November 12, 2021 – Johnson & Johnson plans to separate its prescription-drug and medical-device business from its consumer group, creating two publicly traded companies.
J&J will shed its consumer division in 18 to 24 months, Chief Executive Alex Gorsky said. What form the separation will take, what the new company will be called and who will lead it are yet to be worked out, Gorsky said, though he said J&J planned to structure the transaction to be tax-free.
It is likely J&J would spin out its consumer unit and hold a stock offering, but no decision has been made, Gorsky said.
The trimmer J&J, which will keep the name, will still stand as the world’s largest health-products company, with yearly sales approaching $80 billion, Chief Financial Officer Joseph Wolk said.
Gorsky said the decision was a result of the businesses, their customers and markets diverging so much in recent years, including during the pandemic. The lawsuits that alleged use of Johnson’s Baby Powder caused cancer didn’t play a role, he said.
The consumer division has generally contributed the smallest profit of J&J’s three main divisions in recent years, less than the contribution from prescription-drug sales or medical-device sales.
Wall Street has its own expectations for the businesses. The consumer unit’s sales rose 1.1% to $15 billion last year, after annual growth of 0.3% the previous year. In contrast, J&J’s pharmaceutical unit posted sales growth of 8% last year and 3.6% the previous year.
The leaner J&J will remain diversified by providing products for a range of different diseases and based on various technologies, from cellular therapy to robotic-assisted surgery.
The Wall Street Journal reports that the remaining J&J will intensify efforts to create products that combine medical devices with drugs, such as one in development that identifies lung tumors and then targets them with a cancer therapy. Another experimental product aims to treat bladder-cancer patients using a device that delivers a drug.
The decision follows announcements that rivals Pfizer Inc. and Merck & Co. will sell off their own consumer businesses and double down on faster-growing pharmaceuticals.
This week, General Electric Co. also said it would break into three public companies, another example of large, diversified companies reassessing their structures and seeking to find stronger growth by separating into smaller units focused on their core competencies.