‘Nobody Thought It Would Come to This’: Drug Maker Teva Faces a Crisis

‘Nobody Thought It Would Come to This’: Drug Maker Teva Faces a Crisis

Mr. Schultz, in a statement of his own, sounded like a man ready to carry out the unhappy task he had been hired to perform. “Unfortunately, Teva is unable to consent to the request of the prime minister and ministers and avoid the closure of the plant in Jerusalem,” he said in the statement. He described this and other measures as “painful but absolutely vital,” and he added that it was “designed solely to achieve our shared aspirations to sustain Teva as a strong global company, managed out of and based in Israel.”

This is a crushing moment for a company that has been the pride of Israel for decades. Its origins date to 1901, when its predecessor opened in Jerusalem as a drug wholesaler, distributing products throughout the area on camels and donkeys.

Teva went public in 1951 on the Tel Aviv Stock Exchange. Its biggest break came in 1967, when Israel passed a law allowing domestic manufacturers to make clones of drugs produced by foreign pharmaceutical companies. Many of those companies had ceased doing business in the country in response to the Arab boycott. Teva gained expertise in producing copycat drugs, and its revenue soared.

“I used to say that we should thank God for bringing us the Arab boycott,” Eli Hurvitz, who retired as Teva’s chief executive in 2002 after more than 25 years at the helm, said in 2004. “Without it, our company wouldn’t exist.”

Through aggressive expansion, Mr. Hurvitz built Teva into the world’s largest producer of generic drugs. By the time he died in 2011, one in six prescriptions in the United States — for arthritis, diabetes, epilepsy, high blood pressure and the list goes on — was a Teva drug.

A businessman and a Zionist, Mr. Hurvitz built factories in economically distressed parts of Israel, hoping to employ citizens in need. He insisted that Teva’s soul and brain remain in Israel, even as the company built factories and hired thousands of workers around the world.


Ben-Gurion International Airport near Tel Aviv was among the places shut down briefly by protesters angry about the Teva job cuts.

Jack Guez/Agence France-Presse — Getty Images

The company has edged away from having an Israeli-centric identity, in ways small and large. Mr. Schultz, the new chief executive, is Danish, and although he is not the first foreigner to hold the job, he is the first non-Jew. This has led to some grumbling among Teva employees, who believe that he lacks an emotional stake in the country.

But several pharmaceutical experts have applauded his arrival. They say that his track record at Novo Nordisk, the drug company based in Denmark where he spent much of his career, is impressive, and that an unsentimental eye is precisely what Teva needs.

“He’s very blunt and direct, and that works very well in Israel,” said Ronny Gal, an analyst at Sanford Bernstein. “But cuts are just a way to balance the books, not a long-term strategy. So there will be a long process of recovery. I expect twists and turns for years to come.”

Teva’s most immediate problem is its $35 billion debt. The company is so squeezed for cash that it might have to renegotiate deals with banks and even bondholders, said Sabina Levy, the head of research at Leader Capital Markets, an Israeli brokerage.

“There are not a lot of other things the company can do right now,” she said. “They can’t bring another growth driver into the company in a short period of time. And they don’t have the cash to buy a growth driver. The only thing they can do is cut costs.”

Some high-profile pundits in Israel have inveighed against Teva’s leadership, blaming greed and hubris for the company’s predicament. But even detractors acknowledge the challenges facing the generic-drug market. Prices have been on a downward trend since 2010, mostly because retail chains have combined with pharmacy-benefit managers and drug wholesalers, creating buying giants with vastly enhanced bargaining power.


Workers protesting outside a Teva factory in Ashdod, Israel, on Dec. 17.

Tsafrir Abayov/Associated Press

There is also a significant threat to Teva’s balance sheet that has been looming for years. The company sells a branded drug that it patented called Copaxone, which treats multiple sclerosis. A huge success, Copaxone has provided as much as 40 percent of Teva’s operating profit in some years.

Copaxone went off patent this year, and generic-drug makers are now producing their own versions, eroding Teva’s profits. This may be the essence of turnabout as fair play, given that Teva has been cashing in on expiring patents for decades.

Teva’s management anticipated the patent and pricing issues well in advance, and decided that the company should buy its way out of the problem through major acquisitions. Several of those deals are now considered disasters, none more so than the $40.5 billion acquisition of Actavis from Allergan, a rival generic-drug maker, in July 2015.

At the time, a former Teva chief executive, Jeremy Levin, described it as a great deal — for Allergan. He and others believed that given the continuing decline in generic prices, Teva had vastly overpaid for the acquisition. Other critics have long said that pursuing market share in the generic-drug business was a mistake.

“Israel is a high-cost country compared to China and India, and in the end commodity competition isn’t for us,” said Benny Landa, an industrialist and outspoken Teva shareholder. “What Israel is outstanding at is innovation, science, creativity, developing new things — specialty drugs which have high margins.”

For now, Teva executives have little choice but to manage the fallout from a restructuring plan that is intended to save $3 billion by 2019.

In an industrial section of Jerusalem last week, a sign on the locked gates at a Teva plant declared, “With great sorrow and heartfelt pain we announce the passing of Teva Jerusalem, of blessed memory.” A large banner proclaimed the support for Teva from the fans of the popular Beitar Jerusalem soccer team.

“The former management made bad decisions, and the chain reaction led to the collapse here,” said Aharon Cohen, 33, a machine operator for the last four years, who was protesting last week. “Of course it’s a betrayal. There are married couples working here, people have loans and mortgages.”

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