Johnson & Johnson's spinoff of Kenvue provides $13.2B in potential M&A firepower

Last month, during a quarterly conference call—as Johnson & Johnson considered its future beyond the separation of its consumer health unit—Chief Financial Officer Joe Wolk described the company’s appetite for M&A as “voracious.”

Helping fuel that appetite are the proceeds gained from the spinout of Kenvue. Wednesday, J&J said the offering had generated $13.2 billion in cash.

As the company walked investors through its adjusted finances from the separation, it did not address business development. But the big number was an eye-catching reminder of the added firepower J&J can deploy.

Last month, when Wolk expressed J&J’s voraciousness, it was in response to a question about potential deals in its diagnostics sector. But it’s clear that the verbiage also applies to the company’s desire to grow its pharma unit.

“When it comes to pharma, our history in tuck-ins in licensing and collaborations has been very successful,” CEO Joaquin Duato said last month. “As a matter of fact, external innovation represents about 50% of our pipeline.”

Wolk added that the appetite applied to deals “big and small” that might be on the table.

J&J did not pull off a large pharma deal last year, though it was among the companies to weigh a purchase of Horizon Therapeutics, which eventually sold to Amgen for $27.8 billion. J&J also made a play for Global Blood Therapeutics but was outbid by Pfizer, which ponied up $5.4 billion for the sickle cell disease specialist.

J&J didn't strike any major pharma deals in 2021, either. Its last big biopharma move was a $6.5 billion purchase of Momenta Pharmaceuticals in August 2020.

As for other adjustments J&J has made to its projections for 2023, revenue is expected to fall between $83.2 billion and $84 billion. That's down from a previous window of $98.8 billion to $99.8 billion, prior to the spinoff. The new figure represents 7% growth in sales from J&J’s pharma and medtech sectors from last year.

J&J also is estimating 12.5% growth in its annual adjusted profit.

“The main driver for this transaction always has been the strategic rationale of having both companies being more agile, flexible and focused for success,” Wolk said in Wednesday’s presentation.