Teva’s cost cutting likely to impact regional operations
Generic drugmaker plans to slash 25 percent of workforce and consolidate operations. It has U.S. headquarters in North Wales and offices in West Goshen and Frazer
Thousands of regional jobs are in jeopardy as the result of a cost-cutting program announced Thursday by Israel-based Teva Pharmaceutical Industries Ltd.
The world’s largest generic drugmaker, which has U.S. headquarters in Montgomery County and two operations in Chester County, said it would lay off 14,000 workers.
In a letter to employees, Chief Executive Kare Schultz said the restructuring is “crucial to restoring our financial security and stabilizing our business.”
“We have no time to waste,” he said. “We are flattening our organization both top down and sideways, with fewer layers of management and increased accountability. This will ensure better integration, improve productivity and efficiencies, and reduce our cost base.”
The company said the layoffs represent over 25 percent of its global workforce. The job cuts are to occur over the next two years, with most expected in 2018. The restructuring is expected to cut costs by $3 billion by the end of 2019.
Teva has its U.S. headquarters in North Wales in Montgomery County. It also has operations near West Chester and in Frazer that it acquired when it bought Cephalon Inc. in 2011 for $6.8 billion. At the time, Cephalon had almost 1,000 employees combined at the research and development labs in West Goshen and at what had been Cephalon’s headquarters in Frazer.
Teva’s bottom line has been hit by the expiration of patents on Copaxone, its flagship drug for multiple sclerosis; pricing pressure on its core generics business; and a $35 billion debt load taken on in its acquisition of the generics business of Allergan. It also has suffered from turnover and instability in its senior management ranks.
Teva’s stock has skidded nearly 60 percent this year.
In the letter to employees posted to the company’s website, Schultz explained what the company is doing in a series of bullet points:
• “We are immediately starting the consolidation and streamlining of our supporting infrastructure, manufacturing, R&D and commercial operations. Some of the former global units will be integrated into the new structure, while others will be made redundant.
• “We will substantially optimize our generics portfolio globally, and most specifically in the U.S., through price adjustments and/or product discontinuation. This will enable us to accelerate the restructuring of our manufacturing and supply network, including the closures or divestments of a significant number of manufacturing plants in the United States, Europe, Israel and Growth Markets. All decisions will be business driven and based on network rationalization, as such, the ultimate numbers will vary between countries and regions.
• “We plan to close or divest a significant number of R&D facilities, headquarters and office locations across all geographies.
• “We are also conducting a thorough review of all R&D generics and specialty programs across the entire company to prioritize core projects and cancel others immediately, while maintaining a substantial pipeline.”
Kaelan Hollon, Teva’s senior director of communications, said the company plans to consolidate its offices in the United States from seven locations into one main campus — the location of which is to be determined. That decision will be made over the next year or two, she said, adding there is no guarantee North Wales will remain the U.S. headquarters.
The company has already closed offices in Cambridge, Mass., in Washington, D.C., in Horsham and in Manhattan, she said.
Annual bonuses for 2017 also will not be paid.
Schultz’s letter said the layoffs would affect all businesses and regions for a company that employs some 56,000 people worldwide. The company’s Israeli headquarters are expected to be significantly affected, but no details were immediately available. Affected employees are expected to be notified within 90 days.
“Making workforce reductions of this magnitude is difficult, and we do not take them lightly,” Schultz said. “However, there is no alternative to these drastic steps in the current situation.”
Schultz said the company will be “respectful and transparent” and work closely with employee representatives and unions. Israeli representatives have already threatened to strike.
Israeli Prime Minister Benjamin Netanyahu’s office said that he called Schultz ahead of the announcement to express his concerns. It said he asked Schultz to do his utmost to protect Israeli jobs, especially in poorer outlying areas, and to maintain the company’s Israeli identity. Teva has roughly 7,000 Israeli employees, making it one of the country’s largest private sector employers.