Four Big Takeaways From Johnson & Johnson’s Plans to Break Apart
(Bloomberg) -- Johnson & Johnson’s plan to split itself in two shows how storied companies are being forced to rethink a bigger-is-better ethos that once reigned supreme in corporate America.
The Covid-19 pandemic has radically altered many businesses and is still having unpredictable economic consequences. J&J Chief Executive Officer Alex Gorsky acknowledged on a call with analysts on Friday that the virus hastened a move that the company had weighed for years.
However, there’s more to the story than the coronavirus. Some of the forces changing the health industry were visible long before Covid-19 emerged -- and some of J&J’s rivals had already acted on them. Additionally, consumer behavior has been changing because of social media and other factors for some time.
Here are four takeaways from J&J’s decision:
Focus Is King
Where once companies sought to span as many markets as possible, on the notion that hard times in one business could be offset by good times in another, now having lots of disparate enterprises under one roof is increasingly viewed as cumbersome and confining. Drugmakers have been on to this idea for some time, with Pfizer Inc. and others selling or spinning off slower-growing businesses. General Electric Co., in many ways the ultimate conglomerate, said this week it too would break apart.
Drugs Are Changing
The world’s biggest drug companies were built on a foundation of blockbuster medications for chronic conditions like cardiovascular disease that were relatively easy to make and to take. Pharmaceutical fortunes are now tied to complicated therapies for cancer, immune disorders and neurological diseases that are risky and expensive to develop. J&J’s drug business, if it keeps the current company’s sterling credit rating, could have vast resources to pour into the clinic or deals for smaller companies with promising therapies.
Consumers Are Logged In
J&J said on Friday that the way people buy personal-care products is changing. Where once a shopper’s eye might have drifted to the familiar red Johnson & Johnson logo on a shelf, now the maker of Band-Aids and Neosporin faces competition from a raft of celebrity influencers like Kylie Jenner and Jessica Alba who can steer social-media users to new brands that are only a click away.
Investors Are Waiting
J&J’s breakup is a big moment in American business history, but for now the market is withholding judgment. As of 10:46 a.m. Friday in New York, the stock was up 1.1% -- a signal that investors want to hear more details of how the deal will be structured before registering full-throated enthusiasm. So far this year, J&J shares have gained about 5%.
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