Johnson & Johnson Plans to Spin Off Its Consumer Unit

J&J Bets that Smaller Is Better

Johnson & Johnson (JNJ) is spinning off its consumer healthcare unit which churns out Band-Aids and aspirin as it doubles down on prescription drugs and medical devices. The consumer division, which makes $15 billion per year, will be spun off into its own public company in the next 18 to 24 months. The world’s largest healthcare products company said the move will position it for long-term growth.

The spinoff comes in the same week that General Electric (GE) said it would split into three publicly traded companies. Like J&J, GE said the standalone companies would be in a better position to grow.

Following in the Footsteps of Pfizer and Merck

Plans for the spinoff are in the early stages. J&J is still working out what the consumer company will be called, who will lead it, and other details. J&J does plan to structure the transaction in a way that is tax-free.

Spinning off the consumer unit is a big strategy shift for J&J but it is not shocking. In recent years, Pfizer (PFE) and Merck (MRK) also shed their consumer units to focus on their drug businesses. J&J’s consumer unit has helped cushion the blow from setbacks in its drug unit, but sales have been slowing. The unit’s margins are also lower than other J&J businesses.

J&J Narrows Its Focus

By shedding the consumer unit, J&J said it can focus more on drugs. It wants to hire more experts who will be able to navigate the regulatory environment and work with doctors, hospitals, and health insurance companies. J&J will also have more time and resources to spend on drug development, which can take years and requires significant investment. J&J’s drug business already makes treatments for several diseases including prostate cancer. Additionally, it is one of only three drug companies to have a COVID-19 vaccine approved in the US.

With the drug market poised for growth, J&J is doubling down by spinning off its consumer unit. The healthcare product giant is joining other conglomerates which are betting that focusing on drugs will be beneficial.

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