Johnson & Johnson is peeling off a consumer health business that helped it become the world’s biggest health care products maker.
Friday was a day of celebration for the company, which announced that it would seperate its Band-Aids/Listerine sales segment from its pharmacy and medical devices business.
Analysts were told by company leaders that the division into two publicly traded businesses will allow each business to be more flexible in responding to market changes. This allows for more accurate capital allocations.
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.”
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“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.
The segment selling prescription drugs and medical devices — J&J’s two largest businesses — will keep the Johnson & Johnson name. Darzalex for cancer, which is also a COVID-19 vaccination and other medical devices that can be used in orthopedics or surgery are some of its products.
Names of the new company in consumer health are still being finalized. The company will be home to brands such as Aveeno and Neutrogena. It also has the legendary Band-Aids brand, created by a company employee more than 100-years ago.
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. The $3.7 billion was in consumer health.
Gorsky stated that the consumer business in health has over 20 brands, with each having more than $150 million annual sales. He added that the portfolio includes well-known names like Tylenol and children’s Tylenol that have reached all-time highs in market share.
An analyst asked company leaders on Friday why they were making the change now, when they have touted J&J’s diversity in the past as a way to help offset or balance a downturn in a particular segment.
“I think we have consistently had the belief that our diversified portfolio is rooted in strategy,” Gorsky said. “However, it’s not anchored in strategy.”
Johnson & Johnson, which was founded in 1886, said the split will occur in the next two years, if approved by the company’s board of directors.
J&J is beginning its split as it also undergoes a leadership transition. According to the company, Gorsky was going to step aside and Joaquin Duato will replace him in January.
The split also comes as J&J deals with criticism from some Democrats in Congress over another corporate move. J&J is facing thousands of lawsuits claiming that its talc-based baby powder, which it has stopped selling in the U.S. and Canada, caused ovarian cancer.
U.S. The U.S. sent Senators Dick Durbin from Illinois and Elizabeth Warren from Massachusetts a request for additional information regarding a recently created subsidiary, which filed for Chapter 11 bankruptcy protection.
The senators in a Nov. 10 letter called the move a “corporate shell game” that would shield the company from liability in those cases.
Company officials said that the split they announced Friday was “separate and distinct” from the baby powder situation.
J&J’s announcement comes just days after General Electric said that it plans to split into three separate companies.
It also follows similar moves by large pharmaceutical rivals Pfizer Inc., which spun off its consumer health product 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.
J&J shares had already climbed about almost 4% so far this year, while the Dow has jumped about 17%.
J&J has been a component of the Dow Jones Industrial Average since 1997.
