Based Teva Pharmaceutical to lay off 14000 workers as part of restructuring

Carla Harmon
December 15, 2017

Employees of Teva Pharmaceutical Industries protest against the company's plan to lay off 1,700 employees, in Kiryat Shmona, December 14, 2017.

The two-year restructuring plan is meant to reduce Teva's cost base by $3 billion by the end of 2019, out of an estimated cost base for 2017 of $16.1 billion.

Investors will like this plan as most are focused on the near-term cost cuts and not the business outlook, Wells Fargo analyst David Maris said. Today we are launching a comprehensive restructuring plan, crucial to restoring our financial security and stabilising our business.

In a letter to Israeli Prime Minister Benjamin Netanyahu, Schultz said action was needed to ensure Teva's future. "There is no alternative to these drastic steps in the current situation", Schultz said.

Overall, "Teva expects the implementation of the plan to cost $700MM in 2018, with more than half the savings being achieved in 2018".

It also aims to close or sell a significant number of manufacturing plants, research and development facilities, headquarters and other offices.

Schultz ousted top division heads last month and said he would combine the firm's generic and specialty drug businesses. Teva has added thousands of workers within the past two years, partly due to its acquisition of Activis.

In a conference call with analysts, Schultz said Teva would use cash flow to pay down debt, initially focusing on bank debt.

In 2018 it will look to the launch of two new innovative drugs - Huntington's disease treatment Austedo (approved by the FDA in August) and chronic migraine treatment fremanezumab, which was submitted to the United States regulator in October.

In the USA generics market, which has suffered from price declines in the past year, Schultz expects further price erosion overall in 2018. Teva will review every product and discontinue medicines that are not profitable, while raising prices on others. Teva is now determining which products it can adjust the price for and which products it "needs to get out of".

The restructuring will include what it calls "substantial optimisation" of its generics portfolio globally, and especially in the USA, through price adjustments and/or product discontinuation.

There has been deep concern over job cuts in Israel, where the company employs some 7,000 people and receives generous tax breaks.

After the cuts are completed, only 8 percent of Teva's employees will be Israeli, the Israeli business daily Globes reported. That's 4,000 more than the most dire scenario raised ahead of the announcement.

Mr Schultz unveiled a simplified organisational structure and new executive management team at Teva two weeks ago, shortly after joining from the Danish pharmaceutical company Lundbeck. "Local politicians have already begun commenting on the discrepancy between the new CEO compensation and the firing of roughly half of Teva's Israeli employees".

The company said dividends on convertible preferred shares would be evaluated on a quarterly basis. Notably, FactSet consensus calls for Teva's EPS to hit $2.86 in 2018.

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