Analysis

Not the End for Teva, but Maybe for Teva in Israel

The company’s layoffs to be announced Thursday will be big, but many fear they are only the start

Teva Factory in Kiriyat Shmona
Gil Eliyahu

The mass layoffs that Teva Pharmaceuticals is scheduled to announce Thursday marks the start of a battle with the company’s workers, the Histadrut labor federation and the political establishment. It’s not just the big number, but the fear that it’s the beginning of Teva’s exit from Israel.

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Teva isn’t about to close, but it is fighting for its life. It has two big problems that give it no choice but to make sweeping cost cuts to survive.

One is the $35 billion in debt it took on in 2016 when it bought Activis Generics. Teva needs to repay more than $9 billion in the next two years. The second is the loss of the last of its patents on its best-selling Copaxone multiple sclerosis drug this year, which was responsible for a large part of its profits and funded its acquisitions spree over the years.

>> Teva expected to announce plans to fire nearly half its workforce in Israel ■ General strike called for Sunday over Teva

Over the last several days there have been endless rumors about the size of the layoffs that will be needed to rescue the company. Out of about 57,000 employees worldwide, only 6,800 are in Israel; 3,000 of them could lose their jobs. There haven’t been layoffs on that scale since the collapse of the Histadrut industrial empire at the end of the 1980s when its holding company, Koor, shed about 16,000 jobs.

The fact that Teva is acting so decisively now shows how serious the crisis is. Most of the executives who were responsible for it, including its previous CEO, Erez Vigodman, have left, albeit with generous severance packages. Now it’s the turn of ordinary employees.

Teva’s Israeli employees are paying a disproportionate share of the price because production costs in Israel are higher than elsewhere in the world.

Histadrut Chairman Avi Nissenkorn, who announced he was calling a general strike on Sunday, has three goals: to force the political establishment to put pressure on Teva, to reduce the number of people being axed to a minimum and to compel management to clarify what it sees as the company’s future in Israel.

Nsssenkorn said Wednesday he feared this was the first slice of a “salami” that would eventually disappear.

CEO Kare Schultz has warned that without aggressive cost cutting there won’t be a Teva in Israel or anywhere else. For now, however, he has a strategy for how to steady Teva in a stormy sea, but he has yet to produce one that shows how it will steam forward once the weather clears.

In all events, Teva management has every interest is completing the cost-cutting process as quickly as possible, but unless it can assure Israelis that it is both keeping the company alive and keeping the company in Israel it will face a harder and longer struggle.