3, 000 To be Laid Off From J&J’s Medical Device Division

Johnson & Johnson is going to lay-off 3, 000 employees in its medical device business division.

It’s been almost five years since Johnson & Johnson paid $21.3 billion to acquire Synthes and made Michel Orsinger, the former CEO of Synthes, the head of the merged company’s DePuy Synthes orthopedics business. The merger, admitted company officials, had problems as the company began to lose market share. According to Bank of America analyst, Bob Hopkins, the company’s revenue growth was 3-4 percentage points below its peers. J&J’s medical device sales, added Hopkins, approached $19 billion in the first nine months of 2015, but fell 10.4%, making medical devices J&J’s poorest-performing segment.

In 2015, Orsinger left the company and Gary Pruden took over under a new single Medical Devices Group that included orthopedics, spine and surgery businesses.

The company said on January 19, 2016 that the layoffs and restructuring, which also includes the cardiovascular division, will save around $800 million to $1 billion annually by 2018.

Company spokesperson Ernie Knewitz reportedly said that there are no immediate steps to eliminate specific products. “The savings will help us grow our (device) business. That could involve acquisitions, but it will also involve investing in our own internal programs.”

“It’s about realigning resources around priority platforms, ” Gary Pruden said in a Reuters interview. Pruden said JNJ is not satisfied with demand for its artificial knees, devices for trauma and some surgical products and wants to improve them with greater attention and resources. He said the company will “de-emphasize” other device areas, but declined to identify them.

The company emphasized that its businesses should be #1 or #2 in its categories, have a way to get there or be complementary to another existing business. Management will consider strategic options for businesses that do not meet these requirements.

Hopkins wrote that this restructuring “is much more an appropriate response to specific challenges within JNJ’s device unit than it is preparation for a more difficult environment for devices going forward—although both likely played a role. We view this device focused restructuring as a small positive for the rest of the medical device community as it clearly signals that the ortho/spine/gen surg divisions within JNJ remain challenged.”

The company stated it will provide more guidance on this restructuring on Tuesday, January 26, 2016, during a regularly scheduled quarterly conference call with analysts.

The creation of the world’s first orthopedic superpower in 2011 has not gone without difficulties. You can bet the architects of the second superpower, Zimmer Biomet, are watching closely from across town in Warsaw, Indiana.