J&J to Cut Costs and Jobs

Johnson & Johnson announced last week that it would be laying off 3 to 4 percent of its global workforce in an effort to generate savings of $1.3 to $1.6 billion by 2008.

The company expects to take the biggest hit in its pharmaceutical division, which faces numerous patent expirations, including top sellers such as migraine medication Topamax and antipsychotic Risperdal. Some pharma operations will be consolidated, and finances will be pumped into late-stage drugs. The company stated that it has plans to file new drug applications for seven to 10 drugs by 2010.

Other key points:

• The company will better integrate its Cordis subsidiary, which has been hit by a 41 percent drop in the sales of its Cypher drug-eluting stents.

• Attrition and job freezes will be used to curb the number of layoffs.

• Enterprise-wide functions (HR, IT, and finance) will be streamlined.

"Throughout our history, we have always taken a thoughtful, disciplined approach to address the challenges we face," stated William C. Weldon, Johnson & Johnson chairman and CEO, in a release. "These actions we are taking to improve our cost structure will enable us to continue investing for future growth and profitability."

According to Les Funtleyder, healthcare strategist for Miller Tabak, these cutbacks are a sign that J&J is being proactive for the future. "Drug development is such a volatile industry," Funtleyder said. "This plan probably signals that its mid-stage pipeline is not particularly robust, so it gives you a five-year window into how J&J views its pharmaceutical division."

Johnson & Johnson is the latest pharma company to announce cutbacks in operations. Early last week, AstraZeneca and Bristol-Meyers Squibb also announced that they would be trimming back staff over the next two years.

Peter Young, president of the investment bank Young and Partners, said that these cutbacks were not unexpected, in light of last year?s sales force layoffs at Pfizer. "Pharma is looking at its portfolio and its revenue projection, and it's trying to balance between maintaining a new structure and teams for products coming out, and maintaining existing products," Young said. "A big part of this reorganization is recognition of how much pharma can support going forward. This situation is not a positive--this is what companies do when they go into defensive mode. This is definitely an industry trying to retrench."