SAN FRANCISCO — Kåre Schultz didn’t mince words at Teva’s JPM presentation this morning, launching his talk by outlining the company’s colossal challenges in the years ahead.
The elephant in the room? The company’s $32 billion in debt and massive cuts. Schultz’ candid delivery earned a few laughs from the audience, as he pointedly skipped the sugar-coated rhetoric often present onstage at JPM.
“I don’t like to operate a company in debt, so it’s kind of a funny situation I’m in,” Schultz said. “And so, I need to get the debt down in order to like my job some more.”
Other than the debt, Schutlz outlined other challenges: generic competition for Copaxone, a challenging environment in the US generics market, and fewer than anticipated Gx product launches in the US.
We know all of this, of course, and we know Teva’s strategy for preserving shareholder value: $3 billion in cost reductions by the end of 2019, global workforce slashed by 14,000 jobs, and facility closures. Of the company’s 80 facilities, Teva plans to close “around half” those sites over time, with 20-25 sites to close by the end of next year.
“We’re cutting costs everywhere we can, and where it doesn’t affect revenue generation,” Schultz said.
The two areas of the workforce that will suffer the least, Schultz said, is sales and the manufacturing floor to keep the product flow going.
As way of explanation for Teva’s circumstances, Shutlz said the company was run in silos without a united look at the financials.
“That has led to the fact that very few people have had a good grip of the operating profit and the P&L,” Schultz said. “That’s apart from the CEO and the board of directors, but that’s not enough to drive a company.”
The company is now taking a careful look at every product to see if its worth its weight.
“Teva used to focus on maximizing revenue in the generics business, believing that if you just maximize revenue everything will fall in place,” Schultz said. “That doesn’t really work. You always need to maximize operating profit. If you think about it, when you’re maximizing revenue, you’re taking any deal you can get just to get the volume. But you’re not staying focused on per product profitability. That’s what we want to do going forward.”
In short, Teva’s plan to clean house and stay lean, freezing all moves that could dilute shareholder value. Schultz noted that the company would not be offering equity any time soon and that it would not be making any acquisitions.
“We’ve done quite enough these past five years,” Schultz said.
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