Teva Pharmaceutical Industries will cut about 5,000 jobs, 10 percent of its workforce, accelerating a cost-cutting plan as it prepares for lower-priced competition for its best-selling drug.
The world’s largest maker of generic drugs by sales said it expects its overall cost-cutting program to save about $2 billion a year by the end of 2017.
The Israel-based company is the latest in a string of big drug makers to take an axe to costs. Last week, Merck & Co said it would cut annual operating costs by $2.5bn and eliminate 8,500 jobs, or more than 10 percent of its global workforce.
Others including Pfizer, AstraZeneca and Sanofi have also slashed staff numbers in recent years due to slowing sales growth, often due to competition from cheaper generic medicines - many of which are made by Teva.
When Teva announced the cost-cutting plan in December, it said savings of $1.5-$2bn would take place over five years and it was unclear how many jobs would be lost.
On Thursday it said the savings would be at the top of that range. It said $1bn would come by the end of 2014 and 70 percent by the end of 2015. The majority of the savings will come from a reduction in the company’s cost of goods, it said.
Teva’s New York-listed shares rose 2.5 percent to $40.22 after closing 1.6 percent higher in Tel Aviv.
“Investors finally see that the plan is being implemented and how it will be implemented and therefore the share price has responded positively in the short term,” said Nir Omid, chief investment officer at the Tamir Fishman brokerage.
Omid said Teva still had problems in the medium and long term, mainly how to reduce its dependence on its multiple sclerosis Copaxone, which accounts for 20 percent of its sales and 50 percent of profits. It may face competition from generic rivals next year.
Chief Executive Jeremy Levin took over the reins of Teva in May 2012 after the company had grown rapidly through large acquisitions. He promised to reshape Teva by developing its own medicines, amid increasing competition in the generics market, and to divest businesses in non-core areas.
Teva’s generic sales in the United States, its biggest market by revenue, fell 8 percent in the second quarter of 2013, year-on-year, after a 27 percent drop in the first quarter.
Teva’s shares in New York are up just 7 percent in 2013. Its peers have fared better, with India’s Dr. Reddy Laboratories up 31 percent, Forest Laboratories 21 percent higher and Perrigo up 23 percent.
The weak stock performance has pressured Levin to explain how Teva would deal with losing sales and profit from Copaxone.
The company plans to appeal a U.S. appeals court ruling in August which invalidated some patents that could lead to generic versions of Copaxone appearing from competitors in May 2014, a year sooner than expected.
Teva said most of the 5,000 job losses would come by the end of 2014 as the company looks to trim assets that no longer fit its core business or are not critical to its future.
“The accelerated cost-reduction program will strengthen our organization while improving our competitive position in the global marketplace,” Levin said.
Teva said it would scale down “oversized” parts of the company, while growing its generics business and core research and development programs, expand its presence in emerging markets and broaden its portfolio - especially in its specialty medicines and over the counter business.
Teva aims to reinvest part of the initial savings in 2014 and 2015 in high-potential programs including the development of the company’s complex generics and specialty pharmaceutical pipeline, which includes more than 30 late-stage programs.
Total pre-tax costs for the corporate restructuring are estimated at $1.1bn.
Teva reiterated it expects ending 2013 near the midpoint of its target range of $19.5-$20.5bn for revenue and diluted earnings per share excluding one-off items of $4.85-$5.15.