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J&J to cut 3,000 jobs in struggling device division
January 19, 2016 / 12:01 PM / 2 years ago

J&J to cut 3,000 jobs in struggling device division

A first aid kit made by Johnson & Johnson for sale on a store shelf in Westminster, Colorado April 14, 2009. REUTERS/Rick Wilking

(Reuters) - Johnson & Johnson (JNJ.N) said on Tuesday it would cut about 3,000 jobs within its medical devices unit over the next two years, or about 4 to 6 percent of the struggling division’s global workforce, to generate annual cost savings of up to $1 billion and focus on more innovative products.

The job cuts relate to J&J’s orthopedics, surgery and cardiovascular operations, although there are no immediate plans to eliminate specific products, said company spokesman Ernie Knewitz.

He did not provide specific regions for the cuts.

“The savings will help us grow our (device) business,” Knewitz said. “That could involve acquisitions, but it will also involve investing in our own internal programs.”

The company's consumer medical devices, vision care and diabetes care will not be affected, J&J said. (www.investor.jnj.com/MDFAQ)

J&J’s medical device sales approached $19 billion in the first nine months of 2015, but fell 10.4 percent, making the wide array of products its poorest-performing segment.

The company expects pretax restructuring charges of $2.0 billion to $2.4 billion in connection with these plans, of which about $600 million will be recorded in the fourth quarter of 2015.

“It’s about realigning resources around priority platforms,” Gary Pruden, head of J&J’s medical device unit, said in an interview.

Pruden said J&J is not satisfied with demand for its artificial knees, devices for trauma and some surgical products and wants to improve them with greater attention and resources. He said the company will “de-emphasize” other device areas, but declined to identify them.

Leerink analysts said the announcement meant that an acquisition was still in the cards for J&J, given that it had about $37 billion in cash as of the end of the third quarter.

“We continue to believe JNJ is an active acquirer with a focus likely heavily weighted toward its lagging medical devices business,” they wrote in a note.

J&J also reiterated its full-year 2015 forecast, and said the restructuring in the devices business would not affect the $10 billion share repurchase program.

The restructuring is expected to produce annualized pretax cost savings of $800 million to $1 billion, J&J said. Most savings are expected by the end of 2018, including about $200 million in 2016.

J&J employs about 60,000 within its devices unit, representing almost half its global workforce of about 127,000. The company plans to report fourth-quarter results on Jan. 26.

J&J shares were up 0.8 percent at $97.75.

Reporting by Natalie Grover in Bengaluru and Ransdell Pierson in New York; Editing by Savio D'Souza and Matthew Lewis

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