5 Basel St.
Teva is committed to uncompromising quality standards. The Company is constantly striving to improve the efficiency of the systems that nourish research, development, production and marketing--the components needed to maintain Teva's position as a leading company in the generic global market. By investing a sizable portion of income in innovative research, supported by the firm base of Israeli science, Teva will continue to develop innovative products. Adherence to this formula will guide Teva into the next millennium stronger and bigger than ever before.
With over one-third of the nation's drug sales, Teva Pharmaceutical Industries Ltd. is Israel's largest pharmaceutical company. Notwithstanding its domestic dominance, the majority--over two-thirds--of Teva's sales are generated outside its home market, with more than half of its annual revenues coming from North America. A series of drug developments and strategic acquisitions made Teva America's largest generic drug manufacturer by 1996. Europe was another key growth market for the Israeli company, accounting for over 17 percent of sales in 1996. Teva emphasized the development of patented drugs in the early 1990s as well, launching ethical pharmaceuticals for the treatment of multiple sclerosis and Wilson's disease. In addition to its generic and proprietary drug businesses, the company also manufactures, wholesales, and markets hospital supplies, bulk pharmaceuticals, and veterinary drugs and vaccines.
Teva's many growth strategies multiplied sales from $295 million in 1990 to $954 million in 1996. A publicly traded company since 1951, Teva saw its market value mushroom from $17 million in 1985 to $3.3 billion by January 1997, making it Israel's most valuable public firm.
Company Predates Israeli State
Teva (Hebrew for "nature") was founded in 1935 by Elsa Kuver and Dr. Gunter Friedlander in Jerusalem. The company's early history was strongly influenced by global politics. During the 1930s, three forces converged to encourage Jewish immigration into the British-controlled area then known as Palestine. Underlying this population shift was the Zionist movement, which strove to create a modern Jewish nation in the ancient Hebrew homeland. During the years between the two world wars, the British mandated partition of the region into separate Israeli and Arabic states and sanctioned Jewish immigration to certain areas of Palestine in order to create a Jewish majority. At the same time, Nazi persecution of German Jews drove hundreds of thousands to emigrate from that country. Due in part to the intervention of World War II, the establishment of an Israeli state by the United Nations did not come until 1948, but in the meantime the Jewish population of Palestine increased to over 600,000.
Prior to World War II, Germany was the center of the global pharmaceutical industry. Many immigrants from that country brought with them pharmaceutical expertise that provided a firm foundation upon which the Israeli drug industry--including Teva--was built. Notwithstanding the ongoing violence of the Middle East, Teva enjoyed some advantages over its competitors around the world. For one, there is Israel's high concentration of scientists--the nation boasts more scientists per capita than any nation in the world. Furthermore, the Israeli government granted Teva tax subsidies to encourage the development and production of new drugs. It was in this environment that Teva grew, going public in 1951 on the Tel Aviv Stock Exchange (TASE).
Industry Consolidation Begins in 1960s
Eli Hurvitz, the man who would engineer Teva's emergence on the global drug scene first became involved with Teva in 1968, when he was appointed to Teva's board of directors. Trained as an economist, Hurvitz had started his career in 1953 at Assia Chemical Laboratories. His promotion into management at Assia in 1963 coincided with the beginning of a period of consolidation within Israel's pharmaceutical industry. This trend peaked with the 1976 union of Teva, Assia, and Zri to create the nation's largest drugmaker, Teva Pharmaceutical Industries. Hurvitz was appointed general manager (CEO) of the merged companies.
In a bid to boost its production capacity, Teva acquired its number-two competitor, Ikapharm, in 1980. The deal struck with Ikapharm parent Koor Industries--Israel's largest manufacturing concern--included an exchange of 20 percent of Teva's equity for the state-of-the-art drug plant. This element of the agreement would prove troublesome in the years to come. Having accumulated a 42 percent stake in Teva, Koor launched a bid for control in 1984. Teva's Founders Group, comprised of the stockholding heirs to Teva's originators, thwarted the takeover attempt. Though the two groups called a truce by the end of the year, Teva's ownership issues would not end there, for the company often used its equity to broker deals.
