The end of healthcare conglomerates?: Johnson & Johnson breaks off its consumer products division to focus on pharmaceuticals

November 25, 2021

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2 min read

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What's going on here?

The world’s largest healthcare company Johnson & Johnson has announced plans to break off its consumer health division.

What does this mean?

Johnson & Johnson (J&J), the largest healthcare conglomerate in the world, has recently announced plans to split from its consumer products division to focus entirely on its pharmaceuticals and medical devices businesses which make drugs, vaccines, and surgical tools. J&J’s consumer division, comprised of Johnson’s, Listerine, Tylenol, and Band-Aid will break off from J&J completely within two years to become a publicly-traded consumer health company, most likely via a stock offering.

The move comes after years of scandals and poor growth for the company’s consumer division. Product recalls and lawsuits surrounding allegedly carcinogenic talcum powder have caused the unit to slow the growth of the wider business. The company’s executives hope that through simplification, both the new J&J and the new consumer health company will be able to better focus their resources into increasing innovation, accelerating growth, and becoming leaders in their own fields.

What's the big picture effect?

J&J is the third conglomerate to break up this November after multinational companies General Electric and Toshiba announced that each of them will be dividing into three separate public companies. Conglomerates (corporate behemoths that acquire companies unrelated to their core business in order to take advantage of scale and protect themselves from market volatility) have been on the decline for decades. The recent announcements highlight a growing belief amongst executives that smaller is better; that simple entities respond quicker to market change and that focus trumps diversity when pursuing long-term success.

J&J is also the latest in a series of pharmaceutical companies to announce a break from their consumer products divisions. GSK and Pfizer have merged their consumer health arms into a joint venture that they plan to launch next year. Meanwhile, Merck sold its consumer care business to Bayer. 

The slim-downs have primarily been motivated by massive changes in the pharmaceutical and consumer health industries. Digitisation and advancements in AI have turned healthcare into a rapidly changing landscape, and consumer health, now dictated by influencers and e-commerce, has evolved significantly in the way consumers purchase healthcare products.

The company believes that separating pharmaceuticals from consumer health will allow both segments to focus on growing their businesses and unlocking their value. Though, only time will tell whether this strategy is successful.

Report written by Johan Faisal

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