J&J chairman and CEO Joaquin Duato outlined the wider rationale around the spin out of the just listed consumer healthcare arm, Kenvue; J&J will hereon focus on the most challenging diseases via the remaining pharmaceutical and medtech businesses.

With an aspiration to create “multi-generational success”, the spin out, the CEO said, is a sign of “evolution”, one that creates distinct companies - Kenvue focused on the consumer and J&J on the patient.

‘It’s very difficult for a company to be able to compete in beauty with L'Oreal and at the same time to be able to compete in robotic assisted surgery with Intuitive. or then in pharmaceuticals with Merck. It's very different skill sets that you need,” he pointed out.

“By being more focused/specialized/targeted, we're going be able to better serve our constituencies”.

Barclays Equity Research noted that consumer health assets have for long been divisions within larger (usually pharmaceutical) companies, and there has not been an easy way for investors to gain direct exposure to the category. The category, it believes, had been “somewhat neglected” both by companies (for whom consumer health has for the most part not been their primary focus) and investors (consumer health divisions have tended not to be pivotal to the investment case of the wider company).

“However, this now looks to be changing,” Barclays said in a 3 May note, a day prior to Kenvue's trading on the NYSE on 4 May.

It referred to the spin out of Haleon plc from GSK last year, the fact that Sanofi is now publishing stand-alone consumer health financials, how activists have called for "Bayer to consider its strategic options (Bayer has, though, rejected this)" and the [at the time] imminent Kenvue IPO. (Also see "Bayer’s Incoming CEO Faces Consumer Health Decision" - HBW Insight, 10 February, 2023.)

Barclays said that an analysis of the emerging consumer health industry gives it confidence that “mid-single-digit topline growth is eminently achievable”, especially as newly independent consumer health businesses continue the consumerization of the space. “We continue to like Haleon, due to its combination of leading global market share, pure-play focus on consumer health and strong track record of execution since spin [out]”.

While Duato expects Kenvue, the world’s largest pure-play consumer health company by revenue, to be a “tremendous” company, he is convinced that it's going to be “fantastic” for the remaining J&J as well being focused on medtech and pharmaceuticals, given the convergence of the two segments.

“ I can see the intersection between medtech and pharmaceuticals - the same diseases, the same hospitals, the same payers and the future will bring interventions where the system will combine as it happens today in cancer or in cardiovascular, surgery and pharmaceuticals,” he explained.

“I see a great combination of skills - having this ability to have capabilities both in biopharmaceuticals and in the area of medical technology.”

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