Commentary

Teva To Lay Off 25% Of Global Workforce As Generic Prices Drop

Teva Pharmaceutical Industries, the world’s largest manufacturer of generic drugs, will jettison a quarter of its 53,000-person workforce over the next two years — a total of about 14,000 jobs, including a “significant” reduction of its 7,000 employees who are based in the U.S. Analysts point to several factors in Teva’s reversal of fortunes, including increased competition in the generic market overall, the expiration of its patent for its multiple-sclerosis drug Copaxone and acquisitions that have left it with a heavy debt load. 

“The announcement marked a stunning setback for a company seen as a national source of pride in Israel. With roots going back more than a century, Teva has grown into a major global player over the past 40 years with a series of acquisitions, and by developing original drugs and leading the move toward cost-saving generic medications,” writes the AP’s Josef Federman. 

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“The U.S. closures include sites in Cambridge, Mass.; Washington, D.C.; Horsham, Pa.; and New York City, Teva spokesperson Kaelan Hollon said in an email,” writes USA Today’s Nathan Bomey. “Some sites could be sold to competitors. The Cambridge site has already been shuttered and the other closures will occur over the next 12 to 24 months, Hollon said.”

“As Israelis contemplate the fate of Teva Pharmaceuticals in the wake of the massive cost-cutting exercise announced on Thursday, the date July 26, 2015 may go down as the beginning of what could be the end for the generic drugs giant,” writes Hagai Amit for Haaretz. “The acquisition of Actavis Generics, the generics division of Irish drugmaker Allergan, is ultimately the reason why Teva value shrank by 200 billion shekels ($57 billion) in two-and-a-half years.”

Amit says the deal was “pushed by then CEO Erez Vigodman, who believed he was turning into a generics giant whose profits would cover for the loss of exclusivity over Copaxone, for which generic rivals began to materialize in 2015. But intensifying competition in the generics market, chiefly in the United States, led Teva’s profits to shrink.”

“Teva has been hit hard by declining generics prices in the U.S.,” Rory Jones and Austen Hufford point out in the Wall Street Journal. “Investors have called for months for sweeping changes to Teva’s sprawling operations and what critics have called an unwieldy supply chain, to better cope with the turbulent U.S. generics market. One in seven prescriptions in the U.S. is a Teva drug,” they continue.

Teva has been buying up other generic manufacturers since its acquisition of the Canadian firm Novopharm in 2000. “It went on to acquire the Ivax Corporation in 2006, Barr Pharmaceutical in 2008, and Ratiopharm in 2010. Much of Teva’s purchases over the years were funded thanks to Copaxone,” points out Marc Schulman for Newsweek, but its patent expired in June after a 20-year run.  

“Teva had hoped to extend its Copaxone patent by the well-known trick of changing the dosage and calling it a new drug. That effort failed and, starting in June, Teva’s cash cow became just another generic drug,” Schulman writes, with sales immediately plummeting.

“Copaxone brought in just over $1 billion in sales in the first three quarters of this year, or about 19% of the company’s total revenues,” writes Chad Bray for the New York Times. “Those sales included about $800 million in the United States, an 8% decline over the same period in 2016 that management said was because of the new generic competition” in its third-quarter earnings release last month.

“These are decisions I don't take lightly but they are necessary to secure Teva's future. We will implement these changes with fairness and the utmost respect for our colleagues worldwide. Today's announcement is about positioning Teva for a sustainable future,” Teva’s recently appointed president and CEO, Kåre Schultz, says in yesterday’s release announcing the layoffs, which are only part of a two-year restructuring plan.

“The company is dramatically simplifying its business and is aiming for a ‘substantial optimization’ of its generic drugs, which is expected to include price changes and the discontinuation of certain products,” USA Today’s Bomey summarizes. It’s also suspending its dividends.

Schultz tells the Financial Times’s David Crow and Ilan Ben Zion that the job cuts “won’t be done in a harvest way: we’ve looked at each function, each site, and made decisions on what we want to do.” 

But “the Histadrut movement, which represents the majority of trade unionists in Israel, called a general strike for Sunday,” they write. “Meir Babayov, one of the group’s officials, said: ‘We will launch a total war. The entire country will tremble. We won’t let the government sit quietly. We won’t let this happen.’”

Teva’s stock, meanwhile, was up 10.19% yesterday on the news.

1 comment about "Teva To Lay Off 25% Of Global Workforce As Generic Prices Drop".
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  1. Paula Lynn from Who Else Unlimited, December 15, 2017 at 8:47 a.m.

    There must be quite a back story here regarding management - who they are and their intent.  It didn't happen in a vacuum. 

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