names like Tylenol and Tylenol for kids has hit an all-time high in terms of market share.
An analyst asked company leaders on Friday why they’re making the change now, when they’ve praised J&J’s diversity in the past as a way to help offset or balance it out. by a downturn in a particular segment.
“I think we’ve always had the belief that our diversified portfolio is rooted in strategy,” says Gorsky. “However, it is not anchored in the strategy.”
Johnson & Johnson, founded in 1886, said the split would take place over the next two years, if approved by the company’s board of directors.
J&J is starting to split as it is also undergoing a leadership transition. The company said in August that Gorsky would step down and be replaced in January by the company’s longtime chief executive Joaquin Duato.
The split also comes as J&J faces criticism from some Democrats in Congress over another company move. J&J is facing thousands of lawsuits over claims that its talc-based baby powder, which it has stopped selling in the US and Canada, causes ovarian cancer.
U.S. Senators Dick Durbin of Illinois and Elizabeth Warren of Massachusetts, among others, recently sent letters to the company asking for more information about a newly incorporated subsidiary that had filed for insurance bankruptcy under Chapter 11.
The senators in a November 10 letter called the move a “corporate cover game” that would protect the company from liability in those cases.
Company officials say the split they announced Friday is “separate and distinct” from the baby powder situation.
J&J’s announcement comes just days after General Electric said it plans to split into three separate companies.
It also follows similar moves by major pharmaceutical rivals Pfizer Inc., which spun off its consumer health products business in 2019, and Merck & Co.
Shares of New Brunswick, New Jersey-based Johnson & Johnson rose less than 2% to $165.28 in late morning trading while the Dow Jones Industrial Average rose slightly.
J&J stock is up nearly 4% so far this year, while the Dow is up about 17%.
J&J has been a component of the Dow Jones Industrial Average since 1997.
