Image: Kåre Schultz, Teva CEO. News Øresund
Newly appointed Teva CEO Kåre Schultz unveiled a massive reorganization of the company today, with plans to ax 14,000 workers, shutter R&D and manufacturing facilities in various places and radically pare down $3 billion in costs globally to remake the company in the wake of a punishing downturn in the generic drug business.
Schultz and the team he’s putting together for Teva are making a radical break from the past, shedding a long running reluctance to cut staffers in Israel. Altogether, the company is cutting more than 25% of its workforce and slashing a large portion of its $16 billion cost structure.
That is a bitter pill for staffers at the company, but it is music to the ears of its investors who have watched the numbers deteriorate. Teva’s stock spiked 16% after the restructuring news hit.
The company’s statement says that they will close or sell off a “significant number of R&D facilities.” Manufacturing facilities will also be put on the block. And Schultz plans to launch a top-to-bottom R&D reorganization, starting with a complete review of its specialty and generic pipelines. When it’s done, he says, Teva plans to have a substantial pipeline in place able to produce new and generic therapies. But a company spokesperson tells me there are no specifics yet on who’s getting cut in R&D and which facilities will be shuttered.
Teva is melding together its generics and specialty drug business, integrating two research groups for branded and generic drugs and looking for “synergies” that allow the company to cut deep into R&D. R&D chief Michael Hayden is also headed out, as the company announced earlier.
“The only thing we are really protecting is the product flow,” Schultz told analysts Thursday morning. Everything else, with the exception of manufacturing of profitable products, faces the ax. The cuts are “all over the place,” both in the different groups as well as the geographies where Teva works globally.
Focusing on manufacturing, Schultz says that Teva has 80 manufacturing sites under review and there will be “double-digit plant closures the next two years.” If the company was to wipe the slate clean and then start over, it would have a total of only 8 to 12 sites. It’s not realistic to do that now, he adds, but over the next 10 years that’s the direction the company plans to take following initial cutbacks
Teva will also set the stage for a planned launch of Austedo and their CGRP migraine drug fremanezumab. And the CEO cited CNS diseases as Teva’s best hope for delivering new medicines as Teva refocuses R&D.
The CEO is also scrapping dividends and bonuses for 2017 as Teva grapples with its financial crisis.
Today 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.
Rumblings about these cuts have already inspired a string of protest plans on the part of Israeli unions, which hold a powerful position at Teva. Over the past year, though, Teva has been in a financial tailspin. Its deal to buy Allergan’s generic business just ahead of the price erosion in the field has afflicted all players.
“I am aware that we will be parting with people who have dedicated years and contributed a great deal to this company,” Schultz says in a note to staffers, “and I deeply appreciate their commitment. We are also aware that these changes impact not only our workforce, but vendors, suppliers and communities where we have played a key role for years. However, there is no alternative to these drastic steps in the current situation.”
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