Amid $2B in cost-cutting, Teva sales suffer from generic erosion

By Tracy Staton and Eric Palmer

Teva Pharmaceutical Industries ($TEVA) may be a generics behemoth, but its earnings this quarter bore a more-than-casual resemblance to Big Pharma's. Its profits dropped by 26%, thanks to generic competition for Provigil, the wakefulness drug it acquired along with Cephalon. And while its best-selling multiple sclerosis treatment Copaxone grew by 20% for the period, competition from oral MS treatments--particularly Biogen Idec's ($BIIB) new Tecfidera--is likely to wear away sales as Copaxone enjoys the waning years of patent protection.

CEO Jeremy Levin is working to gin up new revenues to fill the patent-loss gaps; during today's earnings announcement, the company touted progress on its longer-acting version of Copaxone. But Levin has also rolled up his sleeves in a pragmatic effort to save money. Under Levin's new strategic plan, Teva is working to reorganize operations, de-clunk manufacturing--and squeeze $2 billion from its annual costs.

Part of that effort is a master plan to downsize its manufacturing network. Though Teva has yet to reveal details of that overall strategy, workers at several U.S. plants have been told their services are no longer needed. The latest closure is a plant in Sellersville, PA, the Philadelphia Inquirer reports, with 474 jobs at stake. It is the second hit for Pennsylvania; Teva late last year put the brakes on a $300 million warehouse and IT center it had announced for the Philadelphia area. That 1.1 million-square-foot project was supposed to employ about 200.

And Pennsylvania is not the only U.S. state to share the pain of Levin's ax attack on costs. The company is selling off a plant in Irvine, CA, to an undisclosed buyer planning to continue making drugs there. Since it acquired the Irvine plant in its 2003 Sicor buyout, Teva has spent $375 million on upgrades, but manufacturing problems put a crimp on production there, and the company has trimmed more than 200 jobs there in the last few years.

Last year, Levin sketched out his 5-year plan to diversify the company's product line-up, expand geographically and cut up to $2 billion in costs. Under pressure from investors, who have been waiting for years to see Teva's promises translate into gains for shareholders, Levin wants to ratchet back on spending while bringing in new revenue to cover the impending loss of Copaxone exclusivity. Teva plans to focus on bigger, more efficient plants while shifting production to lower-cost locations around the world, but it's expecting its biggest savings to come from a procurement overhaul. By centralizing purchasing, Teva thinks it can omit overlaps and strike better, long-term deals with vendors, saving up to $700 million a year.

- read the Philadelphia Inquirer story
- get more from Reuters
- here's the earnings report

Special Reports: Top 10 pharma layoffs of 2011 | Top 20 generic molecules worldwide

Suggested Articles

Johnson & Johnson faces a litany of problems, but executives are clearly not concerned—at least not about the company's short-term fortunes.

This week, Goldman Sachs resurrected a burning question: How can pharma companies profit from curing patients with one-time gene and cell therapies?

CMS has determined how it'll pay for Gilead's CAR-T cancer therapy, Yescarta, for outpatient use, but hasn't yet decided on Gilead's…