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November 15, 2021

Johnson & Johnson splits into two as big pharma downsizes

The company’s decision to split is likely being made so it can focus on its fast-growing pharmaceutical and medical device units.

By MarketLine  

Johnson & Johnson, one of the world’s largest pharmaceutical companies, plans to depart from its consumer healthcare business.

Johnson & Johnson split will help it focus on pharmaceuticals

The US-based pharmaceutical and medical device company will unbundle its consumer health business, which generated revenues of $14.1bn last year, up by 1.1% year-on-year. The decision is likely motivated by the company’s intentions to focus on its fast-growing pharmaceutical and medical devices, which grew by 8.0% to achieve a value of $45.6bn last year.

The company expects to strengthen its growth by focusing each business on core competencies. There is, however, a risk of losing the security of having a diversified business model, in which weakness in one business unit can be offset by a stronger performance in another.

The decision to split may also have been influenced by other pharmaceutical companies who have offloaded businesses segments to capitalise on growth exhibited in pharmaceutical sales, or announced plans to do so.

Several pharmaceutical companies have divestitures this year

Johnson & Johnson joins a list of ‘big pharma’ companies that have reorganised their business this year, including Pfizer, Merck and GlaxoSmithKline (GSK), with the intentions of focusing on key growth pillars and achieving higher revenue and earnings per share (EPS) growth rates.

In July, Pfizer announced the offloading of Upjohn, its off-patent branded and generics business, to be merged with Mylan NV to establish a leading generic drug company, with around $20bn in pro forma 2020 revenues.

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Merck completed the spinoff of Oregon & Co in June to create a new independent, publicly traded company. At the same time, Merck continued to peruse high growth businesses, including oncology, vaccines, hospital medicine and animal health segments.

British drugmaker GSK also intends to offload its consumer health business, with a takeover expected next year. The group sold 3.8 billion consumer healthcare products last year, but the company sees opportunity in increasing research and development (R&D) as the science related to the immune system converges across both pharmaceuticals and vaccines.

Pharmaceutical sales reached new heights last year

The global pharmaceutical market grew by 4.2% last year to reach a value of $1.1tn. The industry was resilient during the Covid-19 pandemic, which strained healthcare systems worldwide and created a stronger demand for healthcare products.

Investment in vaccines and immunotherapies have increased significantly, which has encouraged big pharma companies to restructure their businesses and focus on key growth segments.

Johnson & Johnson is the leading player in the global pharmaceutical market, generating a 7.4% share of the market’s value.

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