Pharmaceutical Giant Teva to Fire Thousands, Including at Least 700 in Israel

Stock jumps 2% as the company announces worldwide job cuts and cost-saving measures that will include its Israeli operations.

The Israeli generic drug company Teva  Pharmaceutical Industries is expected to fire 700 to 800 of its 7,400 local workers in the coming year, in line with its announcement yesterday that it would slash its global workforce by 10 percent.

The Histadrut labor federation said it would fight the local layoffs with all the tools at its disposal, including demonstrations, work sanctions and even a strike if necessary. Histradrut officials insisted there was no need to fire people to make the company more efficient.

Opposition leader and Labor Party leader Shelly Yacimovich said: “It turns out that the fairy tale that if we hand out tax breaks and grants to huge corporations, and in return we receive jobs for Israeli citizens, is a complete fabrication.” She was referring to the NIS 12 billion in tax breaks granted to the company over the past five years.

Teva, the world leader in sales of generic drugs, has lost a fifth of its total value over the past three years, and is responding with a very aggressive cost-cutting plan. Yesterday’s announcement sent the company’s stock up by 1.6 percent on the Tel Aviv Stock Exchange.

The layoffs, which will total some 5,000 worldwide, are the continuation of an efficiency program presented originally by the company in December 2012, and includes selling off of assets not tied to its core business, and increasing production efficiency. The company hopes to cut annual costs by $2 billion by the end of 2017 through its efficiency measures, with half of the savings to be realized before the end of 2014, and 70 percent by the end of 2015.

However, senior executives at Teva will not see their salaries cut, said CEO Jeremy Levin. Executive salaries have fallen at Teva in recent years, he noted, adding that the layoffs will include senior management. The cost of Levin’s salary in 2012 was about NIS 15 million. He said Teva executives earn less than their counterparts in competing companies.

“The accelerated cost reduction program will strengthen our organization while improving our competitive position in the global marketplace,” Levin said. “We understand that this may be a difficult time for our employees and are committed to act with fairness, integrity and respect, and provide support during this time.”

Yesterday’s announcement came only days after Levin said the company would expand its manufacturing operations in Jerusalem’s Har Hotzvim Industrial Park and hire hundreds of new employees there.

Teva employs 1,100 workers at its two factories in the park. On Sunday, Levin said of the Har Hotzvim expansion: “The investment in the factory will allow Teva to upgrade its abilities in a number of areas that have strategic importance for the company. Teva has always viewed Jerusalem as an important center for its operations, and this expansion will strengthen the position of the factory in the company’s global manufacturing network.”

Teva is the latest in a string of big drug makers to take an axe to costs. Last week, Merck & Co. said it would cut annual operating costs by $2.5 billion and eliminate 8,500 jobs, or more than 10 percent of its global workforce. Others including Pfizer, AstraZeneca and Sanofi have also slashed staff numbers

in recent years due to slowing sales growth, often due to competition from cheaper generic medicines - many of which are made by Teva.

When asked if he regretted any of the large purchases of other companies Teva made in recent years, Levin said he is looking to the future rather than the past. In October 2011 Teva spent $6.5 billion on the purchase of Cephalon, one its most controversial buys, and in 2012 already had to take major write-downs on the purchase. Levin took over the reins of Teva in May 2012 after the company had grown rapidly through large acquisitions. At the time, he promised to reshape Teva by developing its own medicines, amid increasing competition in the generics market, and to divest businesses in non-core areas.

Teva’s generic sales in the United States, its biggest market by revenue, fell 8 percent in the second quarter of 2013 compared with the same period in 2012, after a 27 percent drop in the first quarter.

Following yesterday’s announcement of job cuts, the company’s New York-listed shares rose 2.5 percent to $40.22, after finishing 1.6 percent higher in Tel Aviv for the day.

“Investors finally see that the plan is being implemented [at Teva] and how it will be implemented, and therefore the share price has responded positively in the short term,” said Nir Omid, chief investment officer at the Tamir Fishman brokerage.
However, Omid said Teva still had problems in the medium and long term, mainly in how to reduce its dependence on its multiple sclerosis Copaxone, which accounts for 20 percent of its sales and 50 percent of profits. The drug may face competition from generic rivals next year.

Teva's headquarters in Jerusalem.
Bloomberg