The 135-year-old company announced plans to divide itself into a consumer goods business and a medical company.

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Authors: Rebecca Robbins and Michael J. de la Merced

For several generations, Johnson & Johnson has been synonymous with American healthcare, and sometimes synonymous with American healthcare scandals.

Now, the 135-year-old company is joining a growing number of iconic American companies that are spinning up to please grumpy shareholders and get rid of recent controversies.

On Friday, Johnson & Johnson announced plans to split its consumer products division-known for household but not profitable brands such as Tylenol, Band-Aid and Neutrogena-into an independent company. Johnson & Johnson will maintain its more profitable and faster-growing businesses in the pharmaceutical and medical device sectors.

The planned spin-off is carried out after Johnson & Johnson has experienced years of hardship. The company is dealing with lawsuits over its role in the opioid epidemic and allegations that the talcum powder used in its baby powder has caused some customers to develop cancer. Due to production issues and concerns about rare side effects, even the single Covid-19 vaccine that the company once expected to be widely used globally is far from fulfilling its promise.

Johnson & Johnson, headquartered in New Jersey, is part of a company that has once been proud of, and these companies recently announced plans to spin off or shrink significantly. Only this week, the industrial conglomerates General Electric and Toshiba announced that they would spin off. In recent years, pharmaceutical companies including Merck, Pfizer and GlaxoSmithKline have also divested or restructured their consumer products business to focus on higher-margin businesses, especially the pharmaceutical business .

"We are in a cycle where corporate groups are not so popular," said Eric Gordon, a professor of business strategy at the Ross School of Business at the University of Michigan. "Especially pharmaceutical companies are trying to focus on pharmaceuticals."

Even before the planned spin-off, Johnson & Johnson was in the midst of intergenerational change. The company announced this summer that Joaquin Duato, who is in charge of its pharmaceutical division, will take over as CEO in January. Alex Gorski, who has served as chief executive officer for nearly ten years, will continue to serve as executive chairman.

Driven by a steady stream of new products and experimental drugs, since Gorsky took office in 2012, the company's stock price has almost tripled. Drugs to treat inflammation and cancer have been key drivers of growth. But these successes were accompanied by compelling mistakes.

Johnson & Johnson faces thousands of lawsuits, claiming that its talc-based products may cause cancer. The company stopped selling talc-based baby powder in North America last year, even though it had said it was safe. This fall, Johnson & Johnson passed on the liabilities of the business to a new department, which filed for bankruptcy protection last month. (According to the plan to split the company, it will remain a subsidiary of Johnson & Johnson.) The reorganization has aroused criticism from legislators, academics, and trial lawyers as a strategy to protect investors at the expense of claims to be harmed by Johnson & Johnson. The interests of customers. product.

At the same time, Johnson & Johnson has also been criticized by the public and the law for its role in the opioid crisis. The company is a manufacturer of potentially addictive opioid painkillers, and it completely stopped this business in the United States last year. Although California and Oklahoma courts recently handed the victory to Johnson & Johnson and other opioid manufacturers, it faces lawsuits seeking billions of dollars.

Like other medical companies, Johnson & Johnson has also withstood controversies that threaten its reputation. In a 1982 episode that became a textbook example of how to manage a corporate crisis, the company had to get into trouble after someone tampered with Extra-Strength Tylenol capsules, used potassium cyanide to make them deadly, and killed 7 people. The company regained public trust by quickly removing Tylenol from American shelves and introducing new tamper-proof packaging.

From start to finish, the company has relied on the "halo effect" produced by popular consumer products, especially its Johnson's Baby baby shampoo, lotion, moisturizer and talcum powder. Such products have meager profit margins, but make the public think that Johnson & Johnson is a benevolent and gentle company.

"It gave us a beautiful image that most companies would die for," Ralph S. Larsen, then chairman of the company, told Forbes in 2001.

But over time, the commercial value of these brands has diminished. Even if consumers continue to refer to all plastic bandages as band-aids-rare brands, such as Kleenex and Xerox, whose names are substitutes for the entire product line-they have embraced cheaper generic competitors. The same is true for products such as Tylenol.

Even the lingering feelings for the company's consumer products will not help advance Johnson & Johnson's medical business, which is more important to the company's financial health.

"Doctors and hospitals only want hips and knees, and cheap effective drugs. They didn't really think of band-aids," said Les Funtleyder, a healthcare investor who has been following Johnson & Johnson as an analyst for many years.

Johnson & Johnson, founded in 1886, is a manufacturer of surgical dressings and in many respects the world's largest healthcare company. Even as independent companies, these two independent companies will be huge. It is estimated that the revenue of the pharmaceutical and medical device sector this year will reach 77 billion U.S. dollars. The consumer health business is expected to bring in sales of $15 billion.

Johnson & Johnson said it plans to complete the split within two years. Executives said the move was to better focus and expand two very different businesses. "We must continue to develop our business to provide value today, tomorrow and decades to come," Mr. Gorski said in a statement.

Johnson & Johnson’s Covid vaccine only accounts for a small part of its overall business-it is expected to generate only $2.5 billion in revenue this year-but it provides the company with a high-profile opportunity to save some of its recent reputational trauma.

However, the vaccine has not become the main force in global vaccination work, especially for people who are difficult to reach. Unlike vaccines from Pfizer, Moderna and AstraZeneca, Johnson & Johnson only needs one dose.

The company had hoped to produce 1 billion photos this year, but now expects only about half. Its production has slowed due to production problems, most notably caused by pollution at the Baltimore plant operated by contract manufacturer Emergent BioSolutions.

In the United States, fewer than 16 million people have been vaccinated by Johnson & Johnson, compared with 108 million people in Pfizer and 71 million people in Moderna.