The stock of Teva Pharmaceuticals (TEVA 17.88, +2.13, +13.5%), the world's largest generic medicines producer, is down 57% year-to-date and down roughly 80% from its high in July 2015. In what could be labeled an understatement, something has to change at the company. Analysts know it, shareholders know it, and now management is making it clear that it knows it, having announced a major restructuring plan this morning.
The company's downfall has been precipitated by increased competition for its generics business, delayed product launches, pricing pressures, and concerns about leverage risk.
Teva seems intent on addressing those issues as its plan includes a reduction in its total cost base by $3 billion by the end of 2019, the suspension of the dividend on its ordinary shares and ADSs, and the "substantial optimization of the generics portfolio globally." More than half of the reduced cost base is expected to be achieved by the end of 2018.
The cost-cutting will naturally impact a lot of employees. Teva anticipates the loss of 14,000 positions globally over the next two years, which is more than 25% of its total workforce. Most of those job cuts will happen in 2018.
Severance costs are expected to account for a significant portion of a restructuring charge of at least $700 million in 2018, yet that charge could increase as the company makes additional decisions on closing or divesting manufacturing plants, R&D facilities, headquarters and other office locations.
Teva also clarified that annual bonuses will not be paid for 2017 because its results were far below the company's original guidance for the year.
The ultimate aim of the restructuring plan is to become a more efficient and profitable company. That objective, though, needs to be accompanied by successful product launches. On a related note, Teva said it anticipates securing successful launches in 2018 for Austedo and fremanezumab.
Whether Teva can secure the confidence of investors with its restructuring activity is another matter. This is a big, first step in its turnaround effort, and clearly, investors like what they are hearing. Shares of TEVA are up 13% in pre-market trading.