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

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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.

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The move by the world’s largest health products company here follows similar announcements by General Electric as well as J&J’s rivals conglomerate Toshiba, and underscores how well its structures need to increase focus. How many large, diverse corporations are under pressure to simplify.

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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.

“We think these have evolved into fundamentally different businesses,” said J&J Chief Executive Alex Gorsky.

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Rival public consumer companies are valued richly by investors compared to the J&J consumer entity, Chief Financial Officer Joseph Walk said in an interview.

“That, quite frankly, was getting lost within Johnson & Johnson,” said Walk. “Likewise, I think — in the case of pharmaceuticals and medical devices — that prevented the spotlight from shining on those businesses.”

The company said it is aiming to complete the separation in 18 to 24 months at a cost of $500 million to $1 billion. Shares of J&J, part of the Dow Jones Industrial Average, were up 1.5%. The pharmaceutical and medical devices unit will retain the J&J name and the company expects a tax-free spinoff.

Some analysts argued for caution to investors.

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.”

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

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

But its pharmaceutical and medical device business, which makes cancer treatments, vaccines and surgical devices, is on track for about $80 billion in sales this year, well ahead of its $15 billion in consumer products. reut.rs/3nasE3j expected to bring.

High growth outlook comes despite disappointing sales of Johnson & Johnson’s COVID-19 vaccine after multiple failures in production reut.rs/3n6PwAM and fierce competition from rivals Pfizer Inc. and Moderna.

(Graphic: Consumer Health is estimated to be about 16% of J&J’s sales 🙂

Money for deals?

Johnson & Johnson is following rivals. GlaxoSmithKline and Pfizer plan to spin off their combined consumer health business next year, and German drugmaker Merck KGaA sold its consumer health division to Procter & Gamble Co in 2018. Sanofi SA also plans to wind down its consumer business.

“The timing of the firm is surprising, as we do not see any major catalysts for this move. However, if the consumer division no longer holds the combined company’s deep pockets, there is a risk of future consumer product litigation – such as large talc settlements. — may be less,” Morningstar analyst Damien Conover said in a research note.

Johnson & Johnson’s consumer department has faced nearly 40,000 lawsuits alleging that the asbestos in its baby powder and other talc products was later linked to mesothelioma and ovarian cancer in women who used it for personal hygiene. cancer, which the company denies.

In October, it created a separate subsidiary to hold talc liabilities, which then filed for bankruptcy protection.

J&J said on Friday that its breakup decision had nothing to do with talaq litigation or bankruptcy moves.

A 2018 Businesshala investigation found that J&J knew for decades that asbestos, a known carcinogen, was hiding in its baby powder and other cosmetic talc products.

The company ceased sales of baby powder in the United States and Canada in May 2020 due to what it called “misinformation” and “baseless allegations” about a talc-based product. J&J says its consumer talc products are safe and are confirmed through thousands of tests to be asbestos-free.

J&J’s medical devices and pharmaceuticals business has also 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 the spinoff could allow the remaining J&J to make more acquisitions.

Woake said it “wasn’t a wild assumption” to expect that it would add debt to the new consumer products company to generate some cash for J&J, but that both companies would have strong financial profiles, including one. Contains strong investment-grade credit rating. consumer business.

Additional reporting by Mike Spector; Written by Nick Ziminsky and Peter Henderson; Editing by Arun Koyur, Carmel Crimins, David Clarke and Dan Grebler

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