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Jan 15, 2014

Teva Committed to Cutting $2B in Costs by 2017

  • Teva Pharmaceutical Industries this year will carry out the $2 billion in cost-cutting announced by its previous CEO last year and possibly more, his interim successor said yesterday.

    The cost-cutting plan called for eliminating $2 billion in costs—including 5,000 jobs, 10% of the company workforce—by 2017.

    “We are determined and committed to reduce costs by $2 billion—hopefully, even further than that,” Eyal Desheh, Teva's acting president and CEO since October, told analysts and investors during the company’s presentation yesterday at the JP Morgan 32nd Annual Healthcare Conference, held at the Westin St. Francis hotel.

    “We are, all over the company, eliminating activities which are not really contributing to value creation,” added Desheh, who will resume his evp and CFO role next month when a permanent CEO takes office.

    Teva is bracing itself for the prospect of losing sales to generic competition set to start June 1 for its top-selling product, multiple sclerosis drug Copaxone, which generated 2012 sales of $4 billion, up 11% from 2011; and Q3 2013 sales of $1.052 billion, up 1% from a year ago.

    Teva is fighting back on two fronts: It is pursuing FDA approval of a new three-times-weekly dosage of the drug while fighting potential generic competition. On Monday, the company highlighted a PLOS One study it commissioned and funded, showing differences in gene expression linked to key therapeutic effects between Copaxone and Glatiramer, marketed by India’s Natco Pharma as a generic version of the Teva blockbuster. Teva insists its stance is less a desire to protect a lucrative drug franchise than to protect patient safety.

    Desheh and Allan Oberman, president and CEO of Teva Americas Generics, offered some examples during a question-and-answer session:

    • Some 20 research programs have been halted, while R&D headcount is being cut by 25%, a reduction Oberman said stretched back about 20 months, well before the company announced its current restructuring plan. Teva furnished no numbers on how many research jobs are being eliminated, or the size of the current R&D workforce.
    • Manufacturing will be shifted from the U.S.: “You can expect most of our production in the United States to move to the east, and east means, for us, Eastern Europe and Asia,” Desheh said.
    • Fewer outside consultants will be hired.
    • Support operations are being consolidated into five shared service centers globally. Until now, finance and accounting were handled within any of 62 countries.
    • The company is whittling down 15 IT systems with 20 modes of data submission in different countries to a single system.

    The most significant savings for Teva, Oberman said, will come from efficiencies to its process of purchasing goods and services from some 25,000 suppliers.

    “Can you reduce those 25,000 suppliers down 20%, 30%, 40%, or 50%, and the suppliers that you align with, can we get savings from them? Well, that’s the business model that we’re in, in the generics business, so why can’t we apply that business model to our procurement? That’s exactly what we’re doing,” Oberman said.

    Oberman and Desheh were joined by Michael Hayden, M.D., Ph.D., president of global R&D and CSO.

    Desheh took Teva's helm following the resignation after 17 months of Jeremy Levin, D.Phil., in October—less than a month after announcing the cost-reduction plan. It sparked furious opposition in its headquarters country of Israel from officials who said Teva was wrong to cut jobs and operations given tax breaks it has enjoyed as a home-grown success story.

    Last week, Teva named Erez Vigodman as permanent president and CEO, effective February 11. Vigodman is president and CEO of generic agrochemical company Makhteshim Agan Industries.

    “I think he is aware, we are aware, and our board is aware of the fact that we need to move fast,” Desheh said. “Fast is not a year. Fast is a few months.”



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