Back in November, as Allergan was reeling from the news that it could face earlier-than-expected copies of its blockbuster eye drug Restasis, CEO Brent Saunders promised investors that cost cuts were coming “rapidly.”
Just over two months later, they’re here. The company is letting go more than 1,000 staffers across its commercial team and other areas, it said in a Wednesday financial filing. It’s also axing about 400 jobs that aren’t currently filled, for a total job-cutting toll of 1,400. Allergan also plans to squeeze out additional savings through non-headcount related measures—though it didn’t say what those measures were, or how much they would save.
When all is said and done, Allergan expects to shave $300 million to $400 million off the operating cost total it posted for 2017. But that savings will come with an upfront price: The drugmaker expects to rack up a $125 million restructuring bill, primarily paid out in severance to laid-off employees.
Restasis is Allergan’s second-largest product, and it's now facing down the possibility of generic competition, thanks to a court ruling in mid-October. Allergan tried hard to keep generics at bay, going as far as to transfer key Restasis intellectual property to the Saint Regis Mohawk Tribe in an effort to shield the patents from the U.S. patent office's inter partes review. The move stirred up a wave of controversy and drew fire from critics—and it didn't protect the patents from getting tossed the traditional way, in court.
Now, the job-cut moves come as no surprise, considering the assurances Saunders made to worried investors on Allergan’s third-quarter earnings call.
“This team is up for it,” he said at the time, adding, “I hate to say we know how to take costs out of the business, but we do, and we know how to do that in a way that protects the long-term growth drivers.”
The drugmaker has certainly had plenty of practice at job cuts over the last few years. After swallowing Allergan as Actavis, the company slashed 577 jobs at its Irvine, California, headquarters alone as part of a $1.8 billion restructuring.
Some industry watchers, though, would have preferred to see Allergan take a different tack. RBC Capital Markets' Randall Stanicky, for one, has been lobbying for a company breakup he says could generate $6 billion from a women's health sale alone.
Thursday, he was back at it, this time looking at Allergan's GI franchise—a unit he says could bring in even more through a sale. He's pegging a potential price at between $7.5 billion and $9 billion, and while potential takers are "perhaps less obvious" than they are for women's health, "we would not dismiss potential for creative deal structures as a possibility such as asset swaps to bolster core areas," he wrote.
Meanwhile, the damage is much worse over at Teva, which bought Allergan’s generics business in 2016 for $40.5 billion. Faced with severe pricing pressure in the copycat space, along with a mountain of debt from that deal, the Israeli pharma recently said it would lay off 14,000 workers.