J&J to spin off consumer products and focus on drugs

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(Businesshala) – Johnson & Johnson plans to shut down its consumer health division selling Listerine and baby powder to focus on pharmaceuticals and medical devices in the biggest shake-up in the US company’s 135-year history.

FILE PHOTO: The American flag is seen on the company logo for Johnson & Johnson to celebrate the 75th anniversary of the company’s listing on the New York Stock Exchange (NYSE) in New York, US, September 17, 2019. REUTERS/Brendan McDermid/ File photo

The move by the world’s largest health products company follows similar announcements by the conglomerate Toshiba and General Electric and underscores how large, diverse corporations are under pressure to simplify their structures.

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

“The new Johnson & Johnson and the new consumer health company will be able to more effectively allocate resources, drive growth and unlock significant value for patients and consumers,” said Joaquin Duato, who became chief executive officer in January. ,

The company said it is aiming to complete the separation in 18 to 24 months at a cost of $500 million to $1 billion. J&J shares, part of the Dow Jones Industrial Average, were up 1.5% in early trading.

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

Now its pharmaceutical and medical device business, which makes cancer treatments, vaccines and surgical instruments, is on track to generate about $80 billion in sales this year, with its consumer products expected to come in ahead of $15 billion.

The high growth outlook comes despite disappointing sales of Johnson & Johnson’s COVID-19 vaccine after production setbacks and fierce competition from rivals such as Pfizer Inc and Moderna.

(Graphic: Consumer health is projected to account for about 16% of J&J’s 2021 sales -)

Money for deals?

Johnson & Johnson’s plan to spin off its consumer health business into a publicly traded company echoes a move by GlaxoSmithKline and Pfizer, which plan to spin off their combined consumer health business next year.

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

Johnson & Johnson’s consumer division has faced lawsuits alleging that talcum powder for children causes cancer, which the company has denied.

It has created a subsidiary to manage the multi-billion dollar claims and said Friday that the decision to separate the consumer division had nothing to do with the lawsuits.

J&J stopped selling baby powder in the United States and Canada last year.

“It’s important to point out that today’s announcement is separate and distinct from the talc liability and bankruptcy proceedings that were announced a few weeks ago,” said Chief Financial Officer Joseph Walk.

J&J’s medical devices and pharmaceuticals business has faced thousands of lawsuits for products including DePuy and Pinnacle implants, surgical mesh products, and Xarelto blood thinners.

Jeff Jonas, asset manager at GAMCO Investors, said a spin-off would allow the company to make more acquisitions.

“Ultimately, when they 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, giving them more money to do deals.”

Another analyst suggested that the flurry of spin-offs suggested that shareholders should be cautious.

Jim Osman, founder of research firm Edge Consulting Group, said: “Historically, when the market as a whole becomes valuable, we see a large number of spins being announced as companies seek alternative ways to create more shareholder value.” looking for ways.” “That’s something worth noting for the investor.”

Reporting by Manas Mishra in Bengaluru; Written by Nick Ziminsky; Editing by Arun Koyur, Carmel Crimmins and David Clarke

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