Two weeks after Johnson & Johnson (NYSE:JNJ)
reported mixed earnings, which tugged stocks downward, the world's biggest healthcare company is
looking to cut costs. Those cuts include 7,000 to 8,000 layoffs, mostly overseas.
J&J chief executive William Weldon (pictured) said in a statement, "These types of changes are difficult under any circumstances, and will have a very personal impact on people who have been dedicated to the mission of Johnson & Johnson." The company is looking to slim down its management structure to make quicker decisions; J&J called it "reducing layers of management." Weldon said the changes will
help position J&J to better endure soaring research costs, possible looming overseas price controls on its medicines and unforeseen other challenges.
BusinessWeek notes that the process of identifying inefficiencies in the company's pharmaceutical division actually began earlier this year, when J&J veteran Sheri McCoy was appointed to lead that unit. McCoy reorganized the unit by specialty, such as immunology or oncology from its convoluted structure by function, such as basic research or clinical. BW reports that McCoy believes the new structure will not only help get products to market faster, but it will also
unleash entrepreneurial energy that has been lacking at J&J for the past several years, with each therapeutic unit operating like its own little company.
New Brunswick, N.J.-based J&J, which makes good such as Band Aid and Neutrogena skin-care products, expects to save betweent $1.4 billion and $1.7 billion a year starting in 2011, which "will provide additional resources to invest in new growth platforms." It also confirmed its earnings guidance for 2009 of $4.54 to $4.59 per share, which excludes the impact of special items such as restructuring charges.
In our
third-quarter earnings preview of J&J, we noted generics tore into sales of its two top drugs, anti-psychotic Risperdal and epilepsy medication Topamax. But it could have another blockbuster in the pipeline with new blood thinner Xarelto, which is awaiting approval in the U.S. It's also using deals to support growth. J&J:
- completed its $1.07 billion acquisition of Mentor Corp., which provides breast augmentation and other
surgical procedures,
- completed its acquisition of Cougar Biotechnology Inc., a development-stage biopharmaceutical company, for about $970 million,
- bought 18% of Dutch biotech Crucell NV for $444 million,
- bought 18% of Dublin-based Elan Corp. (NYSE:ELN) for about $1 billion and
- teamed up with Gilead Sciences Inc. (NASDAQ:GILD) to develop a once-daily pill for treating HIV.
J&J employs about 117,000 people and expects to record a pretax restructuring charge -- "treated as a special item" -- of about $1.1 billion to $1.3 billion in the fourth quarter. -
Baz HiralalSee the J&J announcementSee the BusinessWeek story
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He says it's difficult for him. Think how much MORE difficult it is for the employees and their families.