Chaim Hurvitz: Teva layoffs exaggerated

The Teva director says most cutbacks will come in production while retirements and freezing hiring will reduce layoffs.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) director Chaim Hurvitz, the son of the company's late founder Eli Hurvitz told "Globes" that firing of 5,000 employees worldwide, including hundreds of employees in Israel, would also be the last layoffs. He says that the layoffs in Israel will not be as bad as the media depicts them. >P>"I think that the drama will be less than depicted," says Hurvitz. "We have almost 8,000 employees (in Israel) and 5% of them, 400 employees, retire every year. It's enough for us not to hire in one year, and we've solved the matter."

"Globes": Nonetheless, you're going to fire a lot of employees.

Hurvitz: "Not necessarily. There are places where this will be inevitable, but in most places it will be possible to slide over this, and stretch it over time. This is especially true at production sites."

So where will most of the layoffs be?

"Mostly in production sites, including in Israel. We're not going to close plants, but we'll organize production lines more efficiently."

Hurvitz claims that the layoffs are mainly in response to the tax hikes that Teva expects in 2014, but he does not deny concern over the expected loss of income when Copaxone's patent expires and rising competition for the company's flagship product for the treatment of multiple sclerosis. "This is the combination of a lot of things. This is the time that Teva is making long-term plans, for 3-5 years. When we and management saw the numbers, we decided on the move."

What exactly did you see?

"We saw two things: greater uncertainty than this year over Copaxone, and substantially higher taxes, by hundreds of millions of shekels. Trapped profits alone are NIS 500-600 million. Altogether, we're talking about almost NIS 1 billion in tax hikes."

Without the tax hike, there would be no layoffs?

"That's a good question. It's a trigger, because we presented the streamlining plan 18 months ago in New York. It was no surprise."

But you didnt mention 5,000 layoffs back then.

"It took our time and the guys worked without pressure. There is no doubt that there is more uncertainty about Copaxone and that we'll pay higher taxes next year. The ability to absorb inefficiencies is smaller. This requires faster action."

What about executive pay cuts, if only for the sake of appearances?

"I dont know what to tell you. I dont know what executive pay is. Our CEO is not the CEO of an Israeli company, but the CEO of a multinational, and we must be comparable with the CEOs of similar companies overseas. Our pay package is smaller in comparison with our foreign brothers. All the furor against our pay - it doesnt work that way."

Will these be the last layoffs on such a scale?

"I think so. Over the years, we've simply become used to growing, but you sometimes have to look to the next step. I think that this will be the first and last big wave of layoffs."

The day after Copaxone

Analysts and Teva investors are afraid of the day after Copaxone, which accounts for an estimated 30-50% of the company's net profit. The generics business is floundering, and while Teva has 30 products in the pipeline, none are currently substantial growth engines that will replace Copaxone in the foreseeable future. Hurvitz does not share Copaxone's eulogy, and sees a rosy future for Teva.

"Copaxone's patent status is unclear at the moment. No company has filed to register a generic competitor. Will they need only a year to obtain approval? I dont see a generics version coming so fast. It's a complex product. Generic competition will come in 2015, if at all. This is a very hard product to replicate. None of the oral products have enough sales yet and their safety is in dispute. Doctors won't rush to switch to a new medication for a patient in stable condition."

But according to IMS data, Biogen Idec's drug, Tecfidera, is rapidly winning market share.

"Tecfidera's safety profile is poor. This drug has been on the market for 40 years with a lot of problems and it is not clean. Copaxone is pure in comparison. So what if Tecfidera's indication has been changed for multiple sclerosis? I favor competition, and there is room for new products, but only very slowly."

Do you have a blockbuster in the pipeline to replace Copaxone?

"We have several products for respiratory, multiple sclerosis (Laquinimod). It won't be one product, but three or four or more products that will compensate for Copaxone."

Hurvitz dismissed analysts' forecasts of single-digit growth for Teva's generic business, saying, "It's utter nonsense. Look at the demographics. The world's population is aging, and they'll need generic drugs. This market will have double-digit growth."

Yes, but when? The aging of the world's population has been discussed for years.

"Everything depends on the expiration of drugs' patents."

Teva's layoffs announcement but the company's tax breaks under the Law for the Encouragement of Capital Investment back on the public agenda. Labor Party chairwoman MK Shelly Yachimovich has already called for the cancellation of Teva's tax breaks awarded for creation jobs, now that it is firing employees.

"That's not true," says Hurvitz. "We're not a company of bandits. We operate by law. The Law for the Encouragement of Capital Investment has a track for tax breaks against capital investment, and that's what we do. We've invested billions of shekels for which we've received tax breaks. You want to raise the tax. Go ahead; we'll pay the tax like we should. It has never been conditional on jobs."

Do you feel that you're operating in a populist environment?

"Yes, but we dont have to manage the company according to populism, especially not in Israel. This is a global company. It's very different from other companies here. It's not Delek Group Ltd. (TASE: DLEKG), Strauss Group Ltd. (TASE:STRS), or Tnuva Food Industries Ltd."

Is Teva in crisis?

"I dont think so. It's being tested now in view of changing realities, and it's making the necessary adjustments, and organizing better."

Published by Globes [online], Israel business news - - on October 13, 2013

Copyright of Globes Publisher Itonut (1983) Ltd. 2013

Shiri Habib-Valdhorn and Gali Weinreb
Gali Weinreb, Shay Niv and Adi Ben-Israel
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