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Teva to Sell Californian Plant as Part of Cost-Cutting Initiative

By Dan Stanton , 11-Feb-2013
Last updated on 11-Feb-2013 at 13:08 GMT2013-02-11T13:08:01Z

Teva to sell its Californian plant

Teva to sell its Californian plant

Teva says the offloading of its Californian manufacturing facility is part of cost-cutting plans designed to save $2bn (€1.5bn). in the next few years.

Teva Pharmaceutical Industries has announced its fourth quarter financials, and though end-of-year sales were up 11 percent over 2011, operating income fell 29 percent to $2.2bn. The results come two months after the Israel-based company pledged to revive growth following patent losses and slow sales.

Linda Jordan, Senior Director of Corporate Communications at Teva, told the sale of its manufacturing facility in Irvine, California “aligns with the strategy that Teva announced in December 2012 to re-shape the company.”

Jordan echoed the words of CEO Jeremy Levin, who told investors in a conference call that “more cost-effective locations,” such as Teva’s five other US Food and Drug Administration (FDA) sites, meant selling Irvine was part of a “very systematic and thoughtful” first step in initiating the company’s commitment of saving up to $2bn over the next four years.

Recently, the plant has been at the centre of a number of financial issues. In fiscal 2010, Irvine cost Teva $230m in sales and reduced operating profit by $170m after quality control issues led to a FDA warning letter. Production was put on hold and 200 jobs were axed at the plant.

According to Jordan, the facilities are now fully compliant following significant upgrades though Irvine did attribute $98m of additional costs to Teva in the last financial year.

Transition to outsourcing

Last year Teva signed a five year manufacturing agreement with Halo Pharma on the back of selling its facility in Quebec, Canada to the US contract manufacturer (CMO). The sale included the transfer of 150 Teva staff to Halo and the long-term manufacture of some drugs on Teva’s behalf.

“We divested the site with a portfolio of products and a transfer of employees, which we hope to do with the Irvine facility,” said Jordan. “If we find a buyer for Irvine, our intention is for the new owner to operate as a contract manufacturing organization producing supply for Teva.”

Though Teva does “not have a full outsourcing strategy,” the sale of Irvine is a further step in a policy of divestment that clearly has benefits for the company, including the retention of the present workforce, the potential of larger production volumes and the possibility of working with any new buyer on possible future launches.

Teva CFO Eyal Desheh has also told investors that there is already significant interest in the plant: “Clearly it’s in our best interest to align with somebody that mutually would be beneficial for our respective businesses and that would clearly be our objective as this unfolds.”

R&D Restructure

In other news, Teva has terminated its collaboration with CureTech and pulled out from its pipeline drug CT-011.

The two companies entered the partnership in 2006 and developed the monoclonal antibody as a treatment for hematological malignancies and solid tumors, yet following a review of its phase I and II clinical studies Teva has opted to pull out.

The decision is another cost-cutting measure as Teva re-focuses its R&D strategy, though the termination has cost Teva a net impairment of $109m.

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