Why J&J "Deselected" 900 Reps Despite Sales Growth

Johnson & Johnson's Ortho McNeil/Janssen unit is in the process of laying off about 900 staffers, according to Dow Jones Newswires.

Sales and profits at J&J are both up overall. Sales went up from $61 billion to $63.4 billion last year, profit was up from $10.5 billion to $12.9 billion. But the productivity of each sales rep employed by J&J is in an overall decline.

The two graphs at the bottom of this item both illustrate the same thing: The first shows the number of dollars in revenue and gross profit produced by every $1 spent on sales and marketing; the second shows the quarter-to-quarter percentage change in those revenues (in other words, the overall trend). The lines on both graphs are in decline.

Currently, J&J gets $2.68 in revenue for every $1 spent on sales, marketing and management. That's down from $3.13 in Q1 2007.

That means that J&J is only growing its sales by throwing more and more money at them. That process can't go on forever (eventually the company would make fewer dollars than it spends). So J&J has made the decision to cut the dollars it spends and will likely now ask the remaining force to work harder to achieve the same or better results.

McNeil/Janssen has been specifically affected by the antipsychotic Risperdal going off-patent. It lost more than $1 billion in sales, a 38% decline. Risperdal has also been the subject of considerable legal controversy.

Unsurprisingly, J&J staff are unhappy at the cuts. Some don't like the corporate euphemism that J&J is using for the layoffs, "deselection."

Others just want to know what the "deselection" criteria actually is. Here's a summary of their gripes:

... I received a communication that the selection process for the AI/GI lay-offs was based on tenure, geography, and ratings, but there were no specifics about the "business rules" or the priority, exceptions, etc. Does anybody know the specifics?

... It is the million dollar question because nobody can get a straight answer from management. The company would like everyone to believe that there was a consistant business rationale involved i.e. tenure first, then H.R. ratings that way there is no lawsuit for discrimination. But the fact that there is no transparency and no straight answers leads people to believe that the business rules involved in placement were not consistant. The more you talk to people and sort through the fallout, there are examples of inconsistancy i.e. H.R. ratings beating out tenure and visa versa. The last thing the company wants is people to find inconsistancy because it can lead to a lawsuit. Someone, somehow has to know the dirty truth or can at least provide an honest explanation providing an answer to the million dollar question. Maybe then I'll sign my severance agreement.

• Name, 2008 pay, 2007 pay
• CEO William Weldon, 29.4 million, $30.6 million
• CFO Dominic Caruso, $3.9 million, $2.9 million
• WW chairman/pharma Christine Poon, $10 .4 million, $10.1 million
• General counsel Russell Deyo, $8 million, $9.1 million
• Colleen Goggins, $8.5 million, $7.9 million Numbers are rounded, includes stock and options whose value changes over time.

Earlier this week, some employees of Ortho-McNeil-Janssen Pharmaceuticals, Inc. were informed that their positions were being eliminated. Approximately 900 positions have been impacted, representing approximately 6% of the total US Johnson & Johnson pharmaceuticals workforce. It should be noted that attrition and hiring freezes were used to help reduce the impact.

As difficult as these types of decisions always are, this reduction was an important step in the implementation of a new commercial business approach that will ultimately provide significant value to the multiple stakeholders that play an increasingly important role in the pharmaceutical market.