Teva, Cephalon jobs at risk in Philly drug merger plan

Two growing Philadelphia-area drugmakers, Teva Pharmaceuticals (Israel-based, US headquarters in North Wales, Montco) and Cephalon (HQ in Frazer, R&D in West Chester) have agreed to join forces. Good news for Cephalon investors, but not necessarily for local employees of Cephalon - or Teva - many of whom are likely to lose their jobs.

Teva, Israel's most valuable company, grew by copying bigger companies' products as cheap generic drugs, was already growing so fast, it was planning a $300 million warehouse in Northeast Philly. Painkiller and cancer fighter Cephalon, born and raised in Chester County, employs 1,000 scientists and salesmen locally and 4,000 worldwide; the company was doomed to be taken over by someone after founder Frank Baldino died last fall.

Teva boss Shlomo Yanai offered $6.8 billion, or $81.50 a share, which beat the earlier, hostile $73 a share offer from Canada's trash-talking Valeant Pharmaceuticals. Inquirer story here.

Yanai may be a hero to Cephalon shareholders and Baldino successor Kevin Bucci, but he's  no white knight to local drug industry employment. He's from the buy-em, whack-em-back school of mergers & acquisitions. 

Yanai told investors his "vast experience in integrating companies will wnable us to realize at least $500 million" in yearly savings by 2014. Cephalon last year spent $578 million on drug components, $440 million on research and development, and $958 million on sales and administrative expeses.

All three areas face cuts - and so do Teva's existing operations, Yanai and his colleagues said in their investor conference this morning:

"The companies have a fair amount of overlap," a Teva executive identified as Teva Americas boss Bill Marth said, according to a transcript of the call posted by Bloomberg LP. Cephalon spends millions, as a public company, complying with US securities law; there'll be "a lot of cost savings associated with" ending that expense, plus reducing headquarters staff, plus more from consolidating "sales and marketing activities."

Teva also plans to become "more efficient with R&D," and "operations and production and back (office) integration opportunities which we always bring into our mergers like that, will enable us to save money." The biggest savings will be in selling, general and administrative expenses, Marth added, and Cephalon's European staff has "the potential for synergy" with Teva's existing European staff.

"And, by the way, those synergies are not just on the Cephalon side," Marth said later: Teva units could also face cuts. "They will be looking closely at the best of what both companies have to offer," Cephalon spokeswoman Natalie deVane told me later.