*International pharmaceutical company fails to honour its commitments in the last three years, and lays off more than 2500 workers
*TEVA’s crisis will negatively affect industrial exports, while its influence on unemployment and Tax Revenues is marginal*
The clamour over Teva’s announcement to lay off more than 1700 workers from its plants and facilities in Israel, as part of the Israeli International Pharmaceutical Company’s plan to lay off thousands of workers worldwide, is not attributed only to the large number of workers
who will be let go next year, but to the fact that the company received more than 5 Billion Dollars in Tax breaks in the last few years, as part of the investment support offered to companies to guarantee the employment of thousands of workers in peripheral areas.
The decision which has been expected for months, has shaken economic circles, especially trade unions. Consequently, the Histadrut, the trade unions’ federation, announced, last Sunday, a partial strike in vital facilities in protest of Teva’s decision. Several senior officials, including Prime minister Benjamin Netanyahu, and his Minister of Finance, Moshe Kahlon, interfered and directly contacted the company’s international management, but they did not succeed in swaying the company from taking these fat trimming measures, which include laying off more than 10,000 workers worldwide, closing down plants and shutting down production lines.
Two main issues are behind Teva’s crisis: the first is the accumulating debt of 35 Billion dollars, resulting from buying the Pharmaceutical Company “Actavis Generics” for around 41 Billion Dollars; while the second is that Copaxone, the multi sclerosis drug, and Teva’s main product, went off patent. The drug was patented by the company, and according to international regulations it had the sole right to produce it for a number of years, making billions of dollars in profits, until it finally went off patent, allowing other companies to produce their own version of it.
However, the urgent problem the company faces now is that it must pay back a debt of 9 Million Dollars during the next two years.
Being a large employer, especially in peripheral areas, Teva received the lion’s share of tax benefits. The Israeli tax authorities was recently obliged to reveal the tax benefits granted to the biggest companies under the “Investment Promotion law”, and it revealed that 3 companies, including Teva, benefitted from 50% of these breaks during the last 6 years, the latter had the biggest share of these breaks. According to the authorities’ report, Teva had benefitted, between 2006 – 2013, from tax breaks of up to NIS 15 Billion (USD 4,2). In 2013 alone, the tax exemptions reached 68% of workers wages in Israeli plants that year.
The company also benefitted from a decision by the Ministry of Finance, allowing tax exemptions on profits made by Israeli companies abroad. The government was supposed to collect around NIS 30 Billion (USD 8,4 Billion), but it decided instead to collect only 10% of this amount (NIS 3 Billion). Teva was the main beneficiary from this decision, as it had to pay NIS 5 Billion from its profits abroad, around USD 1.6 Billion.
Although the company has made a commitment to the Israeli government to protect jobs, in 2013 and 2014 it fired 800 workers out of the 7600 who worked for the company in 2013.
Teva is one of biggest companies in Israel, therefore there are concerns regarding the impact of any crisis it might face, such as the one it went through in mid-2016. Calcalist Newspaper reported that Teva was one of 10 companies that controlled 51% of Israeli exports. The same report said that the exports sector was limited to a few companies, which means that any change in one of them may shake the sector. We can only predict what will happen to the economy if there were changes in the way the American FDA deals with Teva, as this will create hurdles for marketing in the USA. The Israeli Export institute’s report for 2016 showed that there was a decrease in the exports of a number of companies in the country, including Teva”.