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An Israeli pharma champion sickens

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THE headlong plunge of shares in Teva, a pharmaceutical giant—down by over 40% since August 2nd—is causing consternation beyond the firm’s shareholders and employees. The company was founded in Jerusalem in 1901, is the largest in Israel and is the country’s only multinational with its headquarters still at home. Since beginning its rapid expansion abroad in the early 1980s it has been called “the nation’s share” by Israelis, whose pension funds have invested heavily in its success.

That prosperity came chiefly thanks to the firm’s most popular proprietary drug, a bestselling medication for multiple sclerosis called Copaxone. Over the past two decades its sales paid for a global spree of buying generic-drugs competitors. Last year Teva completed its most ambitious purchase, of Actavis Generics, an American generics manufacturer, for $40.5bn; financing the deal took its debt to $35bn. But Teva’s transformation into the world’s largest supplier of generic medicines turned out to be ill-fated. The mood has turned in recent months as American pharmacies and wholesalers have squeezed the prices of generic drugs.

Last week Teva said its second-quarter earnings had fallen by a tenth and announced plans to cut 7,000 jobs and pull out of 45 countries by the end of 2017. Seemingly overnight, it has gone from being the darling of the Israeli economy into a byword for mismanagement. Having been run for 26 years by one CEO, Eli Hurvitz, who had married into the founder’s family and who led its international expansion, in the past decade the firm has gone through a further five. Israeli politicians who in the past approved big tax write-offs to boost the national success story are speaking of a need to look into the firm’s business and perhaps even intervene. Eli Cohen, the economics minister, this week called for Teva to take care of employees and to relocate its foreign activities in Israel.

Such heavy-handedness is hardly justified. Unemployment in Israel is near an all-time low, at 4.5%, and Teva’s highly qualified employees would find new jobs if the firm sinks further. Most of the pension funds have diversified in recent years and can absorb the losses from its tumbling shares. Although Israelis are sentimental about Teva because of its past success, says Guy Rolnik, editor of the Marker, a business newspaper, they need to “wake up” to the fact that it is a multinational.

Yet Teva’s plight has revived a debate about whether Israel is benefiting enough from its high level of investment in research and development. Hundreds of technology startups have been snapped up by global firms in recent decades, and many of them have moved abroad. Israel now has two economies, notes Eugene Kandel, the former chairman of the government’s National Economic Council and the chief executive of Start-Up Nation Central, a non-profit organisation. There is the lucrative, high-tech economy for a small share of the workforce and a second economy where most Israelis work and earn much less, he says.

To sustain the first, Israel needs to keep companies such as Teva. But it may now be taken over and lose its Israeli identity. Israel will try to persuade firms such as Mobileye, a developer of driverless car systems that was bought earlier this year by Intel, an American chip giant, for $15.3bn, to base not only their research centres in Israel, but their manufacturing. Yet the economy as a whole is still suffering from low labour productivity and over-regulation. A new wave of state intervention in cases such as Teva’s is unlikely to be the right way to build and attract big firms in future.

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Julio Marchi ©

Publisher / Editor at BS News & Media Services
A free thinker, not labelled as anything, not associated with any party, not part of any group or engaged with any religion... A simple guy tired of the nowadays bullshit who decided to promote more serious debates about what is really happening hoping to bring back intelligence to the superficial and shallow news & headlines that unfortunately took over the existing media scene.
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