By Suzanne Hodsden
Johnson & Johnson (J&J) has announced that it will cut about 3,000 jobs from its medical device business — representing 4 to 6 percent of that workforce and about 2.5 percent of the company’s global workforce — a reorganization move that J&J expects will make way for a changing global marketplace and accelerate innovation. J&J has made no specific comments about potential business exits and expects its strategy to have minimal effect on the company’s existing medical device sales.
J&J estimated that the annualized pre-tax cost savings would total between $800 million and $1 billion, which would give the company the flexibility it needs to fund investments in new growth opportunities. According to an FAQ published by the company, the majority of cutbacks will be seen in the orthopedics, surgery, and cardiovascular businesses, and the proposed plans — which will be implemented over the next two years — will not impact the pharmaceutical or consumer health product businesses.
In the past, consumer products and pharmaceuticals represented J&J’s weakest segments, but recent shifts in the global medical device market have turned the tables, according to the Wall Street Journal (WSJ).
J&J’s medical device sales fell 2.9 percent overall, said Bloomberg, but sales in consumer-health products increased. J&J has not commented on which of its existing businesses the company intends to vacate, though worldwide chairman of J&J Medical Devices Gary Pruden commented during an October earnings call that “we will continue to exit categories that do not fit our strategy.”
“The bold steps we are taking today are to evolve our offerings, structure and foot print and increase our investment in innovation,” said Pruden in a press release. “These actions recognize the changing needs of the global medical device market and will deliver more value to customers, increasing our competitive advantage and driving growth and profitability for our business.”
At the end of 2015, J&J’s cash-on-hand balance totaled $37.3 billion, which some analysts interpreted as a sign of impending M&A action. At the J.P. Morgan Healthcare Conference, J&J CEO Alex Gorsky commented to Bloomberg that he did not expect big-ticket mergers in J&J’s future, and that the company would instead focus on acquiring smaller startups.
“We’d rather spend our time creating the next platform than downsizing, reorganizing, and taking the next track,” said Gorsky. “Value creation in large deals is much more challenging.”
Future M&A plans, as well as plans to buy back $10 billion in stock, will not be affected by the restructuring, said J&J in the FAQ.
“As a market leader, we are committed to leveraging our breadth and scale to shape the future of the medical device industry, for the benefit of those we serve,” said Pruden.
J&J will offer more details about restructuring costs and potential business exits in its 2015 fourth quarter earnings call on Jan. 26.