Teva Pharmaceutical Industries Ltd., the world’s largest maker of generic drugs, plans to eliminate about 5,000 jobs as it accelerates cost reductions amid growing competition for the company’s best-selling product.
The restructuring program will lead to expenses of $1.1 billion through 2017, the Petach Tikva, Israel-based company said in a statement today. Cutbacks, which equal about 10 percent of the workforce, will yield annual cost savings of about $2 billion by the end of that year, the company said. Teva reaffirmed its 2013 sales and profit forecast.
The announcement answers one question posed by some analysts and investors: how Chief Executive Officer Jeremy Levin planned to achieve the cost savings target he laid out last year. Levin is under pressure to boost profitability because the multiple sclerosis drug Copaxone may face lower-priced, generic rivals as soon as next year. The injection already faces competition from new oral treatments.
“The strategic plan now looks more credible,” Jonathan Kreizman, an analyst at Clal Finance Batucha Brokerage Ltd., said by phone. “This puts some meat on the bones in their attempt to significantly cut down costs.”
Levin, who joined Teva last year, is focusing the company’s efforts to develop branded drugs on areas such as respiratory and central nervous system illnesses. In December, he said Teva would pare back some programs, such as StemEx, a stem-cell technology it was working on with Israeli partner Gamida Cell Ltd.
He set a goal then of $1.5 billion to $2 billion in annual cost savings, without saying how many jobs would be cut. Today Teva said the savings will be about $2 billion. The company estimated that it will meet $1 billion of the annual cost savings by the end of 2014. The majority of the savings are still expected to come from a reduction in the company’s cost of goods, Teva said.
Teva will keep looking for assets to dispose of, while expanding its generic-drug business and selected research programs, the company said.
Teva’s American depositary receipts climbed 3.5 percent to $40.57 in New York, their biggest one-day gain since March 6. They’ve returned 16 percent in the past five years, trailing the 125 percent return for the Bloomberg Europe Pharmaceutical Index.
While Teva is the world’s biggest maker of generic drugs, its future hinges on finding new revenue to replace what it earns from the branded product Copaxone. The drug accounts for about 50 percent to 65 percent of Teva’s profit, according to Sabina Podval, an analyst at Leader & Co.
Generic drugmakers including Momenta Pharmaceuticals Inc. are seeking to introduce copies of Copaxone as early as next year after a U.S. court in July invalidated a 2015 patent for the $4 billion drug. Teva says the U.S. Food and Drug Administration should require clinical trials for a generic Copaxone because it’s a complex molecule, making a 2014 generic competitor unlikely.
“The aggressive cost cuts mean Teva may now be thinking there is a higher probability a Copaxone generic will come to the market sooner than they thought and they are trying to prepare for that,” Podval said by telephone. “Still, this is good news as the market was looking to better understand how Teva plans to execute those cuts.”
Teva hasn’t yet decided which businesses will see job reductions, Yonatan Beker, a spokesman, said in an e-mailed response to questions. “These accelerated efforts are designed to take into account the changing competitive landscape and the potential U.S. patent expiration of Copaxone in May 2014 rather than September 2015,” he said.