Analyst seeks split-up for drugmaker J&J

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Goldman Sachs analyst Jami Rubin's dream of a Johnson & Johnson break-up will not be deterred. In what amounts to a 23-page wish list, the analyst laid out reasons for breaking up the company in a research note dated May 30. Although the conglomerate has come to conjure images of parents and children almost as often as it does recalls, consumer perceptions aren't what's bugging the analyst. Instead, Rubin is bothered by what amounts to poor management that is the result of a company being far too big to navigate its best interests.

Breaking up J&J is not a new proposal — Rubin's note acknowledged that the company has dismissed similar talk in the past. Among the reasons given: J&J wants to be perceived as a healthcare company. But Rubin wrote, “as it has grown, J&J may simply have gotten too big for the decentralized, diversified model to work as effectively as it once did.”

Her list of problems included:

• Lack of unit synergy, by which Rubin means pharmaceutical, consumer and medical devices and diagnostics (MD&D). As an example, Rubin wrote that there really isn't an overlap between pharma and consumer goods, because specialty drugs are becoming a greater focus. That means Rx-to-OTC switches are unlikely, she wrote.
• Too few leadership resources for too many needs.
• Investors like spin-offs. Rubin's report cites Abbott's impending split and Pfizer's nutrition business sale.
Rubin's post-breakup vision includes the following:
• Estimated share prices: pharma $34/share, MD&D $27/share, consumer, $9/share.
• A free-standing pharma powerhouse. Rubin said under-performing sisters are sapping the pharma division.
• A revived MD&D division, if Johnson & Johnson put more money behind it.
Rubin wrote that the company has ignored entire therapies, including transcatheter heart valves, and is more focused on emerging markets instead of new technologies.
The company did not respond to reporter inquiries by press time.