Teva Announces 25% Reduction in Global Workforce, Further RestructuringBy
Teva Pharmaceutical Industries has announced a detailed two-year restructuring plan that includes a reduction of 25% of its workforce or 14,000 positions globally, closures or divestments of research and development (R&D) facilities and offices, and a $3-billion reduction in its annual costs. This news follows an announcement by Teva in November 2017 of a new organizational structure and executive management team, which followed the appointment of a new president and chief executive officer (CEO), Kåre Schultz, who took over on November 1, 2017. Teva had earlier announced a restructuring plan in August 2017, which included the closing or divestment of 15 manufacturing plants.
“Two weeks ago we announced a new organizational structure and executive management team,” said Schultz, in a company statement. “Today [December 14, 2017], we are launching a comprehensive restructuring plan, crucial to restoring our financial security and stabilizing our business. We are taking immediate and decisive actions to reduce our cost base across our global business and become a more efficient and profitable company.”
In November 2017, Teva announced a new operating structure and leadership changes to precede the detailed plan. As part of the reorganization, Teva said its commercial business will no longer have two separate global groups for generics and specialty medicines; instead both will be integrated into one commercial organization that will operate through three regions: North America, Europe, and Growth Markets. Each of the regions will manage the company’s entire portfolio, including generics, specialty medicines, and over-the-counter drugs. The company said the goal of the new structure is to deliver cost savings and increase internal efficiencies by reducing layers of management and simplifying business structures and processes across the company’s global operations.
In its most recent update in December, Teva says the restructuring plan will focus on: (1) the immediate deployment of the new simplified organizational structure, announced in November; (2) optimization of its generics portfolio globally, and most specifically in the US, through price adjustments and/or product discontinuation; (3) closures or divestments of a significant number of R&D facilities, headquarters, and other office locations across all geographies; (4) improvement of profitability in all existing markets by optimizing cost base; (5) a thorough review of all R&D programs across the entire company, in generics and specialty, to prioritize core projects and terminate others immediately.
Teva says the adjustments in its generics business will enable the company to accelerate the restructuring of its manufacturing and supply network, including the closures or divestments of what it termed as a “significant” number of manufacturing plants in the US, Europe, Israel, and Growth Markets.
These steps are expected to result in the reduction of 14,000 positions globally, accounting for more than 25% of its global workforce, excluding the impact of any future divestments, over the next two years. Teva says the majority of the reductions are expected to occur in 2018, with most of the affected employees being notified within the next 90 days.
The company expects to record a restructuring charge as a result of the implementation of the plan in 2018 of at least $700 million, mainly related to severance costs, with additional charges possible following decisions on closures/divestments of manufacturing plants, R&D facilities, headquarters, and other office locations. The two-year restructuring plan is intended to reduce Teva’s total cost base by $3 billion by the end of 2019, out of an estimated cost base for 2017 of $16.1 billion. More than half of the reduction is expected to be achieved by the end of 2018.
“We will execute this plan in a timely and prudent manner, remaining focused on revenue and cash flow generation, in order to make sure Teva is ready to meet all of its financial commitments,” Schultz said in his statement. “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. In 2018, we expect to secure the successful launches of Austedo and fremanezumab.”
In August 2017, the US Food and Drug Administration (FDA) approved a second indication for Austedo (deutetrabenazine), previously approved for treating Huntington’s disease, for treating tardive dyskinesia. In October 2017, Teva submitted a biologics license application to the FDA for fremanezumab, an anti-calcitonin gene-related peptide monoclonal antibody for the preventive treatment of migraines.
Additionally, the company said it will immediately suspend dividends on ordinary shares and American depository shares while dividends on mandatory convertible preferred shares will be evaluated on a quarterly basis per current practice. Also, Teva said its annual bonus for 2017 will not be paid due to the fact that the company’s financial results are significantly below its original guidance for the year. The company said it will continue to review the potential for additional divestment of non-core assets.
Teva says it will provide full guidance for 2018 in February 2018 with its annual results and will share a longer-term strategic direction for the company later in 2018.
Source: Teva Pharmaceutical Industries