Is once-skeptical J&J coming around on pharma's breakup craze?

Johnson & Johnson CEO Alex Gorsky

SAN FRANCISCO--Johnson & Johnson ($JNJ) has been pretty quiet over the past couple of years as it's watched its Big Pharma peers slim down like there's no tomorrow. But now, it seems the pharma giant may be coming around to the idea--or so CEO Alex Gorsky said Monday at the JP Morgan Healthcare Conference.

"We think it's important to be very thoughtful about where we're going to participate and where we're not going to participate," he told presentation watchers in San Francisco. "If we're not a No. 1 or No. 2 in a particular area, if we don't see a path to achieving leadership, … then that's maybe better served in someone else's hands."

Is the New Jersey drugmaker ready to split three ways between pharma, consumer health and medical devices and diagnostics, an idea Gorsky scoffed at when Goldman Sachs analyst (and breakup enthusiast) Jami Rubin first put it forth back in 2012? Not necessarily. Gorsky pointed to the company's recent divestment track record, highlighting small moves such as last March's $4 billion sale of its Ortho Clinical Diagnostics arm.

But the J&J chief didn't limit the possibilities, either. "To be clear, these can be very good businesses with a lot of opportunity," he said.

He also noted the option to "reinvent" within a space as opposed to "exiting"--much the way Novartis ($NVS) did with its struggling consumer unit when it agreed to team up with GlaxoSmithKline ($GSK) on an OTC joint venture, to be majority-controlled by the British pharma's execs.

Johnson & Johnson's own consumer business could use some help after garnering a 2011 FDA consent decree, which it's working hard to overcome, Gorsky said. But though he may have high hopes for the unit, with GSK and Novartis bringing their stepped-up game to an already competitive space, the "path to achieving leadership" isn't quite so clear.

In the meantime, the company's rivals are still pushing full speed ahead with split-up plans of their own, with drugmakers like Baxter ($BAX) and Bayer prepping spinoffs and Glaxo and Novartis nearing the close of their mega asset swap. And the trend likely won't end there, EY analysts conclude in a new report--nor should it.

With buyout targets commanding high premiums as pharma rides an M&A wave, "we are more likely to see greater emphasis on divestitures and bolt-on acquisitions by a broader cadre of biopharmas" this year, they wrote. "... We believe dealmaking strategies in 2015 should include additional divestitures of non-strategic businesses, franchises or products that are not market leaders."

- download EY's report (PDF)

Special Reports: Pharma's top 10 M&A deals of 2014's first half | The top 10 pharma companies by 2013 revenue - Johnson & Johnson | 15 Highest-Paid Biopharma CEOs of 2013 - Alex Gorsky - J&J

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