Johnson & Johnson joins Big Pharma's job-cutting parade

Johnson & Johnson (JNJ), despite all its efforts and diversification, couldn't escape doing what most pharmaceutical companies have done in the face of increasing pressures from generic-drug companies and the recession. J&J said on Tuesday it plans to cut 6 percent to 7 percent of its workforce of approximately 117,000 in a bid to prop up profits.

The New Brunswick, N.J.-based company said the cuts, mostly achieved through reducing layers of management, will affect some 7,000 to 8,000 worldwide. But today is Election Day in the company's base state, and one cannot help but wonder if the timing of such an announcement from one of the largest private employers in New Jersey isn't politically motivated in support of the challengers in the three-way race for governor, or at least against the Democratic incumbent, Jon Corzine.

J&J said the job cuts are just one of the restructuring measures it was taking and that together they'll generate annualized, pretax cost savings of $800 million to $900 million in 2010, and $1.4 billion to $1.7 billion when fully implemented in 2011.

The company said it will take a pretax charge in the range of $1.1 billion to $1.3 billion in the fourth quarter of 2009, treated as a special item. J&J also confirmed its earnings guidance for full-year 2009 of $4.54 to $4.59 per share, which excludes the impact of special items such as restructuring charges.

Creating a Stronger Future?

J&J has long been touted as being one of the best-managed companies in the S&P 500. It's no surprise then that Chairman and CEO William C. Weldon is trying to maintain that image. "Johnson & Johnson has long adhered to a broad-based operating model and set of sound management principles that have driven our success," Weldon said. "Today, we are announcing a series of actions and plans designed to ensure that our company remains well-positioned and appropriately structured for sustainable, long-term growth in the health care industry."

But no matter what kind of PR speak J&J uses to spin this announcement, two things are certain. Thousands of jobs are being lost, sending more Americans -- possibly well-paid Americans given that the lost jobs are mostly in management -- to the unemployment line. And the company could not find in all its "broad-based" arsenal anything other than more job cuts to combat the pressures on its bottom line.

That creates even greater questions about its pharmaceutical rivals, many of which have been slashing jobs for several years now in preparation for the "patent cliff" as blockbusters drugs lose their patent protection, generic competition increases and the new-drug pipeline isn't promising enough to replace the lost revenue.

In September, Eli Lilly & Co. (LLY) announced it was cutting 5,500 jobs. Pfizer Inc. (PFE) announced large job cuts due to its merger with Wyeth. Merck (MRK) and Bristol-Myers Squibb (BMY) also announced sweeping job cuts, as have British drugmakers GlaxoSmithKline (GSK) and AstraZeneca (AZN).

Big Tumble for Branded Drugs

J&J is more diversified than some of its rivals, and as Weldon said, the company sees this model as appropriate to long-term growth. In the recently reported third quarter, J&J's worldwide pharmaceutical sales, which accounted for 35 percent of its revenue, tumbled 14.1 percent, and consumer products, which brought in 26 percent of revenue, fell 2.7 percent. Generic competition to J&J's epilepsy drug Topamax and schizophrenia drug Risperdal was largely responsible for the fall.

J&J has been cutting R&D costs, although it said it is incrementally increasing its pipeline budget. Still, given the clear need for new drugs, one can only wonder who'll be left to develop, test and market them if J&J and the rest of Big Pharma can't think of any other answer to their problems than slashing jobs.

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