Teva Pharmaceutical Industries said today it will eliminate 14,000 positions worldwide—more than 25% of its workforce—over the next two years as part of a restructuring intended to cut costs incurred through a series of acquisitions, respond to growing competition, and stabilize a company that has seen six CEOs in five years.
The layoffs will come as Teva shuts down “a significant number of R&D facilities, headquarters, and other office locations across all geographies,” it said in a statement that offered no specifics.
Teva said it will also shut down or divest itself of “a significant number of manufacturing plants in the United States, Europe, Israel, and growth markets.” Teva defines “growth markets” as Latin America, Eastern Europe, the Middle East, Israel, Africa, and Asia-Pacific, including China and India.
The company said it will carry out “price adjustments and/or product discontinuation” within its generics portfolio globally, “and most specifically in the United States”—as well as begin a “thorough” review of R&D programs companywide, including in generic and specialty drugs.
The R&D review, Teva said, will prioritize core projects while terminating other projects immediately “while maintaining a substantial pipeline.”
“We are taking immediate and decisive actions to reduce our cost base across our global business and become a more efficient and profitable company,” Teva president and CEO Kåre Schultz said in a statement.
Of the 14,000 jobs to be eliminated, 1750 will come from Israel, where Teva is headquartered, the Israeli newspaper Haaretz reported today, citing as its source the Histadrut labor federation. The federation has called for a general strike within Israel on Sunday to protest the job cuts.
Two manufacturing plants employing a combined 1100 people in Jerusalem will be shuttered, Haaretz reported, while the company has spared facilities in Ramat Hovav and the Tel Aviv suburb of Kfar Sava, where job cuts have recently occurred. Both sides are subject to a labor agreement expiring in 2021.
Israeli Prime Minister Benjamin Netanyahu has issued a statement urging Schultz to “maintain the identity of Teva as an Israeli company” and minimize the extent of its layoffs.
Debt, Copaxone Competition
Teva incurred much of that debt through a series of acquisitions—the largest being its purchase of Allergan’s generic drugs business, a $39 billion deal completed last year.
Teva faces another key challenge: Its best-selling branded drug, the multiple sclerosis treatment Copaxone® (glatiramer acetate injection), faces potential generic competition after a federal court in January invalidated four patents. Mylan won FDA approval on October 3 to sell a generic version of Copaxone—followed two days later by Mylan and European partner Synthon winning European approval for the generic.
Copaxone racked up $4.223 billion in sales last year, up 5% from 2015. During the third quarter, Copaxone sales fell 7%, to $987 million from $1.061 billion in Q3 2016.
Teva is also suspending its dividend on stocks and American Depositary Shares—and said it will not pay out its annual bonus for 2017 “since the company's financial results are significantly below our original guidance for the year.”
Teva lowered its 2017 investor guidance in August, projecting 2017 non-GAAP revenues to between $22.8 billion and $23.2 billion, down from its original expected range of between $23.8 billion and $24.5 billion. Non-GAAP earnings per share (EPS) for 2017 was lowered to between $4.30 and $4.50, based on a weighted average number of shares of 1.076 billion, down from the previously expected range of $4.90 to $5.30.
Teva said it will provide full guidance for 2018 in February when it releases annual results, and will share a longer-term strategic direction for the company later next year.
Shares of Teva have fallen 57.5% over the past year—to $15.70 a share at yesterday’s close from $37 a share on December 14, 2016. This morning, shares rose 19%, to $18.80, in premarket trading as of 8:56 a.m.
‘An Axe in Hand’
One analyst, however, was less positive about the long-term wisdom of the restructuring.
“It appears to us that the new CEO is approaching Teva with an ax in each hand, not hedge clippers or pruning shears,” Wells Fargo analyst David Maris said in a research note, according to Reuters. “We think the market will like this in the short run, but will eventually have serious questions as to whether this approach is cutting fat or muscle.”
Teva said its restructuring is anticipated to reduce Teva’s expenses $3 billion by the end of 2019, from a cost base of $16.1 billion estimated for this year.
More than half of the reduction is expected to occur by the end of 2018, when Teva anticipates taking a charge against earnings of “at least $700 million,” primarily related to severance costs.
But Teva warned that additional charges were possible after decisions are made on closures or sell-offs of manufacturing plants, R&D facilities, headquarters, and other office locations.
“Teva will optimize its cost base while ensuring that we protect our revenues and preserve our core capabilities in generics and in select specialty assets, in order to secure long-term growth,” Schultz added.
Schultz took Teva’s helm six weeks ago after previously serving as president of Danish-based drug developer H. Lundbeck. He succeeded Erez Vigodman, who stepped down in February.
Within days, the company announced a new organizational structure and executive management team, and named Michael (Mike) McClellan as permanent group EVP, CFO; he was appointed interim CFO in July.
Departing the company at year’s end will be CSO Michael Hayden, Ph.D.; Rob Koremans, M.D., head of global specialty medicines; and Dipankar Bhattacharjee, head of the global generic medicines group. The new structure combined Teva’s generic and specialty drugs units, as well as the R&D groups serving those businesses.
Today, Teva said it would immediately implement the new management structure, which is designed to cut layers of management while simplifying business structures and processes.
“The organizational restructuring is driven by the need to unify and simplify the organization and improve business performance,” Schultz said in a letter to Teva employees disclosed by the company. “We have no time to waste.”