- Teva Pharmaceutical Industries Ltd. is tightening its belt, disclosing on Thursday more details of a massive company overhaul that will significantly trim down its workforce, portfolio, and manufacturing and corporate footprint.
- The two-year restructuring plan would eliminate roughly 14,000 positions, or more than 25% of Teva's headcount; wrap its global generics and specialty pharma units into a single commercial organization; offload non-core products; and close or sell multiple R&D facilities, manufacturing plants and office sites.
- The Israeli drugmaker expects those initiatives will curb operating expenses by $1.5 billion in both 2018 and 2019. While the cost reductions are important, Cowen & Co. analyst Ken Cacciatore highlighted in a Dec. 14 investor note that Teva is also facing substantial revenue degradation, meaning the restructuring mostly just allows the company to "tread water."
Teva's recently minted CEO Kåre Schultz is wasting no time trying to restore the company to its former glory.
In late November — less than three months after taking the helm — the Lundbeck A/S veteran unveiled a new corporate organizational structure that combined Teva's generics and specialty pharma businesses into one commercial operation. R&D from the two units also came under one roof. As a result of the shuffle, the company said its chief scientific officer, head of global specialty medicines and head of global generic medicines would depart by Dec. 31.
With leadership squared away, Schultz is turning his attention to the company's financial position. Teva has about $35 billion worth of short- and long-term debt weighing it down. Making matters worse are lagging sales from its flagship specialty drug Copaxone (glatiramer acetate), which is facing generic competition in the U.S. from Mylan N.V.
"We are flattening our organization both top down and sideways, with fewer layers of management and increased accountability," Schultz said in an email to employees. "This will ensure better integration, improve productivity and efficiencies, and reduce our cost base."
Teva anticipates such measures will shrink its cost base, which should total about $16.1 billion in 2017, by $3 billion between 2018 and 2019. Some, however, don't believe that will be enough to right-size the company.
"To state it clearly, we do not find this valuation compelling and believe there are cleaner value stories available. We would seek better alternatives," Cowen's Cacciatore wrote in his investor note.
"Put simply, these cost reductions will likely only allow for management to simply tread water at the current operating cash generation," Cacciatore wrote, adding it's "fairly reasonable to assume that with the potential Copaxone degradation and the other potential impact to revenue ... that the $1.5B in operating cost reduction in 2018 will simply keep Teva at its current cash generation position (at best)."
Investor reactions appear more positive. Teva stock opened at $18.32 per share on Thursday, up 17% from the prior day's close.
"[I]t is imperative that we deliver on our plans so that we regain trust and confidence," Schultz wrote. "This is the only way we will be able to continue providing quality medicines to those we serve."
Teva expects the majority of its latest restructuring efforts to take place in 2018, including the layoffs. Most of the employees affected by the workforce reductions should receive notifications within the next 90 days, according to Schultz.