Ax Falls at Johnson & Johnson

Johnson & Johnson, which has undergone a tear of acquisitions this year, is cutting costs. Faced with sagging drug sales due to generic competition, the world's biggest health products company is cutting as many as 8,000 jobs.

The number translates to 7 percent of its workforce and marks the second major restructuring in two years. The company will report a charge against fourth-quarter earnings of as much as $1.3 billion. The cuts are aimed at saving up to $1.7 billion a year, a sign that J&J sees its current cost structure as way out of whack.

The move also shows that even J&J, considered one of the better managed and most diversified health care companies in America, suffers from the same problem as the largest drugmakers: a lack of innovation in its own labs.

J&J is seeing generic competition eat into sales of once-big products like antipsychotic medicine Risperdal and migraine drug Topamax. And like Pfizer Inc., Merck & Co. and other major pharmaceutical companies, J&J doesn't have the new products to make up for those losses. (Unlike those companies, J&J has large consumer products and medical device businesses, but they're not offsetting the declines in pharmaceutical sales.)

Lack of new products forced both Pfizer and Merck to strike deals for major acquisitions this year. J&J has been busy on the M&A front as well this year. It bought a stake in Irish drugmaker Elan Corp. Plc for just under $900 million to collaborate on Alzheimer's treatments and took over Cougar Biotechnology Inc. for about $1 billion to focus on cancer drugs. With the $1 billion takeover of breast-implant maker Mentor Corp., J&J also gets a rival product to Botox.

But payoff from those deals may take some time, and it's clear with today's announcement that CEO William C. Weldon feels more immediate pressure.

"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," Weldon says in a statement.