Simhon: Teva has paid 'tens of billions of shekels in taxes'

Netanyahu adviser: Teva could leave Israel if gov’t interferes in its business

National Economic Council chief Avi Simhon says Israel mulling ways, including possible bailout, to help ailing drug-maker keep Jerusalem plant open; PM to meet Teva CEO on Tuesday

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Workers of the Teva company protest against the company plan to lay off hundreds of employees, outside the TEVA Pharmaceutical Industries building in Jerusalem, December 14, 2017. (Yonatan Sindel/Flash90)
Workers of the Teva company protest against the company plan to lay off hundreds of employees, outside the TEVA Pharmaceutical Industries building in Jerusalem, December 14, 2017. (Yonatan Sindel/Flash90)

Amid a national furor and ongoing strike action over major job cuts at ailing drug-maker Teva, Prime Minister Benjamin Netanyahu’s key economic adviser warned that the government cannot lean on the firm too hard because it might simply take its business out of the country altogether.

“If we put too much pressure on Teva, Teva can get up and leave Israel,” Prof. Avi Simhon, said. “The state cannot manage Teva. This is a private company.”

In an interview with The Times of Israel, Simhon rejected demands by politicians and labor unions that Teva should be forced to pay back tax benefits it has received over the years and former CEOs should be forced to pay back their bonuses.

He did not rule out some kind of government economic assistance for Teva, specifying that if the company’s plan to close its Jerusalem facility was a consequence of short-term cash flow problems, the government might be able to help. He acknowledged, however, that any such assistance might risk creating a precedent for government bailouts for other troubled companies.

Economics professor Dr. Avi Simhon on June 16, 2010. (Flash90)

Simhon, the head of Prime Minister Benjamin Netanyahu’s National Economic Council, was responding to calls by politicians and the powerful Histadrut labor federation for the government to take a tough stance with Teva Pharmaceutical Industries Ltd., and force it to halt its planned layoffs of some 1,700 workers locally.

Netanyahu, Finance Minister Moshe Kahlon and Minister of Economy and Industry Eli Cohen are scheduled to meet with Teva CEO Kare Schultz on Tuesday, he said, to try and figure out how best to lessen the blow of the Israeli drug-maker’s plans to cut its local workforce.

Teva last week unveiled a plan to cut some 14,000 positions globally, over 25% of its total workforce, in the next two years in a bid to restore the fortunes of the firm, which is burdened with debt and has been suffering from price cuts in its generics business and sooner-than-expected competition to its flagship branded drug, Copaxone, for multiple sclerosis.

One of the world’s largest generic makers of drugs and one of the nation’s largest employers, Teva had been until recently the nation’s pride, a symbol of its industrial success. The company’s shares had until recently been a staple in local savings plans, earning the nickname of “the people’s stock.”

The drug-maker said the number of layoffs in Israel would total some 1,700 employees by the end of 2019, according to a letter sent to Teva’s Israeli employees. The restructuring will see the closure of the firm’s Jerusalem manufacturing plant by the end of 2019 and some of the research and development activity in Israel will be cut back. The company will also seek to sell off its global logistics center in Shoham and its plant in Kiryat Shmona.

“The aim of the meeting [on Tuesday] is to hear first-hand the situation and the plans and also tell him what the position of Israel is,” Simhon said. “The position is that it is very important for us to minimize as much as possible the layoffs and keep Teva as an Israeli company.”

Simhon said that the government is seeking a formula to encourage Teva to keep its Jerusalem manufacturing plant running — perhaps even providing the company with some sort of assistance package to help it overcome a cash flow shortage, if that is the problem.

“I don’t want to relate to the specific measures because we haven’t held the conversation with Teva,” he said. If the Jerusalem plant “is a factory that is not worth preserving, we won’t force Teva to keep it open. But if it is a problem of cash flow, then perhaps it may be possible to find a way in which the government will help Teva overcome this obstacle.”

In a lab in the Teva Medical Factory in Har Hotzvim, Jerusalem, March 15, 2010. (Nati Shohat/Flash90)

The issue must be studied, he said. “We hope there is a way.”

