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

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Johnson & Johnson is splitting into two companies, separating the division that sells Band-Aids and Listerine from its medical device and prescription drug business.

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Johnson & Johnson is closing down a consumer health business that helped it become the world’s largest manufacturer of health care products.

The company on Friday said it would divest its segment from its pharmaceutical and medical device business, which sells over-the-counter drugs such as Band-Aids, Listerine and Tylenol.

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Company leaders told analysts that splitting into two publicly traded companies would make each business more agile to adapt to its respective markets. It also allows for more precise allocation of capital.

CEO Alex Gorsky said that although the company’s broader focus has worked in the past, split address segments that “have evolved as fundamentally separate businesses.”

“We’ve seen a significant development in these markets, especially on the consumer side,” Gorsky said, referring to a shift toward online shopping that accelerated during the COVID-19 pandemic.

The segment that sells prescription drugs and medical devices — J&J’s two largest businesses — will be named Johnson & Johnson. Its products include the cancer treatment Darzalex, a COVID-19 vaccine and medical devices for orthopedics and surgery.

The name of the new consumer health company is yet to be decided. It will feature brands including Neutrogena, Aveeno and the iconic Band-Aids, which an employee of the company created more than 100 years ago.

Pharmaceuticals and medical devices combined posted revenue of $19.6 billion in the company’s recently completed third quarter, which turned out to be better than analysts expected. Consumer health brought in $3.7 billion.

Gorsky said there are more than 20 brands in the consumer health business, each with annual sales of more than $150 million. He added that the portfolio includes well-known names like Tylenol and Children’s Tylenol which have reached an all-time high in market share.

An analyst on Friday asked company leaders why they are shifting now, when they have touted J&J’s diversification in the past as a way to help offset or balance the slowdown in a particular segment.

“I think we’ve consistently believed that our diversified portfolio is rooted in strategy,” Gorsky said. “However, it is not included in the strategy.”

Johnson & Johnson, which was founded in 1886, stated that the split would occur over the next two years if approved by the company’s board of directors.

J&J is beginning its split as it also goes through a leadership change, The company said in August that Gorsky would step down and be replaced in January by longtime company executive Joaquin Duato.

The division comes even as J&K deals with criticism from some Democrats in Congress over another corporate 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, caused ovarian cancer.

U.S. Senators Dick Durbin of Illinois and Elizabeth Warren of Massachusetts recently sent a letter to the company asking for more information about a newly created subsidiary that filed for Chapter 11 bankruptcy protection.

In a November 10 letter, senators called the move a “corporate shell game” that would protect the company from liability in those cases.

Company officials said the split they announced Friday was “separate and separate” from the situation in baby powder.

J&J’s announcement comes just days later General Electric said it plans to divest In three different companies.

It follows similar moves by big 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 climbed slightly.

Shares of J&J are up about 4% so far this year, while the Dow has jumped about 17%.

J&J has been a constituent of the Dow Jones Industrial Average since 1997.

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