J&J to Reorganize Units, Management

Johnson & Johnson (J&J) reshuffled management and reorganized some units in moves its chief said will improve the health-care giant’s focus on existing businesses while allowing it to explore new market opportunities. The reorganization comes at a time when J&J is cutting costs in response to challenges including a downturn in sales of key products such as the anemia drug Procrit and the Cypher coronary-stent device. Another challenge is various ongoing government investigations into J&J’s sales and marketing practices, part of which played a role in the retirement of the company’s device-unit chief earlier this year. J&J Chief Executive William Weldon said the changes announced Thursday were a response to an evolving health-care environment, one marked by increasing government activity, technological advances and the growth of emerging markets. “The whole health-care arena is being reshaped,” Weldon said in an interview Thursday. “Ten years from today it will probably look very different.” Before then, J&J will look a little different. J&J, New Brunswick, N.J., currently has three major business units: pharmaceuticals; medical devices and diagnostics; and consumer. But beginning in January, the device business will be split into two: a surgical-care group and a comprehensive-care group. The surgical-care group will include the Ethicon unit, which makes stitches used in surgery. The comprehensive-care group will include Cordis, maker of the Cypher drug-eluting stent, which is used to treat heart patients. J&J, the biggest health-care-products company by market capitalization, named Sherilyn McCoy, current head of Ethicon, as worldwide chairman of the surgical- care group. Donald Casey, current head of J&J’s diabetes franchise, will become worldwide chairman of comprehensive care. The current head of the device unit, Nicholas Valeriani, will become head of a newly created office of strategy and growth. The office’s purpose will be to identify new business opportunities outside of those now pursued by the operating units. Weldon said these pursuits could someday lead to the creation of another major business unit. He said J&J currently competes in only about one-fourth of a $4 trillion health-care market. In sizing up the remaining three-quarters of the market, Weldon said the new office of strategy will try to answer the question ” What is the next huge space we ought to be going after?” Weldon said possibilities include health-care products that J&J doesn’t currently sell. He also mentioned health information, genetics, biomarkers and medical records. Valeriani also will be responsible for J&J’s venture-capital arm, the office of science and technology, and worldwide operations. Some of these responsibilities had previously been handled by J&J Vice Chairman Christine Poon. Now, Poon will take over the pharmaceuticals unit and her other corporate responsibilities will be moved elsewhere. She will assume the duties of Joseph Scodari, who will retire in early 2008 as worldwide chairman of pharmaceuticals. Scodari first talked about retiring several years ago, but agreed to remain with the company for “an extended time,” J&J said. Valeriani had only been in his post as head of the device unit for about nine months. In February he replaced Michael Dormer, who retired after J&J disclosed to the U.S. government that it believed some foreign units had made improper payments in connection with the sale of medical devices in two countries. These were potential violations of a law banning U.S. companies from offering bribes in other countries. Weldon said Valeriani’s new role was a “good opportunity to accelerate the growth of the business.” Weldon declined to comment on the pending government investigations. As for Poon, Weldon said the removal of some of her responsibilities wasn’t a reflection on her performance. He said the pharmaceutical unit is “at a critical point right now.” Blockbuster drugs Risperdal, an antipsychotic, and Topamax, a treatment for migraines and epilepsy, will be subject to generic competition within two years. But J&J also has several recent and pending product launches that could at least partly offset sales lost to generic competition. “This allows Chris to focus on the pharma business” and not have “distractions with other sides of the business,” Weldon said. One J&J shareholder, Peter Goldman, principal of Chicago Asset Management, said the J&J reorganization makes sense, but only “time will tell” whether it helps the company. Goldman said J&J’s pharmaceuticals unit is facing pressure, and “they’ve got to refuel growth.” The reorganization doesn’t affect J&J’s consumer unit, which is busy digesting last year’s $16.6 billion purchase of Pfizer Inc.’s (PFE) consumer-health-care unit. J&J said the integration of the Pfizer business “continues to track ahead of the original acquisition plan.” J&J announced a plan in July to cut 3% to 4% of its work force of more than 120,000 to adjust to the downturn in sales for key products. J&J shares were recently up 11 cents, or 0.2%, at $67. SOURCE: CNN