New Brunswick, N.J.-based J&J said the restructuring of its medical device segment means layoffs for about 2.5% of its 270,000 workforce, or 4% to 6% of its 60,000-worker medtech headcount. The company said its consumer medical device, vision care and diabetes businesses are not affected.
“As a market leader, we are committed to leveraging our breadth and scale to shape the future of the medical device industry, for the benefit of those we serve,” medical devices chairman Gary Pruden said in prepared remarks. “The bold steps we are taking today are to evolve our offerings, structure and footprint and increase our investment in innovation. These actions recognize the changing needs of the global medical device market and will deliver more value to customers, increasing our competitive advantage and driving growth and profitability for our business.”
The job cuts relate to J&J’s orthopedics, surgery and cardiovascular operations, although there are no immediate plans to pare back or eliminate specific products, spokesman Ernie Knewitz said.
“The savings will help us grow our [device] business,” Knewitz said. “That could involve acquisitions, but it will also involve investing in our own internal programs.”
“It’s about realigning resources around priority platforms,” Pruden said in an interview, noting that J&J is not satisfied with demand for its knee, trauma and some surgical products and wants to improve them with greater attention and resources. He said the company will “de-emphasize” other device areas, but declined to specify which.
The moves include changes to the way Johnson & Johnson reports sales for the medical device business. Starting with the company’s 4th-quarter earnings release scheduled for Jan. 26, the cardiovascular care business will be listed as cardiovascular. J&J’s orthopedics arm will report sales for hips, knees, trauma and spine & other, while the erstwhile surgical care & specialty surgery/other segment will become surgery. Within the surgery segment, the reporting units will be endocutter & adhesion prevention, energy & biosurgery, general and specialty, the company said.
Johnson & Johnson said the moves are expected to deliver annual pre-tax savings of $800 million to $1 billion, largely by the end of 2018, with $200 million saved this year. The move is slated to put a $2 billion to $2.4 billion pre-tax hit on the balance sheet, the company said, including $600 million during the 4th quarter of 2015.
J&J re-affirmed its full-year 2015 guidance for adjusted earnings per share of $6.15 to $6.20, on sales of $70 billion to $71 billion, in line with expectations on Wall Street.
Leerink Partners analysts wrote this morning that the move means merger & acquisitions are more likely than ever for J&J, with an emphasis on the hot transcatheter valve replacement space.
“With ~$37B in cash and ~$17.5B in net cash on the books as of the end of 3Q15, we continue to believe JNJ is an active acquirer with a focus likely heavily weighted toward it’s lagging Medical Devices business. Following our meetings with management in mid-2015, it’s clear to us that it’s a matter of when, not if, JNJ does a deal,” Danielle Antallfy and Puneet Souda wrote in a note to investors. “From a size perspective, management noted that historically only 10 deals in the last 10 years have exceeded $1B. However, management also noted that credit rating is not a limiting factor, and JNJ does have the ability to borrow with management noting they would if the opportunity was ripe. Within [medical devices & diagnostics], management noted that structural heart is of particular interest within cardiovascular, while management is also looking to augment areas within biosurgical, energy, and endomechanical. If JNJ were to play in cardiology in a bigger way going forward, management noted the focus would be on the innovation segment and not the value segment, highlighting structural heart – and valves in particular – as well as vision surgery as areas of great interest, while stents and CRM (cardiac rhythm management) are not attractive markets to JNJ. Within our coverage universe, any transcatheter aortic valve and/or mitral valve company strikes us as a potentially reasonable candidate.”
JNJ shares rose about 1% to $98.25 apiece in premarket trading.
Material from Reuters was used in this report.