Teva Pharmaceutical Industries chief legal officer David Stark is looking for a few good firms to handle more than $100 million in external legal spend at a significantly reduced cost—and not everyone is happy about it.
Stark, based in Teva’s U.S. headquarters in Parsippany, is in the midst of whittling down the “hundreds” of outside firms Teva uses across litigation, regulatory and corporate work, looking to get as “close to one” firm as possible to handle about 80% of the firm’s material legal spend. Trevor Faure, former global general counsel of Ernst & Young and the CEO of Smarter Law Solutions, is assisting Teva in the process.
As Teva looks to improve profitability generally, Stark is also looking at how his department can be more efficient. Stark and his team have sent out requests for proposals to 80 firms; some of which the company has worked with before and others it thinks can meet its new requirements that focus largely on firms with a global reach and diverse practice mix.
The main goal is to achieve significant discounts, though Stark wouldn’t put a number on it. But he did offer a hint.
“It would be nice if all the firms we currently work with suddenly drop their rates by 30%,” Stark said, noting that would never happen on its own. “We’re going to get some bigger discounts than we get now.”
Teva will continue to use firms for a portion of its work that is already being handled at a very low rate. And Stark says he hopes many of his current firms will be in the mix. But he also said the legal market is in the midst of an evolution and the “hungry” firms may win out. He just doesn’t see the value in some of the rates he sees in the market.
“Growth rates of law firms are far exceeding the growth rates of the pharmaceutical industry,” Stark noted.
Stark isn’t shy about saying this is focused on pure discounts. He said he is not interested in alternative fee arrangements.
“I’ve never been a big fan of alternative fee agreements,” Stark said. “We have very few. I’m a big fan of getting a reasonable rate for quality work.”
But the definition of reasonable is where things get tricky. Stark said some of his existing outside counsel are “not happy” and “don’t like [the process] at all.” In fact, some have chosen not to participate. Others, particularly those with chief pricing officers or chief financial officers, understand this is where the world is headed, he said.
Once the proposal process is submitted the list will be shortened based on data and cost. Teva will then do qualitative research and interviews to get to a smaller panel of firms, all with the goal of having a final panel by the end of the year. Stark did not say how many firms he hopes to impanel, however, he would like to get as close to one firm if possible.
While oftentimes in-house leaders want their law firms to offer innovative technology Stark said “this isn’t a big technology grab.” Teva, he said, would rather have the firms that are ultimately selected learn to interface with the technology Teva has in-house.
At the same time he is looking at convergence of outside counsel, Stark also isn’t opposed to disaggregation of services. He said he has extracted the work he thinks deserves higher rates and uses vendors for other elements.
Not all law firms that work with Teva are on the chopping block. Stark said there are some smaller firms that do niche work at low rates and those firms will remain on the panel.
“It wouldn’t be smart to move some work to another firm that is more of an unknown for the same or a greater cost,” Stark said. “We’re not consolidating just for the sake of consolidating.”
This is not the first step Stark has taken to help Teva’s bottom line. After Kåre Schultz took over as CEO in November 2017, the company went through a series of layoffs that resulted in 56,000 employees being laid off worldwide. The in-house legal department was not immune to those cuts. In 2018, Stark reduced the size of his legal department from 400 to 240 lawyers and staff.
Stark said on May 10 that he now has around 200 lawyers and staff working in the legal department.
ALM Editor-in-Chief of Legal Global Brands Gina Passarella contributed to this story.