Teva CEO: We’re hitting cost-cutting targets
Schultz says tough year ahead but there won’t be second round of restructuring
The coming year will continue to be challenging for Israeli drug giant Teva Pharmaceuticals, CEO Kare Schultz said on Tuesday, but the company is meeting its ambitious cost-cutting and wholesale restructuring targets.
“We are totally on plan,” said Schultz. “It’s not a nice one, because we have declining revenues and had to lay off employees, but it’s a realistic plan and it’s working now.”
Revenues in 2018 reached $18.8 billion, a 16% reduction compared to 2017, largely due to generic competition to the company’s leading Copaxone treatment for multiple sclerosis, a decline in revenues in its US generics business and the sale of business operations.
Amid dropping revenues and high debt, 2018 represented the first year of Teva’s major restructuring efforts, with the company reducing its spending base by $2.2b. The company aims to reduce costs by $3b. in total, compared to 2017 expenditures, by the end of 2019.
As of December 31, 2018, Teva’s debt stood at $28.9b., compared to $32.4b. at the end of 2017.
In November 2017, Teva announced a new organizational and management structure, combining the company’s generic and specialty drugs divisions, in addition to two research and development groups belonging to those divisions.
One month later, Teva announced it would be cutting 14,000 jobs by the end of 2019, which is approximately 25% of its global workforce and includes 1,700 Israeli employees. The move led to mass protests by Teva’s Israeli workers and a Histadrut labor federation-approved general strike in solidarity with those affected.
“We have had to say goodbye to more than 10,000 employees,” Schultz said. “This is very sad, as they were good employees doing their best for Teva. But there was no alternative, as otherwise the whole company would go under. The good news is that the majority of them are finding new jobs and careers. They came with good qualifications.”
Schultz was quick to emphasize that there will be no second round of restructuring or new site closures. The 11 manufacturing facilities slated to close down this year, including the winding down of its Jerusalem plant, are sites already due to close. The company closed seven plants in 2018.
“Some of the sites closing down in Israel will take time,” Schultz said. “It can take a couple of years to wind down a manufacturing site. There will be no new site closures; it’s just a question of implementation time.”
Teva had relied heavily on revenue from sales of Copaxone, priced at $5,800 and accounting for some 20% of sales, since 1996 when the drug was first released into the market.
Yet the company’s financial health deteriorated in July 2017 when Dutch-American pharmaceutical company Mylan NV cut the wholesale monthly cost of its generic version of the drug by 60% from $5,000 to $1,900.
“Copaxone is a classical story about a pharmaceutical blockbuster. Nearly all pharmaceutical companies experience this: a blockbuster which is their blessing for a while and then their biggest challenge,” said Schultz, adding that Teva’s total revenue from the drug is forecast to continue decreasing by approximately 25% per year.
The company’s forecasts, however, slightly improved revenues from 2020, as its two new drugs, Ajovy and Austedo, start to gain traction in the US pharmaceutical market.
In September 2018, Teva received FDA approval for Ajovy, its newly-developed migraine drug. The company is also expecting to accrue significant revenues from the sale of Austedo, the first approved treatment for tardive dyskinesia and chorea associated with Huntington’s Disease, and from its generic version of Mylan’s EpiPen.
“The fact that we’re managing the company’s tough situation well does not mean that we don’t have a problem anymore,” Schultz said. “The revenues are still going down, and will continue to go down in 2019. We won’t see an improvement until 2020-2021.”
Emphasizing that the company is not for sale, Schultz explained that he had opted not to raise equity from new investors to reduce the company’s outstanding debts. This was to prevent the dilution of current shareholder interests and the high returns that new investors would likely demand.
Questioned over plans to potentially move the company’s headquarters away from Israel, Schultz said Teva does have plans to move away from its Petah Tikva headquarters, but “not very far.” The company, he said, has rented new premises in the Ramat Hahayal neighborhood of northern Tel Aviv.