Teva Pharmaceutical Industries ($TEVA) is in the midst of devising a master plan to downsize its manufacturing network as CEO Jeremy Levin looks to carve $2 billion in annual costs out of the generics maker. It has yet to discuss details of the plan, but some of them have become all too clear as workers at U.S. plants are told their services are no longer needed by the generic drugmaker.
The Israeli company today said it would close a plant in in Sellersville, PA, about 40 miles north of Philadelphia, the Philadelphia Inquirer reports. The news came as Teva reported global sales down 27% in the first quarter and U.S. sales down 11%. The plant has about 475 workers. It is the second hit for Pennsylvania. The generic drugmaker 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.
But Pennsylvania is not the only U.S. state to share the pain of Levin's ax attack on costs. The company is ridding itself of a plant in Irvine, CA, although it may remain open. In its earnings report in February, the company said that plant would be sold to an undisclosed buyer that would continue to manufacture pharmaceuticals there. It picked up the Irvine plant through its 2003 acquisition of generics maker Sicor. Later, the FDA criticized the factory for manufacturing violations. The company has spent $375 million to upgrade the plant, but full production never resumed and the company has trimmed more than 200 jobs there in the last few years.
Levin last year sketched out a 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 patent protection on its top-selling drug, Copaxone. The savings push will see Teva focus on bigger, more efficient plants while shifting production to lower-cost locations in the world. It has said the biggest savings will come from overhauling procurement. By centralizing purchasing, Teva thinks it can omit overlaps while striking better, long-term deals with vendors. Savings of up to $700 million a year are expected.