Johnson & Johnson, the world's largest drugmaker and one of its oldest, is splitting in two in a major corporate shake-up that's meant to boost the value of the company's main businesses.
On Friday, J&J said it will separate its consumer health division, which sells well-known brands like Tylenol, Listerine, and Band-Aids, into a new publicly traded company. The top executives of the yet-to-be-named company will be "determined and announced in due course" as the separation progresses, J&J said.
J&J will retain its prescription drug and medical device units and keep in place its current leadership plan. CEO Alex Gorsky, who's lead J&J for almost a decade, will step down as planned from his position at the end of the year and become executive chairman. Joaquin Duato, who heads the company's executive committee, will succeed Gorsky and lead J&J after the split.
J&J expects to complete the separation in the next 18 to 24 months.
The reorganization would break up a company that's been a mainstay of corporate America for many decades. J&J, which was founded by brothers James and Edward Johnson in 1886, has been part of the Dow Jones Industrial Average since 1997, when it was added alongside Walmart and Hewlett Packard.
Now worth roughly $430 billion, it's the most valuable publicly traded pharmaceutical company in the world and among the 15 largest corporations in the U.S. by market value.
Recently, though, J&J has become enmeshed in a series of legal battles over its role in the opioid overdose epidemic in the U.S., and over alleged harms caused by its pelvic mesh and talc-based baby powder. The company has controversially sought to shield itself from tens of thousands of lawsuits involving the latter product by placing its potential liability within a corporate subsidiary, which it's put into bankruptcy protection.
By breaking itself in two, J&J is following a pattern that's seen many large pharmaceutical companies shift away from a conglomerate business model. Drugmakers had previously expanded into adjacent industries as a way to provide steadier revenue, but now see greater value in focusing more narrowly on higher-margin prescription medicines.
Pfizer, for instance, has merged its generic drugs unit with Mylan and spun its consumer health business into a joint venture with GlaxoSmithKline that will soon become an independent company. Merck & Co. last year said it would split its women's health and older drug products into a separate business. Novartis, which broke off its eye care business in 2019, recently announced it's considering a sale or separation of its generic drug unit Sandoz.
Outside of the pharmaceutical industry, General Electric, a similarly long-lived American corporation as J&J, also announced this week that it would separate its three primary divisions into separate companies.
J&J said its planned split is similarly aimed at better targeting its considerable resources. Each new company will have a financial profile that "more accurately reflects the strengths and opportunities of each business," J&J said.
"We felt that this, in fact, was the right time to recognize the differences between the consumer-facing business versus that of medical device and pharmaceuticals," said Gorksy on a conference call Friday. "We think these have evolved as fundamentally different businesses."
For J&J, that means a bigger push into drug research, an effort headed by investments into cancer and immunology that have been critical to the growth of its pharmaceutical business. Over the last decade, J&J made key deals for rights to the blood cancer drugs Imbruvica and Darzalex, each of which have become multi-billion dollar products.
The company has also shown interest in cell and gene therapies, most notably a multiple myeloma treatment that could soon win approval from regulators.
All told, the prescription drug business and the medical device unit, which sells orthopedics, surgical tools and other products, are expected to generate $77 billion in sales this year. Pharmaceuticals would account for about two-thirds of that total.
J&J intends to have the structure of its consumer health business outlined by the end of 2022. As a standalone business, it is projected to generate about $15 billion in revenue in 2021.
Note: This story has been updated throughout with added detail and comment from J&J CEO Alex Gorsky.