Johnson & Johnson (J&J) on Tuesday said it plans to cut about 3,000 jobs over the next two years as the healthcare conglomerate works to restructure its medical devices business.
The New Brunswick, New Jersey-based company said that would amount to more than 2 percent of its global workforce of about 127,000 people and 4 to 6 percent of its employee total in medical devices.
The cuts come after a tough year for the healthcare bellwether, which has seen sales of its prescription drugs, devices and consumer medicines squeezed by a weakening global economy and unfavorable currency exchange rates.
Photo: AP
“These actions recognize the changing needs of the global medical device market,” said Gary Pruden, chairman of Johnson & Johnson’s medical device unit, in a statement.
The restructuring focuses on the company’s orthopedics, surgery and cardiovascular businesses. It is not expected to affect consumer medical devices, pharmaceuticals or consumer businesses.
Johnson & Johnson has struggled to revive sales of medical devices, particularly brands like DePuy orthopedic implants and Ethicon surgical equipment.
The company said in October last year that device sales dropped 7.3 percent to US$6.1 billion in the previous fiscal quarter.
In the same month, Johnson & Johnson sold its Cordis heart devices unit, which previously accounted for about one-quarter of device sales.
Wells Fargo analyst Lawrence Biegelsen said that medical devices have been “one of the weaker-performing businesses in recent years.”
“As such, we believe that the restructuring should be a positive step towards driving longer-term growth of the business and enhance profitability over time,” Biegelsen said in a note to investors.
The company said its actions will lead to annual pre-tax savings of US$800 million to US$1 billion, much of which will be realized by the end of 2018.
The company is to book a fourth-quarter charge of about US$600 million in connection with the restructuring.
Leerink Swann analyst Danielle Antalffy said that Tuesday’s announcement increases the likelihood of an acquisition to boost the company’s medical device prospects.
Swann said Johnson & Johnson has roughly US$37 billion in cash.
Citing conversations with Johnson & Johnson executives, Antalffy said: “It’s clear to us that it’s a matter of when, not if J&J does a deal.”
Johnson & Johnson shares rose US$0.04 to US$97.04 in Tuesday trading. Its shares have fallen more than 6 percent over the past year.
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