A report released Jan. 20 shows that Johnson & Johnson plans to slice 3,000 to revive failing business – the medical division has shown signs of weakness in recent years.
The positions slated to be eliminated represent 6 percent of the jobs in the medical device business and 2.5 percent of all J&J jobs, which currently amount to 127,000 workers globally.
The health-care giant announced that the savings would be reinvested in research and development. It is estimated that the company would save up to $1 billion from the lay-offs.
At its beginning, the medical device business exploded quickly to became the company’s largest division. Medical devices including surgical instruments and artery-opening stents boosted the firm’s revenue, while other divisions were lagging behind.
But in recent years, the business slowed down. Analysts explained that the situation stemmed from surgeons’ dwindling buying power as many of them decided to opt for a safe place within health care systems amid economic uncertainty. Plus, there were federal pressures to keep prices to these devices low.
Recent reports show that the division grew only 1 percent in Q3, while the worldwide market for medical devices now grows at 4 percent rate every year. The rate is meager compared to the double digit rates recorded at the beginning of the new millennia.
But in the past five years, growth slowed even more. As a result, J&J ditched its stent line, and focused on other products with larger growth prospects including staples and surgical robotics. The company also focused more on markets that bring the highest revenues such as Japan, China, and North America.
Additionally, it looked for new partnerships that may improve sales and market penetration. For instance, it teamed up with Google to design surgical tools that employ state-of-the-art technologies, and with International Business Machines to provide customers with coaching possibilities.
Last fall, J&J said it had at least 14 new products ready to be launched by the end of 2017. The deadline may be brought closer if the company invests the savings from the lay-offs into the R&D department.
Gary Pruden, the company’s head of the medical device unit, explained reducing personnel is necessary to accelerate growth of the entire business through ‘meaningful innovation.’ Pruden added that the changes won’t influence the company’s buy back plans for $10 billion worth of shares.
J&J also noted that its business has been badly hit by a strong currency and patent expiration for some of its best-selling drugs.
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