Johnson & Johnson has become the latest firm to announce a major restructuring programme which will result in a 4% reduction of its workforce and should lead to cost savings of $1.3-$1.6 billion next year.
The healthcare giant noted that its pharmaceuticals division will bear the brunt of most of the job losses, which will see around 4,800 posts lost. One of the main reasons that the cuts are deemed to be necessary is the loss of patent protection that some of the unit’s drugs will be facing, notably its biggest-seller, the schizophrenia drug Risperdal (risperidone) and the migraine agent Topamax (topiramate), which could face generic competition as soon as next year.
The situation has not been helped by falling revenues from its anaemia therapy Procrit/Eprex (epoetin alfa) on the back of continued fears over cardiovascular safety for the entire erythropoiesis-stimulating class of drugs and chief executive William Weldon also noted that job cuts will also take place at its Cordis subsidiary, home to the Cypher stent which is also suffering from competition, a decline in the marketplace for such procedures and questions around the use of drug-coated stents and the risk of clots.
Announcing the move, Mr Weldon said that "we have always taken a thoughtful, disciplined approach to address the challenges we face" and these actions “we are taking to improve our cost structure will enable us to continue investing for future growth and profitability." J&J expects to take restructuring charges in the range of $550-$750 million in the second half of the year and confirmed previous earnings guidance for full-year 2007, excluding said charges, of $4.02-$4.07 per share.
The company also stressed that regarding its pharmaceuticals unit, certain operations will be consolidated but investment in
recently launched products and its late-stage pipeline will continue. J&J plans to file applications for seven to ten new compounds between 2008 and the end of 2010.
The move got a sympathetic response from analysts. Goldman Sachs noted that the firm’s "cost reduction initiative is a positive as it underscores management's commitment to consistent earnings growth and a stringent focus on controlling spending in periods of challenging market conditions."
J&J’s announcement came days after AstraZeneca unveiled plans to double the number of expected job losses to around 7,600 as it looks to ramp up its cost-cutting programme, while Pfizer is in the process of shedding 10,000 posts. Bristol-Myers Squibb has also announced major restructuring plans.