(This blog has been posted on The Wall Street Journal Online's Health blog)
Posted By Jacob Goldstein
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.
9:48: The company is trying to make its supply chain more efficient. That may affect manufacturing.
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.
9:43: "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.
9:42: "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.
9:39: 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 we see relief in the unemployment numbers there will continue to be economic pressure in health care." "I don’t think anybody’s expecting [the economy] to come roaring back tomorrow."
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."
9:37: 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.
9:35: 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.
9:34: "The large majority of the [projected] savings are due to the workforce reductions."
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."
9:29: Economic headwinds will continue. "Until we see easing in unemployment and other areas, people are going to be more cautious" about spending.
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."
9:27: "The economic environment has adversely impacted all the businesses." Unemployment continues to be a problem.
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."
9:24: "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.
9:22: "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."
9:20: 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.
9:19: 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."
9:18: Cuts are across all businesses, plus home office. “We’re looking at everything so we can streamline our business.
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."
9:14: 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.
9:11 "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.
9:09: 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.
9:09: Affected employees are being notified.
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.
9:07: 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.
9:05: 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.
9:03: CEO Bill Weldon is speaking. Company has launched four significant "new molecular entities"” (i.e. new drugs) in the U.S. this year.
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