NEW BRUNSWICK, NJ–Johnson & Johnson on January 19 said it plans to cut about 3,000 jobs from its medical devices business.
The Hub City-based health care giant estimates that 2.5% of its world-wide workforce of 127,000 people, or as much as 6% of its medical-device segment – 60,000 employees, will face “position eliminations.”
The move comes amid slowing medical-device sales, which reportedly fell 2.9% in the first nine months of last year.
J&J also outlined a restructuring plan which it estimates will save as much as $1 billion a year before taxes by the end of 2018 for the struggling medical-devices business.
Some of “the savings will provide the company with added flexibility and resources to fund investment in new growth opportunities and innovative solutions for customers and patients,” says a release.
J&J says its actions will “evolve” its offerings, structure, and footprint and help it increase its investment in innovation.
"It's a matter of when, not if, J&J does a deal," said Danielle Antalffy, a financial analyst with Leerink Partners via Bloomberg radio.
J&J has not specified any specific geographical areas for the job cuts.
Asked if the reorganizing program would impact its pharmaceutical or consumer businesses, J&J said, no – the moves “relate [only] to our Orthopaedics, Surgery and Cardiovascular businesses," according to a document it made available on Jan. 19.
Asked if the company would be exiting any segments of its business as part of the plan, it said: “We are not providing specific information on potential business exits; however, we expect any potential sales impact to be minimal.”
The world-wide market for medical devices is not what it used to be. In the early 2000’s it grew 10% or more a year, but now grows only 4% a year. Moreover, J&J’s medical-device sales have tapered-off even more than the market average.
The slow down is in part because surgeons have become less autonomous and cannot make device purchases on their own, as they once did, as employees of healthcare systems earning a regular salary.
While J&J has gotten out of the stents business it once dominated, it has also been busy selling-off smaller, slow-growing business units, so that it can focus on high-growth technology-driven areas like surgical robotics and staplers.
Recently J&J formed a new company with Verily Life Sciences LLC, formerly known as Google Life Sciences, to develop robotic-assisted tools and leverage new imaging technologies for use during surgery.
In Oct. it said it had plans to set afloat more than a dozen new innovative products over the next two years and it says it will use a portion of the savings from the restructuring to “accelerate new-product development.”
But the company sees the layoffs as an opportunity to reshape its business.
“The bold steps we are taking today are to evolve our offerings, structure and footprint and increase our investment in innovation. These actions recognize the changing needs of the global medical device market," said Gary Pruden, worldwide chairman, J&J medical devices.
And on an earnings call last year, he said: "We will continue to exit categories that do not fit our strategy."
As we reported, J&J has faced thousands of lawsuits and paid hundreds of millions of dollars to patients injured by flawed medical devices or from its drill-like surgical tool known as the power morcellator, which it voluntarily withdrew from the market in 2014.