The healthcare pioneer Johnson & Johnson announced on Tuesday that they will be cutting off about 3,000 jobs in their medical devices division. This is the latest attempt so far by the company to revive their business that has been struggling for quite some time.
Amongst the eliminated positions are 2.5 percent of the company’s 127,000 healthcare employees around the globe, as well as six percent of the medical device sector.
The cuts are expected to save Johnson & Johnson amounts that range from $800 million up to $1 billion before taxes, some of which will be put into development of new products.
The medical device sector had always been Johnson & Johnson’s finest and biggest unit. It had a fast-paced growth in sales ranging from knee replacement parts, artery opening stents, and any other surgical tool imaginable. It was basically the company’s lifeline and sustained it for a long period by generating massive sales and income when the other health businesses in the company like the drug prescription service and consumer health service failed.
Pressures rose on the medical service market when surgeons, who were basically the main customers for the products, started to decline in the buying rate, due to the salaries they receive from the healthcare systems. This greatly affected the selling price of the products.
According to Venkat Rajan, a medical device industry analyst at research and consulting firm Frost & Sullivan, “The $320 billion market for medical devices world-wide is growing four percent a year now, down from a double digit rate in the early 2000s.” Also, as reported by Wells Fargo Securities, Johnson & Johnson’s medical device branch has plummeted in sales much more than the market average in the past few years. Johnson & Johnson grew only one percent in operations during the third quarter.
Johnson & Johnson, in response to the ongoing decline, decided to put their focus on the categories of high interest like surgical robots and staplers. It also withdrew itself from the stent businesses that it led, which resulted in sales of smaller, and slower-paced growing units. They also shifted their focus to the key markets in the world, like the United States, China, and Japan.
Johnson & Johnson has also entered into partnerships and collaborations with International Business Machine Corp. and Google parent Alphabet Inc. with the aim of creating virtual coaching services for patients and creating surgical tools that can take control of imaging technology advances, respectively.
Johnson & Johnson announced in October 2015 that it has plans to launch more than 14 new products in the next 18 to 24 months; the company will make use of its savings from the restructuring to speed up new product creation, according to the interview with Gary Pruden, the Johnson & Johnson executive in charge of medical services.
According to Pruden the layoffs are “an opportunity to reshape our business to accelerate growth through meaningful innovation.”