Teva Plans Major Manufacturing and Job Cuts
Teva Pharmaceutical Industry has announced plans for a major restructuring involving staff reductions of 7,000 employees and the closing or divesting of 15 manufacturing plants following disappointing second-quarter results in which the company took a goodwill impairment charge of $6.1 billion related to the performance of its US generics business.
“Second quarter results were lower than we anticipated due to the performance of our US Generics business and the continued deterioration in Venezuela,” said Teva’s Interim President and Chief Executive Officer Yitzhak Peterburg, in the company’s second-quarter earnings results. “These factors also led to a lowering of our outlook for the remainder of the year. All of us at Teva understand the frustration and disappointment of our shareholders in light of these results,” he said. “In our US Generics business, we experienced accelerated price erosion and decreased volume mainly due to customer consolidation, greater competition as a result of an increase in generic drug approvals by the US FDA, and some new product launches that were either delayed or subjected to more competition.”
Teva reported second-quarter 2017 revenues of $5.7 billion, up 13% compared to the second quarter of 2016, primarily due to the inclusion of the company’s $40.5-billion acquisition of Actavis Generics (i.e., the generics business of Allergan), a deal that closed in August 2016. Teva, however, said it identified certain developments in the US market that caused it to revisit management’s assumptions regarding the market dynamics of its US generics unit, and therefore recorded a goodwill impairment charge of $6.1 billion in the second quarter. As a result, the company recorded a second-quarter GAAP (generally acceptable accounting principles) operating loss of $5.7 billion, compared to operating income of $400 million in the second quarter of 2016.
“Given the current environment, we have had to take swift and decisive actions,” said Peterburg in a company statement. “We are focused on executing meaningful cost reductions, rationalizing our assets and maximizing their value, actively pursuing divestiture opportunities, and strengthening our balance sheet. We will continue to take action to aggressively confront our challenges.”
To that end, the company said it plans to reach by the end of 2017, a headcount reduction of 7,000 made since the closing of the Actavis generics deal, which is 2,000 above its initial target. The company also said it plans to optimize its operational network and plans to close or divest six manufacturing plants in 2017 and nine manufacturing plants in 2018. It also plans to reduce or optimize its geographical footprint in markets where it thinks it is “significantly subscale.” By the end of 2017, the company expects to exit 45 markets globally. Additionally, the company plans to cut its dividend.The company’s board of directors has authorized a reduction in its cash dividend by 75% to $0.085.
Peterburg also said that the company recently concluded a full review of its specialty R&D pipeline to rationalize and focus its pipeline assets and maximize return on investment. He said the company is in the final stages of engaging a consulting firm to advise on its US Generics business. He added that the company was “encouraged” by the progress it continues to make on the sales of its global women’s health business and its oncology and pain business in Europe and expects to announce agreements in the coming months. He said that the company expects proceeds from the sale of both businesses as well as additional asset sales to be at least $2 billion, which is above its previously identified target of $1 billion. He added that the company expects to close three deals in 2017, subject to necessary approvals, and will use the proceeds raised from these divestitures to pay down debt. He added that the company will continue to review its non-core business to determine potential other divestitures in 2018.
Since the closing of the Actavis Generics acquisition, the company said it has delivered on a pro forma basis over $800 million in cost savings, which is ahead of what it originally planned. By the end of 2017, it expects to realize cumulative net synergies and cost reduction of approximately $1.6 billion which is a further reduction of $100 million compared to what communicated previously.
Source: Teva Pharmaceutical Industries