Tuesday, July 31, 2007
J&J Will Cut 4 Percent of Jobs to Save $1.6 Billion
By Lisa Rapaport
July 31 (Bloomberg) -- Johnson & Johnson, the world's largest health-care company, unexpectedly cut about 4 percent of its workforce to save as much as $1.6 billion next year.
The job reductions will result in charges of as much as $750 million in the second half this year, New Brunswick, New Jersey- based J&J said in a statement today. Johnson & Johnson employs 120,500 people worldwide, the company said.
Chief Executive Officer William Weldon's cost savings will help the company weather lost revenue when two of its top-selling drugs, the migraine pill Topamax, with $2 billion in sales last year, and the schizophrenia treatment Risperdal, with $4.2 billion in 2006 revenue, face competition starting in 2008 from cheaper generic copies.
J&J ``has never really given a plan before'' on how it will respond to the patent expirations, Sara Michelmore, an analyst with Cowen & Co. in New York, said in a telephone interview today. ``They have two of their biggest drugs coming off patent in the pharmaceutical division at the same time that they need to invest heavily in research.''
``They also had a major setback recently in developing their next-generation stent,'' Michelmore said. J&J in May stopped selling the Costar II heart stent outside the U.S. and suspended plans to market it inside the country after the device failed to beat a competitor in a trial.
Many drugmakers are cutting costs as the result of generic competition to older medicines that are losing patent protection. Last year Merck & Co. began eliminating 7,000 jobs and closing plants, and in January, Pfizer Inc., the world's largest drugmaker, said it would eliminate 10,000 jobs.
On July 26, London-based AstraZeneca Plc said it would decrease its workforce by 11 percent and Bristol-Myers Squibb Co. said it would announce job cuts by the end of the year.
J&J reaffirmed its earnings forecast of $4.02 to $4.07 a year excluding some items, and said it will maintain its investments in research and development. The company may introduce as many as 10 medicines by 2011.
The company on July 17 lowered its revenue growth forecast for 2007, citing reduced prospects for U.S. sales of Cypher stents and the anemia drug Procrit, both linked to heart attacks in studies. J&J projected 2007 revenue growth of 11.5 to 12 percent, down from 11.5 to 12.5 percent.
Most of the savings will occur in the pharmaceuticals division, ``which faces significant patent expirations over the next few years'' and in the Cordis division, which makes drug- coated heart stents, the company said in its statement. The company plans to eliminate 3 percent to 4 percent of jobs.
Sales of the Cypher drug-coated stent, a tiny mesh tube used to prop open arteries after surgery, fell 41 percent to $210 million in the U.S. in the second quarter, the company said on July 17. Sales outside the U.S. dropped 30 percent to $240 million. The Cordis unit makes Cypher stents.
Procrit revenue fell 6 percent to $758 million, spurred by a 15 percent drop in U.S. sales, the company said. Outside the U.S., revenue for the drug grew 9 percent to $309 million. Procrit use slowed after studies showed it may raise the risk of heart attacks, strokes and deaths when given at high doses.
Company spokesman William Price declined in an e-mailed statement to comment on the number of jobs to be cut in the U.S. or outside the U.S. He also declined to comment on how many jobs would be eliminated from specific divisions in the company.
Earlier this month, the company said it will start a $10 billion share buyback to bolster the stock price until new products reach the market.
J&J said in June it planned to introduce medicines over then next four years, including remedies for schizophrenia, cancer, AIDS, blood clots, diabetes and tuberculosis.