Teva to make up to 1,500 additional job cuts

JERUSALEM—Teva Pharmaceuticals Ltd. is reportedly planningto make serious reductions to its workforce, laying off between 1,000 and 1,500employees following the completion of its $6.8 billion purchase of Cephalon, Inc.Reports state that the bulk of the reductions will consist of Cephalonpersonnel, namely those who work in departments that overlap with Teva's, suchas Cephalon's Mepha generic drugs unit. As of Dec. 31, Cephalon recorded 3,700personnel.

Teva responded to the reports by saying that "the integrationwith Cephalon began a short while ago. During the process, as part of thesynergy common in such processes, measures will be taken to reduce the employeelist." Despite acknowledging that the company would be making workforcereductions, Teva declined to offer any specifics, noting that "at this point,no comment will be made regarding the number of employees or the areas thatwill 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 inMay of this year, which stated that Teva would acquire all outstanding sharesof 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'sbranded portfolio will represent approximately $7 billion in sales, with apipeline consisting of more than 30 late-stage compounds, and is expected to bea leader in specialty pharma, with a presence in therapeutic areas such asoncology, CNS, respiratory and pain management. When announcing thetransaction, 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 majorityof the projected $500 million. Sales, marketing and management and generalcosts are expected to be cut by $300 million; research and development costs bybetween $120 million and $150 million via the removal of duplicate operations;and production costs are expected to be cut by between $50 million and $80million.

The reports suggest that the majority of the layoffs will beseen in the United States and Europe, and the reductions represent up to 40percent of Cephalon's employees. Cephalon's employees in its branded drugdivision are expected to be spared from the layoffs, as is Teva's staff inIsrael.

Teva is hardly the only company to be drastically paringdown its workforce. Back in August, Merck & Co. announced that it would becutting up to 13,000 jobs by the end of 2015, with 40 percent of the reductionsexpected to be made in the United States. These layoffs, on top of another17,000 staff members that were let go, were expected to save the companybetween $1.3 billion and $1.5 billion annually, in addition to $3.5 billioncost synergies, the company said.

A report released in September noted thatNovartis eliminated approximately 2,500 jobs over the past year in an attemptto cut costs, and while the company did not confirm the accuracy of thatnumber, a company spokesperson did confirm the elimination of 1,400 sales jobsin November. Most recently, the company announced another 2,000 employees wouldbe facing layoffs, with the reductions taking place in Switzerland and theUnited States. Joseph Jimenez, CEO of Novartis, pointed to the drop in drugprices so far this year, to the tune of 5 percent, and noted that "We can'tabsorb these price cuts without taking action."

In other news, Teva announced that it successfully priced adebt offering by three of its special purpose finance subsidiaries this week,consisting of six tranches and made up of floating rate senior notes and fixedrate senior notes. The notes are all rate A3 by Moody's Investor Services andA- by Standard & Poor's, and will be guaranteed by Teva. The net proceedsare earmarked to repay approximately $3.75 billion of short-term indebtednessused to finance the Cephalon acquisition, to finance the anticipated conversionof certain convertible senior subordinated notes issued by Cephalon and, if anynet proceeds remain, for general corporate purposes.