Should Johnson & Johnson Unload Troubled McNeil Consumer Healthcare Business?

In case anyone was wondering, Johnson & Johnson (JNJ) CEO Alex Gorsky is trying to make clear that the healthcare giant has no intention of unloading its troubled McNeil Consumer Healthcare unit. In remarks to Wall Street analysts this morning to discuss earnings, Gorsky says that J&J is “absolutely committed” to the struggling unit, which has recalled millions of products and is retooling a key plant that is taking longer than expected to fix.

The remarks were made shortly after J&J prompted speculation about the fate of the McNeil unit by selling the Rolaids antacid brand to Sanofi (SNY), which owns Chattem, another player in the over-the-counter business. Initially, the only information about the deal was simply that the US Federal Trade Commission had approved a sale of something, suggesting to some wags that J&J may consider selling much larger chunks of the McNeil operation (reported in earlier Pharma news).

For awhile last year, in fact, there was chatter among some Wall Streeters that J&J may want to consider such a move, although the healthcare giant has long considered its consumer healthcare business to generate dependable cash flow to smooth out the highs and lows caused by the unpredictable failures associated with prescription medicines and devices.

J&J and other big drug makers are having a hard time generating revenue growth, as patents on old medicines expire and company labs fail to develop enough new drugs.

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The consumer business, however, is not performing as well over the past two years, thanks to the many quality control problems that caused the FDA to issue a consent decree (see earlier Pharma news). Last year, sales generated by the US consumer healthcare unit fell 2 percent. Overall, the worldwide consumer business fell 2.9 percent, although J&J maintained this decline was largely due to the impact of currency fluctuations.

Falling profit has made the stock seem pricey, pushing up J&J's PE ratio.

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data by YCharts

To read the remainder of this article, go to Pharmalot.

Ed Silverman, a contributing editor of YCharts, is the founder and editor of Pharmalot. He previously reported on the pharmaceutical industry and other business topics for the Star-Ledger of New Jersey, New York Newsday and Investor’s Business Daily. He can be reached at editor@ycharts.com.

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