Amid Layoffs, Teva May Shift Israeli Plants to Far East

Meanwhile, pharmaceutical giant braces for possible strike by stepping up production.

Teva Pharmaceuticals may move some of its manufacturing from Israel to countries with lighter regulation and weaker unions, as part of the cost-cutting strategy it revealed last week, sources told TheMarker.

Under the plan, the world’s largest maker of generic drugs could move some of its divisions and production lines to the Far East, following Thursday’s announcement that it will reduce its global workforce by 10%, equal to around 5,000 employees worldwide and nearly 1,000 in Israel.

Meanwhile, Teva executives’ immediate concern is that their Israeli employees will call a strike to protest the payroll-slashing. To hedge against a possible shutdown, the company plans to step up production of all products, particularly its most profitable drug, the multiple sclerosis treatment Copaxone.

The union local representing Teva employees at factories all over Israel will meet this week to decide how to act. “We’re determined to prevent Teva management from firing hundreds of workers, or even fewer than that,” said Herzl Yaka, chairman of the Histadrut labor federation’s food and pharmaceutical workers division. Meanwhile, MK Dov Khenin (Hadash) yesterday said he planned to introduce legislation requiring companies that receive aid or tax concessions, like Teva, under Israel’s Law for Encouraging Capital Investment, to return the money if they lay off employees.

The bulk of the job losses will hit Teva facilities in Hungary, France and Germany, but some 800 to 900 Israeli employees are expected to be laid off, too, starting with non-unionized workers, many of whom are highly paid. The cuts, which will likely begin in November, will come in three waves over the next five years. At the end of last year, Teva employed about 7,400 people in Israel out of a worldwide payroll of nearly 46,000.

Stock market investors initially reacted favorably to the plan, whose broad outlines had been unveiled months earlier. After Teva provided its latest update on the measures on Thursday, its shares rose in Tel Aviv and New York Stock Exchange trading. However, yesterday they ended down 1.2% at NIS 141.50. The rally has not come close to erasing the decline in Teva shares over the past three years, when it has lost a fifth of its market value.

Number of layoffs not final

Ika Abravanel, a Teva executive vice president, said the number 5,000 is an estimate; managers at each plant will determine which jobs are redundant. Only then will the company hold talks with unions on the number of staff covered by collective labor agreements who will be laid off.

“At this stage there has been no decision on how many people will be laid off in each country and how many of them will be unionized or non-unionized workers,” Abravanel said. “This process will continue for 10 to 12 weeks, so no employees will be laid off before January 2014.”

Abravanel said the goal was to trim some $250 million a year in expenses, with the layoffs part of a broader program of cost-cutting aimed at generating up to $2 billion a year in savings. Teva has three reasons for reducing costs. The first is that its patent for Copaxone, its biggest seller, will effectively end a year earlier than it had hoped following a court ruling last July. The second is the gradual price erosion in the generic drug market, because of decisions made by European regulators, and finally because of the creeping increases in wages in Israel and around the world, said Abravanel.

Zvi Zrahiya and Haim Bior contributed to this report.

Ofer Vaknin