Teva Pharmaceutical Industries is already in the middle of a big cost-cutting push. And it’s about to get bigger. The Israel-based generics giant ($TEVA) plans to lay off up to 5,000 people, or about 10% of its workforce, in a bid to squeeze $2 billion out of annual costs by 2017.
The job cuts are part of a company-wide overhaul announced by CEO Jeremy Levin late last year. In addition to shrinking its workforce, Teva has been shuttering and selling manufacturing plants, tightening up procurement, and scaling back parts of the company no longer considered mission-critical. At the time, Levin promised savings of $1.5 billion to $2 billion.
Teva is now shooting for the upper end of that goal. The news comes soon after the company lost a patent fight over its top-selling drug, the branded multiple sclerosis treatment Copaxone, which brought in $2.2 billion for the first half of 2013 alone. A U.S. appeals court judge invalidated a key patent protecting Copaxone ’til September 2015. So, Copaxone could now get generic competition in May 2014. And Teva was already scrambling to find sources of revenue that could fill the coming Copaxone sales gap.
“Teva is managing its operations to achieve high levels of effectiveness in the short term, while pursuing opportunities for the long term,” Levin said in a statement today. “The accelerated cost reduction program will strengthen our organization while improving our competitive position in the global marketplace. We understand that this may be a difficult time for our employees and are committed to act with fairness, integrity and respect, and provide support during this time.”
The company says it will be able to shed $1 billion in costs by the end of next year, with another $400 million or so by the end of 2015. Under pressure from investors, who have been waiting for years to see Teva’s promises translate into gains for shareholders, Levin wants to ratchet back on spending while bringing in new revenue to cover the impending loss of Copaxone exclusivity. Teva plans to focus on bigger, more efficient plants while shifting production to lower-cost locations around the world, but it’s expecting its biggest savings to come from a procurement overhaul. By centralizing purchasing, Teva thinks it can omit overlaps and strike better, long-term deals with vendors, saving up to $700 million a year.
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