Overseas Expansion Begins in 1980s
Having consolidated its domestic position, Teva began to expand geographically in the early 1980s. The company perceived an opportunity to penetrate the U.S. market when the federal Waxman-Hatch Act passed Congress in 1984. This legislation concerned generic drugs, treatments that have lost their patent protection. Also known as multi-source or off-patent medicines, generics are chemically identical to branded prescription drugs, but are priced at 30 percent to 70 percent less than patented versions. Waxman-Hatch reduced the regulatory hurdles for generics, thereby cutting the time and money required to bring generic drugs to market. Thus, while generics were far less expensive to develop than new drugs, they also commanded far lower profit margins.
Teva used the generics segment as its entree into the American pharmaceutical market. In 1985, the company forged an agreement with chemical conglomerate W.R. Grace to create TAG Pharmaceuticals, a 50/50 joint venture. A relative newcomer to the pharmaceutical industry, Grace contributed over 90 percent of TAG's $23 million starting capital base, while Teva threw in $1.5 million and its decades of experience and expertise. In 1985, TAG acquired Lemmon Co., a Pennsylvania-based company with a tarnished history. Infamous for marketing Quaaludes in the 1970s, Lemmon had had four corporate owners in its scant 15 years in business. Under its newest parents, Lemmon became the sales and distribution arm for generics manufactured by Teva in Israel. Though CEO Hurvitz later reflected that "an Israeli who's coming to the States has a David and Goliath syndrome," he reminded himself that little David prevailed in that Biblical battle. The potential Teva saw in Lemmon soon turned to profits; the U.S. venture's sales more than doubled from $17 million at the time of its acquisition to about $40 million in 1987, by which time it was marketing seven generic versions of branded drugs.
That year, Teva raised $18.4 million through the sale of American Depositary Receipts on the NASDAQ exchange. Around the same time Koor Industries, which by this point was flirting with bankruptcy, sold $14.8 million worth of its Teva holding on the open market, thereby reducing its stake in Teva to about 22 percent. Teva used the proceeds of its equity offering to acquire Abic Ltd., Israel's second-ranking drug marketer, for $26.6 million in 1988. The deal included a provision whereby Canadian investor Charles Bronfman took an equity position in Teva. That same year, Teva acquired two Israeli companies from U.S.-based Baxter International Inc.: Travenol Laboratories (Israel) Ltd., a manufacturer of health care products and equipment, and Travenol Trading Company Ltd., an importer of Baxter products, for a total of $8.2 million.
Meanwhile, as part of a $1 billion debt restructuring, Koor transferred its stake in Teva to two creditors, Israeli banks Hapoalim and Leumi. The banks, in turn, sold about 17 percent of Teva to British publishing magnate Robert Maxwell for $30.2 million. The Maxwell connection was cut in 1993, when his estate divested the holding for $166 million, a significant appreciation. Teva severed its ties to W.R. Grace in 1991, when it purchased Grace's 50 percent share of TAG Pharmaceuticals for $35 million. Grace, in turn, divested its stake in Teva to the public for $36.4 million.
Teva's sales more than doubled from less than $100 million in 1987 to $268.5 million in 1989, and net increased from about $7 million to over $16 million during the same period. While this growth rate must have been a source of pride for CEO Hurvitz and his executive team, it would pale in comparison to the increases chalked up in the 1990s.
Acquisitions and New Drugs Play Vital Roles in 1990s Growth
In the early 1990s, Teva invested aggressively in acquisitions, research and development, and increased production capacity. From 1992 through 1996, Teva spent a total of over $420 million on a rash of acquisitions that extended its reach into France, Italy, Great Britain, and Hungary. Teva's U.S. sales surpassed its domestic revenues in 1993, and overseas employment exceeded native workers three years later. In 1996 alone, Teva acquired Approved Prescription Services/Berk, the U.K.'s second-largest generic drug marketer and Hungary's Biogal. That same year, Teva catapulted to the top of the U.S. generics segment via a $290 million stock swap with America's Biocraft Laboratories, Inc. Since the merger was structured as a pooling of interests, Teva restated its financial information as if the two companies had always been one. [Editor's note: This corporate history quotes actual financial figures.]
During this same time, Teva plowed hundreds of millions into research and development and capital improvements. The company's new drug developments concentrated on so-called "orphan" drugs in the therapeutic areas of neurological disorders and autoimmune diseases. The term is most often used to describe compounds that are discovered by major drug companies, but whose patents have been allowed to lapse because the disease or condition targeted by the drug has too few patients to justify the development expenditures required to bring it to market. Smaller companies like Teva who "adopted" an orphan drug could apply for a new seven-year, exclusive patent on the compound, thereby allowing it time to make a profitable return on its investment.
