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

Nov 12 (Reuters) – Johnson & Johnson (JNJ.N) plans to spin off its consumer well being division that sells Listerine and Child Powder to focus on prescription drugs and medical gadgets within the greatest shake-up within the U.S. firm’s 135-year historical past.

The transfer by the world’s largest well being products firm follows comparable bulletins by conglomerates Toshiba(6502.T) and Basic Electrical(GE.N) and underscores how huge, diversified firms are beneath strain to simplify their buildings.

This has notably been the case in healthcare, the place the slow-and-steady enterprise of promoting products corresponding to shampoos and moisturizers has more and more diverged from the high-risk, high-reward work of creating and advertising and marketing blockbuster drugs.

“We think these have evolved as fundamentally different businesses,” J&J Chief Government Alex Gorsky stated. He stated the variations within the companies had grow to be notably clear in the course of the COVID-19 pandemic as shoppers purchased extra products on-line.

The corporate stated it was aiming to full the separation in 18 to 24 months at a price of $500 million to $1 billion. J&J shares, a part of the Dow Jones Industrial Common (.DJI), have been up 1.5%.

“This is just an example of delivering value to shareholders by specializing the businesses,” stated Shannon Saccocia, chief funding officer at Boston Personal, which holds J&J inventory and is a part of SVB Monetary Group.

Johnson & Johnson’s Band-Aids child shampoo and cough treatments have lengthy been the face of the corporate.

However its pharmaceutical and medical tools enterprise, which makes most cancers remedies, vaccines and surgical instruments, is on monitor for almost $80 billion in gross sales this yr, manner forward of the $15 billion its consumer products are anticipated to usher in.

The upper development outlook comes regardless of disappointing gross sales of Johnson & Johnson’s COVID-19 vaccine following a string of manufacturing setbacks and fierce competitors from rivals Pfizer Inc (PFE.N) and Moderna (MRNA.O).

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Johnson & Johnson’s plan to hive off its consumer well being enterprise right into a publicly traded firm echoes a transfer by GlaxoSmithKline (GSK.L) and Pfizer, which additionally plan to spin off their joint consumer well being enterprise subsequent yr.

German drugmaker Merck KGaA (MRCG.DE) bought its consumer well being division to Procter & Gamble Co (PG.N) in 2018.

“The firm’s timing is surprising, as we don’t see any major catalyst for the move. However, if the consumer division no longer holds the deep pockets of the combined company, the risk of future consumer product litigation – such as the large talc settlement – may decrease,” Morningstar analyst Damien Conover stated in a analysis be aware.

Johnson & Johnson’s consumer division has confronted a spate of lawsuits alleging its talcum powder for infants causes most cancers, which the corporate has denied.

It has created a subsidiary to handle the multi-billion-dollar claims and stated on Friday the choice to separate the consumer division had nothing to do with the lawsuits.

J&J stopped selling the child powder in the USA and Canada final yr.

“It’s important to state upfront that today’s announcement is separate and distinct from the talc liability and bankruptcy proceedings that were announced a few weeks ago,” stated Chief Monetary Officer Joseph Wolk.

J&J’s medical machine and prescription drugs enterprise has confronted tens of 1000’s of lawsuits for products together with DePuy and Pinnacle implants, surgical mesh products and Xarelto blood thinner.

Jeff Jonas, asset supervisor at GAMCO Buyers, stated a spin-off would enable the corporate to be extra acquisitive.

“Ultimately, when they do 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, which would give them more money to do deals,” he stated.

One other analyst steered the flurry of spin-offs steered shareholders must be cautious.

“Historically, when the market becomes fully valued, we see a great number of spins being announced as companies look for alternate ways of creating more shareholder value,” stated Jim Osman, founding father of analysis agency Edge Consulting Group. “It’s something worth noting for the investor.”

Reporting by Manas Mishra in Bengaluru; writing by Nick Zieminski; Modifying by Arun Koyyur, Carmel Crimmins, David Clarke and Dan Grebler

Our Requirements: The Thomson Reuters Trust Principles.

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