Johnson & Johnson announced a massive restructuring plan on Tuesday, in an effort to save $1.4 to $1.7 billion by 2011. The cost will be a 7 percent reduction in workforce, or more than 7,000 employees, according to some estimates.
Company CEO William Weldon told investors that the cuts are being made primarily to ensure that J&J can fund the myriad of drugs and product it has coming down the pipe. Not surprisingly, management is blaming the economy for the brunt of the layoffs.
“When you look at the total economic environment, I don’t think anyone know for sure what’s going to happen, but I don’t think anybody is expecting [the economy] to come roaring back tomorrow,” Weldon said.
This is not a multi-phase restructuring project, but a right sizing of the company after a number of patent expirations. The job cuts—most outside of the US—will account for the lion share of the saving.
“We are looking at standard controls, layers of management, we are looking at everything, so that we can streamline our business and be even more efficient and effective at what we are doing,” Weldon said.
The company said that it was taking steps to prioritize innovation, but won’t go into detail. The savings will be used to offset incremental spending in R&D.
“We have such a rich portfolio that we have to make sure we have the resources to invest,” Weldon said. “The expense to bring a product to market is so much higher now than it was a decade ago, and the risk is so much greater. If you look at pharma a decade ago, it was $800 million, now its $1.3 to $1.5 billion.”
J&J has been slimming down its staff over the past few years. Most recently, in April, J&J slashed 900 sales positions in its Ortho-McNeil-Janssen division, representing about 6 percent of the total US J&J pharma workforce. This time, J&J is mum about where the layoffs will take place.
“No one has a crystal ball to see what we will look like going forward, but until we see relief in unemployment numbers, I think there will continue to be economic pressure in the United States and elsewhere,” said J&J Chief Financial Officer Dominic Caruso.