Generics continued to form the core of Teva's sales. From January 1996 through July 1997, in fact, Teva garnered more generic drug approvals from the U.S. Food and Drug Administration than any other company in the world. However, proprietary drugs emerged as a high-profit growth vehicle in the early 1990s. The company's first major new drug, known as Copaxone, was originated more than two decades earlier in the laboratories of Israel's Weizmann Institute, where doctoral student Dvora Teitelbaum was studying the use of synthetic proteins to quell multiple sclerosis (MS) attacks in animals. Together with Professors Michael Sela and Ruth Arnon, Teitelbaum spent 15 years isolating and researching the polymer COP-1 (later branded Copaxone), passing preliminary clinical trials in 1986. The treatment reduced the relapse rate for people in the early stages of relapsing-remitting MS by anywhere from 25 percent to 30 percent in clinical trials. At that time, the Weizmann Institute teamed up with Teva to bring the drug to market. Since Copaxone's patent had expired during the long development process, Teva requested and received orphan drug status from the U.S. Food and Drug Administration (FDA). About one-third of America's 350,000 MS sufferers stood to benefit from the treatment.
Initially launched in Israel, Copaxone earned FDA approval in 1997 and was expected to be approved for sale in Canada and Europe by the end of that year. The rollout achieved several milestones, both for Teva and for MS sufferers. Copaxone was the first drug developed in Israel to achieve FDA approval for distribution in America. Unlike its interferon-based competitors, it was also the first drug developed specifically to treat MS.
Since Teva had little experience marketing branded drugs on the world stage, it enlisted the help of global pharmaceutical powerhouse Hoechst Marion Roussel. This "David and Goliath" team formed a joint venture, Teva Marion Partners (TMP), to coordinate distribution. Initial sales reports on the drug were promising. Within one month of its launch, TMP recorded 10,000 inquiries from doctors and patients about Copaxone. Within six weeks, the company had 4,000 patients on the daily injection program and reported adding over 1,000 more each month. Analysts forecast that Copaxone alone would add at least $50 million to Teva's sales total in 1997 and increase from there.
The story of Teva's transformation from a tiny Israeli drug company into an international pharmaceutical innovator garnered a great deal of attention from investment houses around the world in the mid-1990s. Even before the Copaxone launch, Teva's sales had tripled from $295 million in 1990 to $954 million in 1996 as net income increased from $18.7 million to $73.2 million. But while leading brokerage houses like Merrill Lynch, Standard & Poor's, and AG Edwards had rated the stock a "buy," it remained a highly volatile equity, surging from less than $50 per share in April 1997 to $67 in June, then backsliding to $57 in September.
This roller-coaster performance could be attributed to any number of black marks on Teva's record. In March 1996, CEO Hurvitz was indicted on charges that he had evaded $18 million in corporate taxes as head of Teva's Promedico subsidiary (since divested) from 1980 to 1986. Nonetheless, Teva's board signed him to a five-year contract in January 1997. That August, Teva was subjected to an FDA recall on a batch of antibiotics. The problem (which rendered the drugs "less effective, but not harmful," Teva officials emphasized) was traced to a supplier. That same year found the company in a dispute over Copaxone royalties with its development partner, the Weizmann Institute. And Teva U.S. subsidiary GATE pharmaceuticals was named among the nine defendants in a class action suit over the diet drug fen-phen.
Still, most of the investment firms following Teva stood by the company. In July 1997, U.S. brokerage Gruntal & Co. asserted that "Teva should be seen as a rising star in the dynamic world medical drug market." Israeli business newspaper Globes has called the company "This century's Israeli success story." With several new drugs in the pipeline and ongoing development of generic drugs, Teva appeared poised to carry through its saga of success into the 21st century.
Principal Subsidiaries: Teva Pharmaceuticals USA, Inc.; Abic Ltd. (99.3%); Salomon, Levin and Elstein Ltd.; Asia Chemical Industries Ltd; Plantex Ltd.; West-European; Biogal Pharmaceutical Works Ltd. (Hungary; 97%); Approved Prescription Services Ltd. (U.K.); Prosintex-Industrie Chimiche Italiane S.r.l. (Italy); Teva Medical Ltd.; Teva medical Trading Ltd.; Gry-Pharma GmbH (Germany; 93.3%); Biological Laboratories Teva Ltd.; Paca Industries Ltd.; Teva Holdings Ltd.; Prographarm Laboratories (France; 34%); Portman Pharmaceuticals Inc. (U.S.A.; 30%).
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