The way Teva Pharmaceutical CEO Kåre Schultz figures it, manufacturing is the cost-cutting gift that just keeps on giving. After the Israeli drugmaker completes its declared $3 billion cost reduction effort, it can still look to manufacturing efficiencies to build its margin.
Schultz laid out the blueprint last week during a conference call in which the company reported a much larger quarterly net loss but told investors progress continues to be made. He said the company has cut $2.7 billion in operating expenses since it instituted its plan in 2018.
Schultz said the company expects to swell its margin to 27% from its current 23% through improvements in its product mix and making manufacturing more efficient.
“Now, we are not going to do a big splash restructuring, but we will do ongoing optimization of our manufacturing footprint,” Schultz said, according to a transcript of the call from Seeking Alpha. “I said before and I'll repeat now, that once the restructuring program is fully executed, which will be at the end of this year, then we will share with you our longer term plans for how to optimize manufacturing going forward.”
The CEO said experience tells him the company can achieve incremental improvements over time, say, improvements of 50 basis points to 100 basis points a year.
“It doesn't come linearly, because you do have some step changes when you change your manufacturing footprint or when you launch products in more markets and so on,” Schultz said. “And it's a long-term commitment, where you keep on doing this. It's thousands of different activities and changes you do, but it's a sustainable improvement methodology and I believe that we'll be able to do that going forward.”
The drugmaker has made substantial business amputations since Schultz was hired in 2017 to clean up a disjointed and inefficient business that was failing after making some huge, and ill-timed, M&A bets that flopped. Teva has settled lawsuits and closed offices and manufacturing facilities while laying off thousands of employees.
Just last month, it sold its U.S. portfolio of OTC products and a 93,000-square-foot manufacturing facility in Copiague, New York, to privately owned PL Developments. The plant has about 80 employees.