Johnson & Johnson to split into 2, aim for faster growth

<p><p>Johnson &amp; Johnson is peeling off a consumer health business that helped it become the world’s biggest maker of health care products.</p></p><p><p>The company said Friday it will separate its segment that sells Band-Aids, Listerine and over-the-counter medicines like Tylenol from its pharmaceutical and medical device businesses.</p></p><p><p>Company leaders told analysts that the split, which will create another publicly traded company for the consumer health side, will make each business more nimble in adapting to their respective markets.</p></p><p><p>CEO Alex Gorsky said that while the company’s broad focus has worked in the past, the split addresses segments that “have evolved as fundamentally different businesses.”</p></p><p><p>“We’ve seen a significant evolution in these markets, particularly on the consumer side,” Gorsky said, referring in part to a shift toward online shopping that accelerated during the COVID-19 pandemic.</p></p><p><p>An analyst asked company leaders during a Friday call to discuss the split why they were making the change now, when they have touted J&amp;J’s diversity in the past as a way to help offset a downturn in a particular segment.</p></p><p><p>“I think we have consistently had the belief that our diversified portfolio is rooted in strategy,” Gorsky said. <span class=”print_trim”>“However, it’s not anchored in strategy.”</span></p></p><p><p><span class=”print_trim”>University of Michigan business professor Erik Gordon said he didn’t think the two, separate companies would wind up being more focused or nimble because the present company is already decentralized.</span></p></p><p><p><span class=”print_trim”>“(J&amp;J) gives its companies a lot of autonomy,” he said.</span></p></p><p><p><span class=”print_trim”>The segment selling prescription drugs and medical devices – J&amp;J’s two largest businesses – will keep the Johnson &amp; Johnson name and blockbuster drugs that include the cancer treatment Darzalex and a COVID-19 vaccine.</span></p></p><p><p><span class=”print_trim”>The new version of J&amp;J also will get incoming CEO Joaquin Duato, who is slated to replace Gorsky early next year.</span></p></p><p><p><span class=”print_trim”>The split comes at an ideal time for a leadership change, said Steve Brozak, who follows drugmakers as president of WBB Securities.</span></p></p><p><p><span class=”print_trim”>He noted that the new CEO takes over what will become a completely different company, one that won’t have easy metrics for comparing to past performances and evaluating progress.</span></p></p><p><p><span class=”print_trim”>“It buys time for decisions to be made on what to do next,” Brozak said. “This is the perfect vehicle for a management change.”</span></p></p><p><p><span class=”print_trim”>Pharmaceuticals and medical devices pulled in a combined $19.6 billion in revenue in the company’s recently completed third quarter, which turned out better than analysts expected.</span></p></p><p><p><span class=”print_trim”>Consumer health brought in $3.7 billion.</span></p></p><p><p><span class=”print_trim”>A leader and name for the new consumer health company have yet to be announced.</span></p></p><p><p><span class=”print_trim”>It will house brands including Neutrogena, Aveeno, and the iconic Band-Aids, which a company employee created more than 100 years ago.</span></p></p><p><p><span class=”print_trim”>That segment has more than 20 brands that each have over $150 million in annual sales, Gorsky noted. He added that the portfolio includes well-known names like Tylenol and children’s Tylenol that have reached all-time highs in market share.</span></p></p><p><p><span class=”print_trim”>Johnson &amp; Johnson also faces thousands of lawsuits claiming that one of its consumer products, talc-based baby powder, causes ovarian cancer and mesothelioma.</span></p></p><p><p><span class=”print_trim”>Last month, J&amp;J announced that it had created a separate subsidiary to deal with those claims, and that subsidiary filed for voluntary Chapter 11 bankruptcy protection.</span></p></p><p><p><span class=”print_trim”>Company officials said that the split they announced Friday was “separate and distinct” from that baby powder liability and the bankruptcy proceedings.</span></p></p><p><p><span class=”print_trim”>But Morningstar analyst Damien Conover noted in an email that if the consumer division “no longer holds the deep pockets of the combined company, the risk of future consumer product litigation – such as the large talc settlement – may decrease.”</span></p></p><p><p><span class=”print_trim”>Johnson &amp; Johnson, which was founded in 1886, said Friday that its split will occur in the next two years, if approved by the company’s board of directors.</span></p></p><p><p><span class=”print_trim”>J&amp;J’s announcement comes just days after General Electric said that it plans to split into three separate companies.</span></p></p><p><p><span class=”print_trim”>It also follows similar moves by large pharmaceutical rivals Pfizer Inc., which spun off its consumer health product business in 2019, and Merck &amp; Co.</span></p></p><p><p><span class=”print_trim”>Shares of New Brunswick, New Jersey-based Johnson &amp; Johnson climbed 2% to $165.12 in afternoon trading while the Dow Jones Industrial Average rose slightly.</span></p></p><p><p><span class=”print_trim”>J&amp;J shares had already climbed about almost 4% so far this year, while the Dow has jumped about 17%.</span></p></p><p><p><span class=”print_trim”>J&amp;J has been a component of the Dow Jones Industrial Average since 1997.</span></p></p>