Johnson & Johnson plans to cut up to 7 percent of its workforce in order to generate cost savings needed to finance increasingly costly drug research and to weather future challenges, the diversified healthcare company said on Tuesday.
J&J said the planned restructuring will eliminate 7,000 to 8,000 jobs and generate annualized cost savings of $1.4 billion to $1.7 billion by 2011, with $800 million to $900 million expected to be achieved in 2010.
This is what we need to do to right-size the company to make sure we have the resources to invest for long-term sustainable growth of the company, Chief Executive Officer William Weldon told analysts on a conference call, referring to J&J's rich portfolio of products in development.
Weldon said the restructuring -- most of it slated to occur overseas -- is not a response to U.S. healthcare reform and new generic competition for its Risperdal schizophrenia drug and Topamax epilepsy treatment.
Instead, it will position J&J to better endure soaring research costs, possible looming overseas price controls on its medicines and unforeseen other challenges, he said.
The typical cost of developing a new medicine has now climbed to between $1.3 billion to $1.5 billion, from a cost of $800 million only a few years ago, Weldon said. He noted that J&J and other drugmakers increasingly are partnering with rival companies in order to share such financial gambles.
During J&J's last major restructuring, in 2007, it cut 3 percent to 4 percent of its workforce, generating annual savings of $1.3 billion to $1.6 billion. Earlier this year, the New Brunswick, New Jersey-based company said it would eliminate 900 positions from its Ortho-McNeil-Janssen Pharmaceutical unit.
Cost savings have helped J&J cope with plunging sales of Risperdal and Topamax and to acquire stakes this year in Irish drugmaker Elan Corp and Dutch vaccine company Crucell. In May, J&J agreed to buy cancer drug developer Cougar Biotechnology for $970 million in cash.
Like rival drugmakers, J&J is struggling to refill its pipeline with new drugs to offset sales lost to generic competition and flagging revenue from older products, including some dogged by safety concerns.
J&J, which also sells medical devices and a vast array of consumer products, has boasted annual double-digit profit growth for most of the past century. But it is expected to post flat earnings this year and single-digit growth in 2010, hurt by patent expirations and a weak global economy that has crimped demand for its consumer brands and surgical products.
J&J, which employs about 117,000 people worldwide, said it will take a charge of $1.1 billion to $1.3 billion against its fourth-quarter earnings, but did not change its 2009 earnings forecast excluding one-time items of $4.54 to $4.59 per share.
Chief Financial Officer Dominic Caruso declined to provide a 2010 profit view. But he advised analysts to stick with their forecasts for next year, saying they had already considered J&J's ability to leverage profit growth.
The cost cuts will mainly be achieved by reducing layers of management and simplifying business structures and processes, J&J said. But the company, which is known for giving much autonomy to its hundreds of subsidiaries, said the restructuring is not a move toward centralization.
J&J joins the growing list of major pharmaceutical companies to slash jobs as big-selling drugs lose patent protection. J&J's prescription drug sales fell more than 14 percent to $5.25 billion in the third quarter, hurt by less costly generic forms of Risperdal and Topamax.
Pfizer Inc, Merck & Co and Bristol-Myers Squibb Co have all announced sweeping job cuts, as have British drugmakers GlaxoSmithKline Plc and AstraZeneca.
J&J shares slipped 0.7 percent to $59.06 in afternoon trading on the New York Stock Exchange.
(Reporting by Ransdell Pierson; additional reporting by Lewis Krauskopf and Toni Clarke; editing by Dave Zimmerman, Maureen Bavdek and Andre Grenon)