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Teva CEO: 'It's going to look good' after 2-year, $3B cost-cutting plan

After Teva Pharmaceutical Industries Ltd. slashes a quarter of its workforce and suspends its dividend, it plans to use the cash flow from improved operating performance, as well as from divestments, to pay down debt, CEO Kare Schultz said on a Dec. 14 special call.

Israeli Prime Minister Benjamin Netanyahu urged Schultz to keep the layoffs in Israel to a minimum before the company made the announcement, Reuters reported.

Teva's acquisition of Allergan plc's generics business in 2016 saddled the drugmaker with debt. It has sold off certain assets of its women's health unit and Paragard intrauterine device in an attempt to reduce its debt.

The cost-cutting plan entails the reduction of Teva's cost base by $3 billion in two years, compared to an estimated cost base for 2017 of $16.1 billion. The company is targeting EBITDA-to-net-debt of below 4x by the end of 2020.

Following news of the restructuring plan, Teva's shares on NYSE were up 11.40% to $17.49 at 1:53 p.m. ET on Dec. 14.

Bloomberg News recently reported that Schultz has tapped advisory company Evercore Inc. to review options for the company's outstanding debt.

Schultz said the company currently has no plans of raising equity in any form, but he was optimistic regarding the cost reduction plans, which will be a two-year turnaround restructuring.

"In two years from now, it's going to look good. If we do well, then in five years it's going to look great," said Schultz.

Teva is reviewing each and every product worldwide and will make pricing adjustments to the necessary extent, with Schultz noting that revenues on profitable product lines will not be impacted by the cost-cutting initiative.

The company also plans on increasing the pricing of select product lines to make them profitable. "Some of them we will succeed, some we will not," the CEO stated, adding that the product lines that do not succeed will be discontinued.

In addition, the drugmaker will continue to look for additional opportunities to sell off non-core assets. "You will not see us doing big asset sales that are linked to pharmaceutical product sales, so to speak, be generic or specialty pharmaceuticals," added Schultz.

"In terms of the assets, then I'm also a believer in keeping all the good products we have. All the good assets we have in terms of actual products we're supplying," Schultz said.

Selling plants rather than closing them would likely be more financially beneficial for the drugmaker while also "soothing the sting of layoffs," Credit Suisse analyst Vamil Divan said in a Dec. 13 research note.

He wrote that any positive market reaction to the plans in Israel "could be premature."

Teva will provide its 2018 financial outlook in February.