Teva Confirms Massive Cost Cuts, Job Losses
As had been widely expected, Israel-headquartered Teva Pharmaceuticals – world’s largest generics producer – announced on Dec. 14 it would slash 14,000 jobs, about a quarter of its workforce. Most of the layoffs are expected to occur during 2018.
While new CEO Kåre Schulz said the job cuts will be spread across global operations, he declined to provide a country-by-country breakdown. He stressed, however, that Teva’s headquarters will remain in Israel. Fears that the 7,000-member Israeli workforce could bear the brunt led the national trade union organization Histadrut to call a general strike for Dec. 17.
Schultz also revealed details of a wide-sweeping two-year restructuring plan aimed at significantly reducing the company’s cost base while unifying and simplifying its organization and improving business performance, profitability, cash flow generation and productivity.
Among other measures, the plan calls for “substantial optimization” of the generics portfolio globally, most specifically in the US, through price adjustments and/or product discontinuation.
As part of the restructuring scheme aimed at achieving cost savings of $3 billion annually by the end of 2019, Schultz confirmed earlier rumors that a “significant number” of production facilities and R&D centers could face the axe.
A “thorough review” is to be taken of all R&D programs, prioritizing core projects and terminating others immediately. Through it, the CEO said the company will maintain a substantial pipeline and remain focused on revenue and cash flow generation. Teva plans to launch two new products, Austedo and fremanezumab, next year, he noted.
The drugmaker is currently carrying a debt burden of $35 billion, much of it borrowed to acquire Allergan’s generics business – an ill-timed move, as prices for drug copies began plunging shortly afterward, led by the US.
Last month, credit rating agency Fitch downgraded the company’s rating to junk. Teva also recently lost patent protection on its top-selling product, the generic MS treatment Copaxone. Analysts calculate that the drug accounted for nearly half of operating profit in 2016.
The job cuts in particular are certain to find a negative resonance in the Israeli political sector, analysts commented, recalling that previous efforts to lower costs through large-scale job cuts had to be abandoned.
Up to the Dec. 14 announcement, the financial markets mooted internal opposition to the current plans. Some reports blamed this for the sudden resignation of Yitzhak Peterberg earlier in the week. A member of the Teva board of directors, Peterberg had served as interim CEO following the abrupt departure of former chief executive Erez Vigodman in February of this year.