J&J axes 3,000 jobs in bid to save $1B and revive lagging medical devices business

Johnson & Johnson's ($JNJ) medical device segment has become something of a red-headed stepchild for the company, with sales for the unit lagging behind its fast-growing pharma business. But the company is rolling out a game plan to get things back on track, with job cuts featuring at the top of its to-do list.

The New Brunswick, NJ-based company is axing approximately 3,000 jobs in its medical devices division in an effort to save up to $1 billion in costs by 2018, J&J said in a statement. The cuts comprise about 2.5% of the company's global workforce and up to 6% of its medical device segment, and will apply to J&J's orthopedics, surgery and cardiovascular businesses. Other medical device units and vision care and diabetes care businesses will not be affected by the move.

J&J's decision responds to the "changing needs of the global medical device market and are designed to deliver more value to customers, increasing out competitive advantage and driving growth and profitability for our business," company spokesman Ernie Knewitz told FierceMedicalDevices in an email. If all goes to plan, the restructuring will save J&J about $200 million in 2016, giving the company "added flexibility and resources to fund investment in new growth opportunities and innovative solutions for customers and patients," J&J said.

Alex Gorsky

J&J has big plans for the year ahead after stumbling a bit with its devices business last year. Sales for medical devices dropped 2.9% during the first 9 months of 2015 and 3.4% in the U.S.

But J&J is working hard to turn those numbers around, rolling out new offerings to jumpstart its diabetes device businesses and concentrating on recent launches for its spine and trauma businesses. As of July, the company had already submitted more than half of the 30 major device regulatory filings that it promised to accomplish by the end of 2016.

J&J is also relying on recent collaborations to give its medical device business a much-needed boost. In March, the company said it would team up with Verily, now Google Life Sciences, to develop new robotic-assisted surgical platforms. In November, the company unveiled the first major blood glucose monitor to support the Apple HealthKit, which could potentially give it a boost in diabetes.

The company is staying more reserved on the M&A front, with CEO Alex Gorsky at the recent J.P. Morgan Healthcare Conference emphasizing innovation over dealmaking. But with $37.3 billion in cash in tow and cost-cutting measures underway, the company could be poised for its next big deal, some analysts say.

J&J is "an active acquirer with a focus likely heavily weighted toward its lagging medical devices business" and "It's clear to us that it's a matter of when, not if" the company embarks on a deal, Leerink analysts Danielle Antalffy and Puneet Souda said in a note to clients. If/when J&J does decide to strike a deal, cardiovascular devicemakers including those with transcatheter aortic valves or mitral valve offerings could be a target, the analysts said.

J&J was up 1.1% to $98.11 in premarket trading before the cuts were announced.

- here's the statement

Special Reports: The top companies in med tech: 2014 revenue results – Johnson & Johnson | Top 10 med tech R&D budgets in 2014 – Johnson & Johnson

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