Teva to Cut Around Half of Israeli Workforce, Outsource Operations

Teva Pharmaceutical Industries Ltd. will relocate or shut down most of its manufacturing operations in Israel, according to a document reviewed by Calcalist and people familiar with the matter who spoke on condition of anonymity. The company's plans in Israel are part of the wider global restructuring strategy announced by the company late November. The company intends to implement the plan in the next few months, in the hope of presenting significant cost cuts in its earnings report for the first quarter of 2018, according to the document.

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Following a late-night board meeting, the company has decided to let go over half of its Israeli workforce, cutting 3,300 jobs out of 6,430 in the country. The company intends to do away with most of its domestic manufacturing activities, shutting and selling entire sites, and drastically reducing the size of operations in remaining sites.

Kåre Schultz. Photo: PR

A photoshopped image of new Teva CEO Kåre Schultz has been shared in the past hours in an instant messaging group that includes many of the company’s employees with the tag “Winter is Coming.” In the picture, Mr. Schultz is dressed as a “White Walker,” an undead ice creature from HBO’s popular fantasy series Game of Thrones.

Teva will release an official statement confirming the upcoming layoffs within the next 24 hours. The management meeting that was set for Sunday has been rescheduled for Thursday.

The generic drugmaker has been struggling with debilitating debt since its $40.5 billion acquisition of Allergan’s generic unit Actavis in 2016. Worsening conditions in the generic drug market and the launch of generic rivals for Copaxone, the groundbreaking multiple sclerosis drug that netted Teva around $40 billion over the past two decades, continue to cast doubt over Teva’s ability to carry its $34.7 billion debt load.

For long years hailed as the flagship of Israeli innovation and global business ambitions, the plan sketched by the company marks a clear shift in the company’s policy when it comes to domestic operations.

The company intends to cut 45% of the jobs in its global headquarters located at Petah Tikva, just east of Tel Aviv. With nearly 1,500 employees the site is the company’s biggest in Israel, and the company hopes to cut around 50% of its administrative overhead as a result. The plan includes the termination of entire units.

The company also intends to shut down two Israeli production facilities employing around 1,080 people, currently operating as part of the company’s active pharmaceutical ingredients business, which is up for sale. As part of the planned strategy, Teva intends to transfer the production lines to India or China.

Teva's research and development center in the central coastal city of Netanya, which employs almost 350 people, will cease all pre-clinical trials immediately, meaning its employees will all be laid off in the near future.

The company also intends to sell its domestic distribution business, a unit employing around 300 people, according to the document reviewed by Calcalist. The sale would also enable the company to sell the related real estate, with the purpose of easing the company’s debt-load.

Teva currently employs over 200 people at a plant manufacturing a plastic drug conduction adaptor, among other plastic-based medical devices. The company is now negotiating a quick-fire sale of the plant, which is located in the Israeli town of Kiryat Shmona, near Israel’s border with Lebanon. The company intends to let the plant’s employees go once a deal goes through.

The company’s solution preparation business is also slated for shutdown, according to the document reviewed. Located at the Israeli port town Ashdod, around 15 miles north of Gaza, the unit employs over 200 people.

Opposition to Domestic Job Cuts

In October 2013, Teva’s then CEO Jeremy Levin tried enacting cost-cutting measures to save the company $1.5 to $2 billion. At the time Teva was already gearing up for the loss of its Copaxone patents, stirring up worries among both analysts and investors. Mr. Levin’s plan included facility shutdowns, the consolidation of some assets, and some 5,800 job cuts--Including around 800 in Israel.

The planned layoffs caused an uproar in Israel, pitting the South African-born CEO against Teva’s board, the General Organization of Workers in Israel, Israeli Labor party politicians and even some shareholders who challenged Mr. Levin and Teva’s management to cut their salaries first.

Israeli TV broadcaster Channel 2 reported that Mr. Levin issued Teva’s board an ultimatum; either the board will capitulate and support his plans, or he will resign. A week later Mr. Levin left the company after spending less than a year and a half as its CEO. “I didn’t resign; the board and I came to an agreement that I will leave my position,” he said at the time in an interview with Calcalist.

One of the most outspoken critics against the company’s cost-cutting plans in 2013 was Israeli Labor party politician Shelly Yachimovich, who demanded at the time that Prime Minister Benjamin Netanyahu call Mr. Levine and forbid him from cutting jobs in the country. She stated at the time that Israel lets Teva enjoy tax benefits specifically “in order to create jobs.”

On Wednesday, in a statement, Ms. Yachimovich’s called on Israel’s Minister of Finance Moshe Kahlon and on the chairman of the General Organization of Workers in Israel to take action against the planned domestic job cuts.

According to persons familiar with the matter, at least some of the company’s board members believe Teva is not expected to face significant opposition from Israel’s current government and labor unions.