Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) today announced that it will fire 5,000 employees worldwide, a tenth of its workforce, as part of "steps to accelerate the reduction of costs and to optimize its structure and processes." Most of the layoffs will be completed by the end of 2014.
Hundreds of Teva's 7,500 employees in Israel will lose their jobs. "We cannot yet say what will happen in Israel, Teva president and CEO Dr. Jeremy Levin told "Globes". "Most of the layoffs will be outside Israel. Later this year, we will specify which programs we'll invest in. We'll give many more details about what we're doing at the end of the year. This year, we've saved $300 million."
He added, "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."
Nearly all Teva's employees in Israel are members of the Histadrut Federation of Labor, although a small number are on personal contracts outside of the collective agreement and can be fired without talks with the workers committee. The Histadrut said, "There has been a discussion between the professional union and management representatives and it has been agreed that any steamlining will be coordinated with the workers committee and the Histadrut."
Teva says, "These steps are part of Teva’s worldwide restructuring program, which was introduced in December 2012 and included actions to divest non-core assets, increase organization effectiveness, improve manufacturing efficiency and reduce excess capacity." It adds that it will continue the "selective trimming of assets that no longer fit its core business or are not critical to its future", scale down oversized parts of the company, but expand its generics business and core R&D programs, expand its presence in emerging markets, and broaden its portfolio, especially in its specialty medicines and over-the-counter businesses.
Teva raised its saving estimate from the cutbacks from $1.5-2 billion to $2 billion by the end of 2017, half of which will be made in 2014. It will reinvest part of the savings in the development of complex generics and specialties drug programs. It says that it has more than 30 late-stage programs.
Teva estimates the pretax costs of the restructuring at $1.1 billion.
Teva reiterates its full-year guidance for 2013, predicting that it will achieve the mid-point non-GAAP earnings per share forecast of $4.85-5.15 on $19.5-20.5 billion revenue.
Levin said that the cost-cutting plan was not because of financial distress. "This was a decision made with the board of directors to deal with global challenges. We're a global company that is facing price pressures and the risk of losing revenue from specialized products. Nonetheless, it is important to invest in R&D. There are about 100 plans for cuts, including the closing of plants. This really isn't focused on Israel. We're accelerating this. We said that we'd save $1.5-2 billion through 2017, but we can do this more quickly. We've located many more places to do this."
Teva's biggest challenge is competition against its multiple sclerosis treatment, Copaxone, and the expiration of its patent in 2014. The drug is reportedly responsible for 30-5% of Teva's net profit.