Johnson & Johnson is peeling off a consumer health business that helped it become the world's biggest health care products maker.
The company said Friday that it will separate its segment that sells Band-Aids, Listerine and over-the-counter medicines like Tylenol from its pharmaceutical and medical device business.
Company leaders told analysts that the split into two publicly traded companies will make each business more nimble in adapting to their respective markets. It also allows for a more precise allocation of capital.
CEO Alex Gorsky said that while the company's broad focus has worked in the past, the split addresses segments that "have evolved as fundamentally different businesses."
"We've seen a significant evolution in these markets, particularly on the consumer side," Gorsky said, referring in part to a shift toward online shopping that accelerated during the COVID-19 pandemic.
The segment selling prescription drugs and medical devices — J&J's two largest businesses — will keep the Johnson & Johnson name. Its products include the cancer treatment Darzalex, a COVID-19 vaccine and medical devices for orthopedics and surgery.
The new consumer health company has yet to be named. It will house brands including Neutrogena, Aveeno, and the iconic Band-Aids, which a company employee created more than 100 years ago.
Pharmaceuticals and medical devices pulled in a combined $19.6 billion in revenue in the company's recently completed third quarter, which turned out better than analysts expected. Consumer health brought in $3.7 billion.
The consumer health business has more than 20 brands that each have over $150 million in annual sales, Gorsky noted. He added that the portfolio includes well-known names like Tylenol and children's Tylenol that have reached all-time highs in market share.
An analyst asked company leaders on Friday why they were making the change now, when they have touted J&J's diversity in the past as a way to help offset or balance a downturn in a particular segment.
"I think we have consistently had the belief that our diversified portfolio is rooted in strategy," Gorsky said. "However, it's not anchored in strategy."
Johnson & Johnson, which was founded in 1886, said the split will occur in the next two years, if approved by the company's board of directors.
J&J is beginning its split as it also undergoes a leadership transition. The company said in August that Gorsky will step and be replaced in January by longtime company executive Joaquin Duato.
The split also comes as J&J deals with criticism from some Democrats in Congress over another corporate move. J&J is facing thousands of lawsuits claiming that its talc-based baby powder, which it has stopped selling in the U.S. and Canada, caused ovarian cancer.
U.S. Senators Dick Durbin of Illinois and Elizabeth Warren of Massachusetts, among others, recently sent a letter to the company asking for more information about a newly created subsidiary that filed for Chapter 11 bankruptcy protection.
The senators in a Nov. 10 letter called the move a "corporate shell game" that would shield the company from liability in those cases.
Company officials said that the split they announced Friday was "separate and distinct" from the baby powder situation.
J&J's announcement comes just days after General Electric said that it plans to split into three separate companies.
It also follows similar moves by large pharmaceutical rivals Pfizer Inc., which spun off its consumer health product business in 2019, and Merck & Co.
Shares of New Brunswick, New Jersey-based Johnson & Johnson rose less than 2% to $165.28 in late-morning trading while the Dow Jones Industrial Average climbed slightly.
J&J shares had already climbed about almost 4% so far this year, while the Dow has jumped about 17%.
J&J has been a component of the Dow Jones Industrial Average since 1997.