In 2017, Teva had 80 manufacturing facilities. Under the leadership of CEO Kåre Schultz, who took up his current job in September 2017, Teva has exited 11 manufacturing plants and has plans to close or divest another five by the end of the year.
The cuts have helped Teva to reduce its spending over the past four quarters to $13.4bn (€12.2bn), $2.9bn less than its outlay in 2017. At the level of spending seen in the third quarter, Teva is on track to achieve the $13.3bn in annual costs it targeted at the start of the restructuring process.
With that goal now in sight, Teva is set to embark on the next phase of its manufacturing strategy.
Talking to investors on Teva’s third quarter results conference call, Schultz said, “In February, I will share with you our manufacturing strategy, which will, of course, be focusing on delivering efficiencies and optimization. All of this we do to secure strong free cash flow and secure the debt repayment.”
Schultz is yet to flesh out what the new manufacturing strategy will mean for Teva’s remaining 60-plus plants and the people they employ. The overarching goal of strategy is evident, though.
Teva expects the manufacturing strategy to drive long-term improvements in its gross margin, reflecting Schultz’s focus on making more profit from every dollar of products the company sells.
Schultz said, “Our gross margin is around 50% and that means basically every dollar we sell, we spent $0.50. So, that is a key focus area for us going forward.”
Discussing how Teva will work to improve gross margins, Schultz described a focus on “sources of optimizing the manufacturing network.” The goal is to identify changes that lower the cost of making a product.
The changes are likely to be less dramatic than the recent restructuring, in large part because the cuts have left Teva with considerably less scope to take costs out of the business.
Schultz said, “We have just taken out $3bn of the spend base and we can't do that once more, but of course, we can keep on looking for optimization and improvements and we will be doing so going forward.”
Teva will share more details of the manufacturing and biopharmaceutical R&D strategy when it posts full-year results in February.