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Teva to make up to 1,500 additional job cuts
JERUSALEM—Teva Pharmaceuticals Ltd. is reportedly planning to make serious reductions to its workforce, laying off between 1,000 and 1,500 employees following the completion of its $6.8 billion purchase of Cephalon, Inc. Reports state that the bulk of the reductions will consist of Cephalon personnel, namely those who work in departments that overlap with Teva's, such as Cephalon's Mepha generic drugs unit. As of Dec. 31, Cephalon recorded 3,700 personnel.
Teva responded to the reports by saying that "the integration with Cephalon began a short while ago. During the process, as part of the synergy common in such processes, measures will be taken to reduce the employee list." Despite acknowledging that the company would be making workforce reductions, Teva declined to offer any specifics, noting that "at this point, no comment will be made regarding the number of employees or the areas that will undergo change."
(*Update: On Nov. 10, Teva spoke out to dispute the reports. According to a Daily Local News article, company spokeswoman Denise Bradley said "It is still too early to say what the impact is on both Cephalon and Teva employees." Workforce reductions are expected, but Teva continues to decline to release numbers or specifics as of yet.)
Teva and Cephalon announced a definitive agreement back in May of this year, which stated that Teva would acquire all outstanding shares of Cephalon for $81.50 per share in cash, for a total value of approximately $6.8 billion. The acquisition was completed last month on Oct. 14. The combined company's branded portfolio will represent approximately $7 billion in sales, with a pipeline consisting of more than 30 late-stage compounds, and is expected to be a leader in specialty pharma, with a presence in therapeutic areas such as oncology, CNS, respiratory and pain management. When announcing the transaction, Teva noted that it expected annual cost synergies of "at least $500 million in year three following the transaction's close."
The workforce reductions are expected to comprise a majority of the projected $500 million. Sales, marketing and management and general costs are expected to be cut by $300 million; research and development costs by between $120 million and $150 million via the removal of duplicate operations; and production costs are expected to be cut by between $50 million and $80 million.
The reports suggest that the majority of the layoffs will be seen in the United States and Europe, and the reductions represent up to 40 percent of Cephalon's employees. Cephalon's employees in its branded drug division are expected to be spared from the layoffs, as is Teva's staff in Israel.
Teva is hardly the only company to be drastically paring down its workforce. Back in August, Merck & Co. announced that it would be cutting up to 13,000 jobs by the end of 2015, with 40 percent of the reductions expected to be made in the United States. These layoffs, on top of another 17,000 staff members that were let go, were expected to save the company between $1.3 billion and $1.5 billion annually, in addition to $3.5 billion cost synergies, the company said.
A report released in September noted that Novartis eliminated approximately 2,500 jobs over the past year in an attempt to cut costs, and while the company did not confirm the accuracy of that number, a company spokesperson did confirm the elimination of 1,400 sales jobs in November. Most recently, the company announced another 2,000 employees would be facing layoffs, with the reductions taking place in Switzerland and the United States. Joseph Jimenez, CEO of Novartis, pointed to the drop in drug prices so far this year, to the tune of 5 percent, and noted that "We can't absorb these price cuts without taking action."
In other news, Teva announced that it successfully priced a debt offering by three of its special purpose finance subsidiaries this week, consisting of six tranches and made up of floating rate senior notes and fixed rate senior notes. The notes are all rate A3 by Moody's Investor Services and A- by Standard & Poor's, and will be guaranteed by Teva. The net proceeds are earmarked to repay approximately $3.75 billion of short-term indebtedness used to finance the Cephalon acquisition, to finance the anticipated conversion of certain convertible senior subordinated notes issued by Cephalon and, if any net proceeds remain, for general corporate purposes.