The healthcare giant is continuing its restructuring of its medical device business by laying off approximately 3000 workers in its medical device unit over the next two years.
Johnson & Johnson says that it will cuts more than two percent of its global workforce of around 127,000 people, and 4 percent to 6 percent of its employee total in medical devices. The company added that the restructuring will focus on its orthopedics, surgery, and cardiovascular businesses -- adding that it will not affect consumer medical devices, pharmaceuticals, or consumer businesses.
The cuts were announced following a grim year for the company that saw sales of prescription drugs, medical devices, and consumer medicines weakened by the struggling global economy and unfavorable currency exchange rates. In October of last year the company reported that device sales had dropped 7.3 percent to $6.1 billion in the previous fiscal quarter.
"We announced these restructuring actions in our medical devices businesses to better serve the needs of customers and patients in today's evolving healthcare marketplace," says J&J spokesperson Samantha Lucas. "We are focusing on four areas; strengthen the go-to-market model, accelerate the pace of innovation, further prioritize key platforms and geographies, and streamline operations while maintaining high quality standards. We believe this will deliver more value to customers, increasing our competitive advantage and driving growth and profitability for our business."
The company expects that the restructuring will save between $800 million and $1 billion a year before taxes, and hopes to reinvest some of the savings in new product development. The medical device business had been the company's largest and most successful sector in years past, boasting growing sales in surgical equipment such as knee replacement parts and artery-opening stents among other surgical tools.
However, the medical device industry is growing at just 4% annually, down from double digit rates in the early 2000s, according to industry analysts at the research and consulting firm Frost & Sullivan. While medical devices still boast a $320 billion market, J&J's medical device sales stagnated to a growth rate of just 1% operationally in the third quarter of last year, according to Wells Fargo Securities.
The company has made other recent restructuring moves, including the $4 billion sale in 2014of their Ortho-Clinical Diagnostics (OCD) business to the Carlyle Group. OCD, which makes blood testing equipment, had generated nearly $2 million in annual sales for J&J. Despite the sale, J&J CEO Alex Gorsky still believed that better days lie ahead for the company's medical device business.
J&J will book a charge of about $600 million for the fourth quarter of 2015 in connection with the restructuring, and the company says it will consider "strategic options" for underperforming business units in the future. In the company press release, worldwide chairman for J&J medical devices Gary Pruden said that the company recognizes the changing needs of the global medical device market and intends to deliver "more value to customers."
The company went on to say that they plan to use a new format for the reporting of sales in the Medical Devices segment, and that further commentary on the restructure will be provided during the company's fourth quarter earning's conference call next week. Johnson and Johnson were not immediately available for comment on this story.