J&J to Cut 3,000 Jobs Amid Medical-Device Sales Slump

  • Sees annualized pre-tax savings of as much of $1 billion
  • Job cuts could tee up medical-device business for deals

Johnson & Johnson plans to cut about 3,000 jobs, or 2.5 percent of its total workforce, from its medical devices business in a move that could set up the world’s largest maker of health-care products to rebuild the unit through acquisitions.

The company will reduce 4 to 6 percent of positions at the medical-device business over the next two years, leading to pretax restructuring costs of $2 billion to $2.4 billion. Investors will be watching what comes next for the business.

“It’s a matter of when, not if, J&J does a deal,” said Danielle Antalffy, an analyst with Leerink Partners. In terms of medical devices, the company has indicated its interest in cardiovascular technology like replacement valves, she said, as well as surgical and vision products.

J&J is reorganizing the business after sales of medical devices fell 2.9 percent in the first nine months of 2015, excluding currency fluctuations. The company also makes pharmaceuticals and consumer-health products, and sales in both of those units increased in that period, when foreign-exchange swings are excluded.

A spokesman for the company didn’t immediately return a request for comment. J&J shares rose less than 1 percent to $97.61 at 10:51 a.m. in New York. The stock is down 6.8 percent in the last year, as of Friday’s close.

The company disclosed the number of job cuts in a document posted to its website, saying it’s targeting orthopedics, surgical and cardiovascular devices, and not the consumer medical device business. The cuts will eventually help save about $800 million to $1 billion a year, including about $200 million in 2016, New Brunswick, New Jersey-based J&J said in a statement Tuesday.

J&J said it won’t provide any specific information on potential business exits, and said any such moves would have a minimal impact.

Last year the company sold Cordis, a manufacturer of cardiology and endovascular devices, to Cardinal Health Inc. for $1.94 billion. The year prior, J&J sold its Ortho-Clinical Diagnostics business, which sells more than 120 tests for everything from high cholesterol to hormones, to Carlyle Group LP for about $4 billion. Gary Pruden, worldwide chairman of the company’s medical devices group, said on an October earnings call that “we will continue to exit categories that do not fit our strategy.”

The medical devices business has been under pressure from cost-cutting by insurers and hospitals. In response, J&J has been invested in new technologies, recently forming a new company with Verily Life Sciences LLC, formerly known as Google Life Sciences, to develop the next-generation of robotic-assisted tools for surgeons.

J&J’s cash balance swelled last quarter to $37.3 billion, including short-term investments. In an interview this month, Chief Executive Officer Alex Gorsky said he’s eyeing smaller deals for treatments in the early stages of development.

J&J also said it still expects 2015 operating profit of $6.15 to $6.20 a share, excluding the restructuring costs. The company will provide more information on the restructuring when it holds its fourth-quarter earnings call on Jan. 26.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE