As part of CEO Kåre Schultz’s turnaround plan, Teva has been cutting back in manufacturing to cut costs and pay down debt. Now, it’s a logistics center’s turn.
The Israeli pharma has inked a deal with local real estate company Amot Investments, selling a 50,000-square-meter logistics center in Shoham for NIS 445 million ($127 million), while maintaining its use, according to Globes.
The facility, taking up an area of 19.25 acre, is one of the world’s largest storage and shipping centers for drugs and medical equipment, Amot said, and it uses automated computerized storage, assembly and distribution systems.
“The logistics center that we are buying is one of the leading and most advanced in the world. It has approval from a broad range of leading international pharma agencies,” Amot CEO Avi Mosler said, as quoted by Globes.
Teva will still use the center—only through a lease by its subsidiary Salomon, Levin, and Elstein (SLE), the site’s current owner. In the first phase, SLE will rent the center for 10 years at an annual rate of NIS 22 million. After that, the Teva unit could continue renting it for up to 24 years and 11 months, according to the Israeli financial newspaper.
Teva first floated the idea of jettisoning SLE in its entirety—including the center and its 300 employees—at the end of 2017. It was included in Schultz’s massive restructuring plan that aimed to cut the company’s annual cost by $3 billion by the end of 2019. But in May 2018, the company said that “despite great interest of dozens of potential buyers,” it had decided not to sell the business after “thorough consideration of SLE’s activity and business in Israel.”
Now, it has apparently changed its mind once again. This time, it’s keeping the profitable SLE business but selling off the ownership to the logistics center.
Over the years, Teva has closed or divested many manufacturing sites under Schultz. At 2018’s J.P. Morgan Healthcare Conference, Schultz said Teva would cut 20 to 25 manufacturing sites in the next two years, with the goal of shedding 40 altogether.
In July, it decided to sell its nicotine gum operations and 40 approved and pending generics and over-the-counter products, along with a 93,000-square-foot manufacturing facility in Copiague, New York, to PL Developments.
Despite the cutbacks, Teva’s cash flow is still under pressure after its disastrous Actavis buyout was hit with U.S. generics pricing pressure. Debt-rating firm Moddy’s recently downgraded Teva to “negative,” no thanks to the potential risk related to opioid litigation.
While Teva has enough cash to cover some $2 billion debt over the next two years, repaying it will take a large portion of the company’s cash flow, Moddy’s noted. The situation might look worse after that, as it might not generate sufficient cash to repay $4.2 billion in debt that matures in 2021.