Nearly a decade ago, Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) found itself mired in a liquidity crisis that placed in doubt its ability to repay the huge debt it had taken to finance the $40 billion acquisition of Activis from Allergan.
Kare Schultz was brought in as CEO to lead a particularly aggressive streamlining plan that included major layoffs with the workforce cut from 57,000 in 2016 to 35,000 in 2022. Since then the number of employees has grown slightly but now 8% of the workforce will be laid off as part of the streamlining program announced yesterday by CEO Richard Francis in the conference call following publication of the Israeli pharmaceutical company's first quarter financial results.
Clearly Teva in 2025 is not the same troubled company that it was in 2017 and the latest streamlining plan is due to completely different circumstances than the cuts last decade. So why is Teva laying off 3,000 employees worldwide?
After years of cuts, debt reduction and stabilization during the Schultz era, Francis arrived at Teva and presented a strategy of returning to growth, and Teva has indeed returned to single-digit growth, after several years in which revenue has shrunk.
Committed to Schultz's targets
Market sentiment towards Teva has also changed, and the share price doubled in 2024. Shortly before leaving office, Schultz presented financial targets for Teva for 2027, and the company has remained committed to them during Francis's term. The targets included a return to growth (a goal that has already been achieved), non-GAAP operating profitability of 30%, a debt-to-EBITDA ratio of 2 and a cash-to-earnings ratio of 80%. Teva stated today that the steps they are taking, including an 8% reduction in the workforce by 2027, are intended to save $700 million and support the achievement of the 30% operating profitability goal.
These savings should also offset Teva's loss of earnings from the oncology drug Revlimid, which has a significant contribution to Teva's results and which, according to historical agreements with other companies, is expected to face competition from 2026. The drug's revenue is estimated at about $1 billion this year, and Teva pays Natco and Allergan based on this revenue according to agreements, so the impact on profit is less. However, it is still significant, and analysts have previously estimated that the drug contributes over half a billion dollars to Teva's annual EBITDA. The expected erosion in Revlimid has created a future "hole" and Teva is now providing the market with details on how it will compensate for it.
The $700 million will be saved not only by reducing the number of employees, but through two other measures: optimization that will reduce the cost of goods sold (COGS) through, among other things, efficient procurement, technological efficiency and reducing the number of factories, things that Teva has talked about before; and a 100 basis point reduction in administrative and general expenses, for example through digitization.
Leader Capital Markets head of research Sabina Levy notes that steamlining at Teva "was in the air" and the issue of the loss of Revlimid revenue in 2026 was expected, as was the operating profitability target of 30% in 2027 (compared with about 26% in 2025). In her opinion, Teva has made a significant effort to increase transparency with the market.
Tariffs will not have a significant impact
With the publication of its 2024 results, Teva provided guidance that disappointed investors and the stock lost about 25% of its value. According to Levy, concerns arose at that time, and investor confidence was shaken on Teva's ability to meet the 2027 target and even earlier, to compensate for the loss of Revlimid.
As a result, this time it provides more details, which according to Levy also includes something unexpectedly positive: an expectation of growth in EBITDA both in dollar terms and as a percentage of revenue in 2026-2027, when previously there were concerns about EBITDA erosion. Teva also expects an increase in non-GAAP gross profit margin, from 53%-54% this year to 57%-58% in 2027, thanks to the steps that will be taken and a change in product mix. Teva's strategy presented by Francis in 2023, includes greater stress on branded products with higher profitability.
Another positive factor that Levy points out in the context of Teva's financial reports concerns tariffs in the US. Levy points out that Teva estimates the company will not be significantly affected. Teva's most important branded product today is Austedo, for treating movement disorders. The company expects $2 billion in sales this year, and over $2.5 billion in 2027. Austedo is manufactured in the US, so it is not "threatened" by new tariffs. Teva also has a significant network of manufacturing facilities in the generics sector in the US.
Published by Globes, Israel business news - en.globes.co.il - on May 8, 2025.
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