J&J executives are discussing the company’s plan to cut 6% to 7% of its global workforce. Here’s what they’re saying.
The company will take a charge of $1.1 billion to $1.3 billion in the fourth quarter of this year. The cuts will save an estimated $1.4 to $1.7 billion a year once they’re fully implemented.
9:03: CEO Bill Weldon is speaking. Company has launched four significant “new molecular entities” (i.e. new drugs) in the U.S. this year.
9:05: The health care industry continues to evolve … The plans and associated savings we are announcing today will increase our operational efficiency. Company will continue to invest in Alzheimer’s and other areas.
9:07: Last night we began communicating to our employees about restructuring. Starting in August, the company has been removing layers of management. Our plans in many businesses include reducing layers of management.
9:08: These types of broad structural changes are not made easily. They will have a very personal impact on people who have been dedicated to the mission of Johnson & Johnson.
9:09: Affected employees are being notified.
9:09: Dominic Caruso, CFO: Today’s restructuring shouldn’t affect analysts’ models. More clarity about health-reform issues and J&J’s bottom line is expected in January.
9:11: “Position eliminations” across all businesses. There will be two cents per share of incremental costs, on top of one-time restructuring costs. Company affirms existing earnings estimates for this year.
9:14: Weldon: “We’re looking across the organization.” “We’re looking at layers and streamlining the organization so we can make faster, easier decisions.” Restruction is global, if anything “it might be more skewed” toward cuts outside the U.S.
9:15: Caruso: Estimates for restructuring “are not targeted to a specific response to U.S. health-care reform.” “Assuming health-care reform is out of the equation … the leverage that we expect to achieve in 2010 appears to be already reflected in [analysts'] models.”
9:17: Weldon: “We want to make sure we have the resources to continue to invest … Economically, there’s challenges still ahead of us.” Then you have put in the investments necessary” for existing products and pipeline.
9:18: Cuts are across all businesses, plus home office. “We’re looking at everything so we can streamline our business.”
9:19: Caruso: “We were reducing the overall level of R&D expense, particularly in the pharma business, consistent with industry trends. We would expect that to continue in 2010.” But the company will continue to make incremental investments in pipeline research.
9:20: Weldon: “We have such a rich portfolio that we need to make sure we have the resources to invest.” Expense to bring products to market are much higher than they were a decade ago. “And the risks are so much greater.” Recent deals: Cougar biotech, Alzheimer’s deal with Elan, vaccines with Crucell.
9:22: “We’re continually looking at opportunities to bring in new businesses and spin out businesses.” “We don’t think we’re in a position where we have to make radical change … We’re well positioned, we just want to make sure we’re very disciplined in the approach we take.”
9:24: “We’re not centralizing.” This is looking at restructuring within each of the decentralized businesses. We may see some opportunities to work across the businesses in the area of supply chain, but none of this is aimed at centralizing the business.
9:26: Weldon: “I don’t really think we can comment on health-care reform.” “This really is not aimed at addressing health-care reform.”
9:27: “The economic environment has adversely impacted all the businesses.” Unemployment continues to be a problem.
9:28: Partnerships are becoming more of the model. In Alzheimer’s for example, company is working with Pfizer. Working together improves chances for a good outcome, “plus it does mitigate risk and allows us to share expenses.”
9:29: Economic headwinds will continue. “Until we see easing in unemployment and other areas, people are going to be more cautious” about spending.
9:32: Caruso: This is “not necessarily a comment on gross margins in med tech.” It’s more to give the company the ability to invest in the current pipeline and in new opportunities. But there has been a “much more challenging environment with price.”
9:34: “The large majority of the [projected] savings are due to the workforce reductions.”
9:35: Weldon: More of this will be outside of the United States. The savings per head is different than it was during the company’s 2007 restructuring.
9:37: Caruso: The health-care reform initiative is still undergoing some change. We haven’t yet seen the Senate bill. It is premature to talk about what particular impact it might have on us or the inudstry.
9:38: Company has seen economic pressure in elective surgery and consumer. Recovery “will take longer to take hold” and “may be in fits and starts.”
9:39: Weldon: “Until we get unemployment under control and people feel safe and comfortable I don’t think people are going to be spending in areas where they’ve spent previously.” Until unemployment numbers improve, there will continue to be economic pressure on health care. “I don’t think anybody’s expecting [the economy] to come roaring back tomorrow.”
9:42: “It is more the external environment that is a continuing concern for all of us.” … “It’s the pressures in the regulatory environment and the cost of bringing new products to market.” J&J needs resources to invest in products, and to launch them.
9:43: “We know that in some countries outside the United States there will be price reductions in some products.” That’s on top of possible health-reform in the U.S.
9:47: “We’re coming out into the sunshine after the cloud that’s been over us.” That includes patent expirations on Risperdal and Topamax.
9:48: The company is trying to make its supply chain more efficient. That may affect manufacturing.
9:50: “It’s not just the regulatory body here in the United States, it’s regulatory bodies around the world that are asking for more, and justifiably so.” As a result, product launches are becoming more expensive.
9:53: Caruso: “This is really about streamlining the organization and allowing us the resources to invest in the growth of the business.”
9:54: The call is over.
Photo: Associated Press
