Teva Pharmaceutical Industries Ltd. (TEVA:US) is reducing manufacturing operations as part of a cost-cutting effort, though most of the savings under the plan will come from lowering procurement expenses, Chief Executive Officer Jeremy Levin said.
Teva, the world’s biggest generic-drug maker, has set a goal of lowering expenses by as much as $2 billion over five years to increase long-term profitability. The plan may lead to job losses in Israel, where Teva is the largest company by market value, Ronny Gal, an analyst at Sanford C. Bernstein & Co., said last month.
“Some parts of manufacturing will be affected but this is not the major thrust of this,” Levin said today in an interview at the company’s headquarters in Petach Tikva. “It’s mainly going to come from procurement. That is where you will see the major impact.”
Levin outlined the cost-saving plans in a briefing for investors Dec. 11 without identifying locations where plants or jobs may be at risk. The company said most of the savings would come from streamlining operations after a string of multibillion-dollar deals, including the 2010 $4.9 billion acquisition of Ratiopharm GmbH, based in Ulm, Germany, led to inefficiencies.
Teva said in February it would sell a plant in Irvine, California, that makes injectable drugs.
“We already started to diminish our manufacturing footprint,” Levin, who was named CEO last year, said in the interview. “That hasn’t changed our productivity except to improve it. As you look at the way we are doing this, we are doing a very structured program. This program is not designed in a simplistic way.”
Teva’s American depositary receipts rose 0.8 percent to $39.34 at 12:10 p.m. in New York. The ADRs have lost 8.4 percent in the past 12 months including reinvested dividends, compared with a 33 percent return for the Bloomberg Europe Pharmaceutical Index. The stock sells for 7.5 times estimated earnings, the lowest multiple among the world’s 20 biggest drug companies.
The prospect of job cuts in Israel has added to a political backlash against Teva there, as some officials say the company doesn’t pay enough in taxes. Shelly Yacimovich, leader of the opposition Labor Party, asked the Finance Ministry to investigate Teva’s tax payments. At the end of 2012 about 16 percent of Teva’s 45,948 employees were based in Israel.
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