Ministers Kahlon and Cohen met with Histadrut labor federation representatives on Monday to hear their claims.

Kahlon vowed in the meeting that the government will “not abandon” the workers and will use all the tools at its disposal to try to reduce the number of layoffs and factory closures, according to a Finance Ministry statement.

“We want to halt the process and start talking” to find the best way to make changes that will suit the company, Eliran Kozlik, the chairman of Teva’s workers union, said in a phone interview with The Times of Israel, his voice raw from the the smoke of the tires Teva employees were burning as they demonstrated in front of the Prime Minister’s Office in Jerusalem and at Teva plants across the country.

“The reorganization is a two-year process,” so decisions should not be rushed, he said. “Nobody wants to see Teva hurt.”

Simhon said he realized that any assistance that may be provided to Teva would not not go unnoticed by other troubled firms operating in Israel. “We will also have to take into account the precedent that this aid would create,” he said.

Avi Nissenkorn, head of the  Histadrut, has demanded government intervention to prevent the layoffs, and the union held a general strike of the Israeli workforce for several hours Sunday morning in response to the layoffs. Politicians have accused Teva of “ungratefulness and greed” for having the chutzpah to cut jobs in Israel after having received billions of shekels in tax benefits over the years.

Histadrut leader Avi Nissenkorn (Yonatan Sindel/Flash90)

The company received NIS 22 billion (some $6.2 billion) in breaks since 2006, Nissenkorn said last week.

“I don’t accept this approach,” Simhon said. For the past 10 years at least, Teva has not gotten grant money but only tax benefits, he said, just like any company that sets up a manufacturing and export operation here in Israel would.

Tax benefits are a tool to attract companies to set up manufacturing operations in Israel — which leads to jobs and taxes from revenues, he said. Even with the tax benefits that are already in place, many corporations don’t set up shop here in Israel, he said. “And that is because the terms we give them are inferior to what they get in other countries,” like Ireland, for example, he said.

Teva Pharmaceutical Industries employees protest in front of the Prime Minister’s Office in Jerusalem against the company’s plan to lay off hundreds of workers, December 17, 2017.(Yonatan Sindel/Flash90)

Simhon brought as an example the acquisition of Kite Pharma by Gilead Sciences, Inc for some $12 billion in August. Kite Pharma is not an Israeli company but the technology it uses was developed at Israel’s Weizmann Institute of Science, the same institute in which Teva’s Copaxone drug was developed.

Kite Pharma “is not an Israeli company and we don’t get a penny in taxes, even if it was developed in the same Weizmann Institute,” he said.

And companies like Apple and IBM develop technologies in Israel and take them elsewhere to be produced, he said.

“The state cannot manage Teva,” he said. “This is a private company. I want to remind everyone that Teva has paid, over the years, tens of billions of shekels in taxes. The company did not get a penny from the state. It got benefits.”

“We must remember that if we put too much pressure on Teva, Teva can get up and leave Israel, and then the company… won’t pay a shekel in taxes and won’t employ anyone here — and Teva still employs 5,000 workers” even after the layoffs.

Simhon said he believes that the workers laid off by Teva at the end of the restructuring process will manage to find jobs in the local market. “Every year some 15,000 workers join the economy — young people, new immigrants that join the job ranks. Most of them find work.

“The way to make sure people find work is to preserve an economy that is functioning and growing,” he went on. “This even more emphasizes the need to manage a wise economic policy.”

Kåre Schultz, the newly appointed CEO and president of Teva. (Courtesy)

It is also important for Israel that Teva continue to be registered as an Israeli company, he said.

In a letter last week to Netanyahu, Schultz, the new CEO, apologized in the name of Teva’s previous management for the situation the company is facing today. He also said he was committed to keeping Teva’s global headquarters in Israel and restated Teva’s commitment to Israel.

Even if Schultz has already promised to keep Teva in Israel, Simhon said, it is important for him to “sit in the same room with the prime minister, the finance minister and the economy minister and say the same thing and hear us out,” he said.

read more:
Never miss breaking news on Israel
Get notifications to stay updated
You're subscribed