The American healthcare conglomerate and COVID-19 vaccine manufacturer Johnson & Johnson announced their decision to split the company into two separate sectors, consumer products, and operations with medical devices and pharmaceuticals. This move will transform one publicly traded company into two, resulting in a rise of J&J shares in premarket trading.
The consumer products division will be dedicated to household J&J products such as skincare from Neutrogena and Aveeno, Band-Aid bandages, and Listerine mouthwash. The consumer product division will be separated from the riskier yet fast-growing pharmaceutical division that will sell medical devices and prescription medications including the lucrative COVID-19 vaccine.
Johnson & Johnson CEO Alex Gorsky disclosed in a press statement, “Following a comprehensive review, the board and management team believe that the planned separation of the consumer health business is the best way to accelerate our efforts to serve patients, consumers, and healthcare professionals, create opportunities for our talented global team, drive profitable growth, and – most importantly – improve healthcare outcomes for people around the world.”
J&J has the goal of completing the transition of splitting the company within 18 to 24 months. The medical device and pharmaceutical division is also developing advanced technology such as AI and robotics that will retain the name Johnson & Johnson with CEO Joaquin Duato overlooking the new division.
The board of J&J has discussed this plan for some time posing this will be a tremendous opportunity and the best long-term interest of stakeholders. The pharmaceutical division is expected to generate $77 billion in revenue and the consumer division is predicted to sell $15 billion in products this year.
The consumer division will be taking on the ongoing inherit litigation with lawsuits for claims that the Johnson’s Baby Powder product causes cancer with J&J denying these claims. The J&J consumer division oversees four brands that generate over $1 billion in annual sales and the division separation can make for a better opportunity for capital allocation with more agility according to CEO Gorsky.
This will be another major change for J&J with the departure of Gorkey as CEO, but he will remain as an executive chairman of the new J&J. The move to split one company into multiple divisions is becoming a more common plan for company stability in the future. J&J is planning on splitting into another division by November 2023.
