"It's amazing that there have been no responses to the announcement about the cutbacks in any other country. Israel is the only country where there have been problems. I don’t understand it. Maybe we could have presented the information better," said Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) chairman Phillip Frost in an exclusive interview with "Globes". For the first time, he discussed Teva's plans to lay off about 800 employees in Israel and about the executive salaries which were not reduced by a commensurate amount, and about the company's heavily criticized tax breaks.
"Teva's board of directors is the body that decides executive compensation, and has sole discretion on this," says Frost. "It is very sensitive to employees' conditions, and I believe that it will do for the employees what has to be done."
Under pressure from the Histadrut (General Federation of Labor in Israel), Teva has withdrawn its plan to fire 800 Israeli employees, and will reduce its workforce through natural attrition by not filling positions of departing employees.
Last week, former Teva chairman Meir Heth told "Globes" that he did not understand why a "poor" company like Teva should finance the expenses of its chairman's private jet.
"What has the jet got to do with it? Teva does not finance my jet's expenses except for fuel, which is a normal and reasonable reimbursement. The jet's real cost is maintenance, and whenever I fly on Teva's business, it costs me more," says Frost. "I feel that I'm practically doing my job here on a voluntary basis, because Teva is important to me."
In 2012, Teva approved reimbursing Frost $700,000 a year for cost of his jet for travel related to the company's business.
"Globes": Could Teva's headquarters leave Israel in the coming years?
Frost: "There is no discussion at the moment about Teva ceasing to be incorporated in Israel. Many companies move between countries for tax reasons, which are important to shareholders. So Teva has always been lucky that Israel has allowed it tax breaks, and gave it no reason to leave. This was a good idea by the government. We have no plans at this time to go anywhere else, because the employees are Israeli, the management is Israeli, and the culture is Israeli, and because we're treated well here."
What will you do if taxes are raised?
"I haven’t heard about any such discussion. We won't decide on our location just for tax purposes."
Do you think that Teva's tax breaks are exorbitant?
"I want it to be clear: Teva received tax breaks not just because of its existence in Israel, but because it employed people throughout the country, including in the periphery. In this way, it provided a service for a stronger Israel and received no gift, but what was set in law at the time. Teva has met all its commitments and the State of Israel has met its commitments. Any other company would have received the same thing."
Any company would have received Teva's tax breaks?
"I think so. I know of other companies which have received such tax breaks. But I'm not an expert about this."
Copaxone isn't dead
Might executives accept a pay cut now?
"Management is discussing these things. I don’t want to speculate."
In the past, Teva was usually described as a company that used resources very efficiently. "Modest" is how the late chairman Eli Hurvitz described it. How is it possible that there is so much which can be cut now?
"When a company grows, it's very hard to maintain efficiency because there is always bureaucracy, which is an integral part of the growth, especially when making acquisitions. Many big companies take steps like ours. Merck is making bigger cutbacks than we are, and Pfizer has done it in recent years."
Analysts have criticized Teva over its acquisitions in the past few years, especially of Cephalon.
"In retrospect, it's always possible to be more critical, but the acquisition seemed good at the time. Even the things that look less good now have good things, and it's now necessary to extract as much as possible from them. Cephalon has many strong assets. So I wouldn’t say that this was a bad acquisition, but it's necessary to reach a position to extract more from it, and to ensure that it will emerge better than it was in practice."
Will Teva find a replacement for Copaxone?
"We always hope that such a product will turn up, but to replace Copaxone's profits, you don’t need just one blockbuster product. Besides, Copaxone isn't dead yet. Rivals may need struggle to create a generic competitor and this will extend the product's lifespan. In any event, even the loss of exclusivity won't destroy the company, because of our budget preparations, which include cutbacks."
Over the past decade, has Teva done good work to prepare for the day after Copaxone?
"It's always possible to do better"
Published by Globes [online], Israel business news - www.globes-online.com - on October 27, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013