Health and Healthcare

Teva Pharmaceuticals: Happy Holidays, You're Fired

Douglas A. McIntyre

Published: December 15, 2017 6:25 am

Last Updated: January 12, 2020 5:26 am

Another company has decided that the best time to fire a large number of people is just before the holidays. While there are some concrete reasons to do so, the action seems unusually cruel.

As Generic drug firm Teva Pharmaceuticals Ltd. (NASDAQ: TEVA) announced a way to improve its financial performance, management disclosed:

These steps are expected to result in the reduction of 14,000 positions globally – excluding the impact of any future divestments – over 25% of Teva’s total workforce – over the next two years.

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These steps include a restructuring of research and development, which usually means a cut in investment, and consolidation of manufacturing. By management’s calculations, the entire program will save $3 billion a year on an expense base of $16.1 billion, a handy improvement in margins most likely.

Kare Schultz, who was made chief executive officer in September, needed to prove he could do something dramatic to salvage a company that faces more competition that it has in years, both from other generic manufacturers and the traditional pharmaceutical giants. Teva’s shares have dropped 73% in two years to $50. The S&P 500 is up 28% over the same period.

Year-end expense cuts are often convenient because they mean a company can start a new year with the costs of restructuring announced and the financial ramifications. One or two write-offs and the CEO has a new slate. If Schultz can revive the share price, it is to some extent because the company’s legacy costs have been buried.

That legacy is not entirely ugly, but it is a challenge for any firm that presents itself as a growth company, as Teva always has. Revenue moved up very slightly in the third quarter to $5.61 billion, compared to $5.56 billion in the same period a year ago. Net income of $595 million compared to $412 million. However, the company’s forecast was lackluster.

For 14,000 people who work at Teva, the holidays will be far less than bright.