Teva announced Thursday that as part of a restructuring programme introduced last year, it will reduce its global workforce by approximately 10 percent, or around 5000 employees, with the majority of cuts completed by the end of 2014. The company noted that as a result it now expects to realise annual cost savings of approximately $2 billion by the end of 2017, compared to the previously guided range of $1.5 billion to $2 billion.
CEO Jeremy Levin remarked "Teva is managing its operations to achieve high levels of effectiveness in the short term, while pursuing opportunities for the long term." He added that "the accelerated cost reduction programme will strengthen our organisation while improving our competitive position in the global marketplace."
The restructuring initiative, which includes actions to divest non-core assets, increase organisation effectiveness, improve manufacturing efficiency and reduce excess capacity, comes as Teva faces patent expiry on Copaxone (glatiramer acetate) after a US district court ruling earlier this year shortened protection on the multiple sclerosis drug. Company spokesman Yonatan Beker said "these accelerated efforts are designed to take into account the changing competitive landscape and the potential US patent expiration of Copaxone in May 2014 rather than September 2015." He noted that Teva hasn’t yet decided which businesses will see job reductions.
Leader & Co. analyst Sabina Podval noted that Copaxone accounts for about 50 percent to 65 percent of the company’s profit. "The aggressive cost cuts mean Teva may now be thinking there is a higher probability a Copaxone generic will come to the market sooner than they thought and they are trying to prepare for that," Podval said, adding "still, this is good news as the market was looking to better understand how Teva plans to execute those cuts." Clal Finance analyst Jonathan Kreizman remarked "the strategic plan now looks more credible. This puts some meat on the bones in their attempt to significantly cut down costs."
The drugmaker indicated Thursday that it "continues to identify opportunities to optimise value through the selective trimming of assets that no longer fit its core business or are not critical to its future." Teva added that it "will scale down oversised parts of the company, while growing its generics business and core R&D programmes," which include high-value complex generics, expanding its presence in emerging markets and broadening its portfolio of specialty medicines and OTC businesses.
Teva said that it expects cost savings of $1 billion to be realised by the end of 2014, with 70 percent of the overall total anticipated by the end of 2015. The company noted that the majority of the savings are expected to come from a reduction in the cost of goods, with part of this amount reinvested in "high-potential programmes." The drugmaker added that the investments will include the development of its complex generics and specialty pharmaceutical pipeline, which comprises more than 30 late-stage programmes.
According to Teva, pre-tax costs for the restructuring programme are estimated to be about $1.1 billion. The company also reaffirmed its full-year financial guidance and said it expects to end 2013 near the midpoint of its original ranges for revenue of $19.5 billion to $20.5 billion and earnings per share of $4.85 to $5.15.
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