How Eli Hurvitz built Teva

“Suddenly he wakes up in the morning, feels he is a giant world class company, and starts walking.”

By SHLOMO MAITAL
December 26, 2011 23:36
Eli Hurvitz in 2011

Eli Hurvitz 521. (photo credit: Reuters/Ronen Zvulun)

Suddenly a man wakes up in the morning
He feels he is a nation and starts walking

This passage from a 1953 poem by Amir Gilboa portrays Theodor Herzl, who envisioned modern-day Israel. A Tel Aviv equity analyst named Ori Hershkovitz used it in a 2010 Harvard Business School case study to describe Eli Hurvitz: “Suddenly he wakes up in the morning, feels he is a giant world class company, and starts walking.”

The company is Teva Pharmaceutical Industries. Hurvitz, who died November 21, aged 79, built Teva into the world’s biggest generic medicine company. Teva employs 45,000 people worldwide and supplies one of every six prescriptions issued in the US. Last year Teva produced 63 billion tablets – nine pills for every man, woman and child in the world.

Hurvitz literally woke up one morning, spotted an opportunity, and seized it to build the world’s biggest generics firm, operating in 60 countries. As Teva’s Chief Executive Officer (CEO) for over 25 years, and then as its chairman, Hurvitz increased Teva’s revenues from $30 million in 1976 to $16 billion ($3.6b. was before-tax profit) in 2010 – an unprecedented 20 percent annual growth rate. How he did this merits close study by entrepreneurs and business leaders everywhere.

Hurvitz was born in Jerusalem, the son of a plasterer. He fought in the 1948 War of Independence when he was just 16. He later studied economics at the Hebrew University’s Tel Aviv Annex. To support himself and his wife, Dalia, during his studies, he worked at Assia Laboratories, managed by Dalia’s father, washing test tubes. Hurvitz rose to a senior management job at Assia and in 1969 acquired a small drug company called Teva. He became CEO of the merged company called Teva Pharmaceutical Industries in 1976, a job he held until April 2002, when he continued as chairman.

How did he do it? The key ingredients were vision, discipline, scale, focus and menschlichkeit (the properties of being a mensch, a good human being). The late management guru Peter Drucker once said, “I never predict; I just look out the window and see what’s visible but not yet seen.”

In 1984, Hurvitz looked out the window and saw what was visible but unseen by others – a huge business opportunity. The United States Congress had just passed the Hatch-Waxman Act, named after its sponsors Senator Orrin Hatch and Representative Henry Waxman, which encouraged the sale of generic drugs if the manufacturer could prove they were equivalent to the original patented molecules and broke no patents (i.e., after the patents on the original molecules expired).

Hurvitz saw a great business potential in generics, when other drug companies saw only a low-margin commodity business, where medicines sold for a tenth or less of their original prices. He also spotted a chance to provide the world with low-cost medicine.

From 1984 onwards, Hurvitz focused Teva with laser sharpness on its generic business. We love this business, he liked to say, while other drug companies simply endure it. He doggedly drove Teva’s sharp strategic focus on generics and never let it stray.

Teva’s success in generics requires operational discipline. In a business where cost is crucial, operational efficiency is vital. I am told by Teva managers that its plants in Kfar Saba and Jerusalem’s Har Hotzvim are its most cost-efficient of all, despite relatively high Israeli wages.

In April 2002, Hurvitz gave up the CEO position and appointed in his place Israel Makov, who had joined Teva in 1995 as head of business development. Makov’s background was mainly in consumer products. Makov knew how he and Hurvitz could expand Teva’s business.


Here is how Makov describes their strategy: “First to imagine. First to move.
First to scale.” It is a nine-word formula; simple to state and immensely tough to implement. Hurvitz imagined Teva as a global giant. Then he moved to build key Teva capabilities. He and Makov attained global scale by an amazing, rapid series of acquisitions. Economies of scale are crucial in generics, because they ensure competitive advantage through major cost savings.

At Haifa’s Technion Institute of Management, we were privileged to work with Hurvitz, Makov and Teva for a decade. The two business leaders recognized what Teva lacked to attain market leadership. Not money, not products, not innovation – but “managerial capacity,” the ability to manage a huge global company. They worked hard to build this capacity, welding a diverse management team from Israel, the US, Canada and elsewhere into a cohesive group that leads Teva to this day, under CEO Shlomo Yanai, a retired IDF general who replaced Makov in March 2007.

One of Teva’s core competencies, which Hurvitz recognized as crucial very early, was the ability to acquire companies and rapidly integrate them into Teva operations, while retaining key talent. Hurvitz started this process in 1977. I counted 57 Teva subsidiaries, nearly all of them acquired, in North and South America, Africa, Europe and Asia. Growth through acquisitions is exceptionally difficult. Teva does this better than any company I know, partly because its integration process is highly structured and is driven mainly by human resources and strategy, rather than by legal and accounting staff.

Teva has some extraordinary people. They are able to take a molecule whose patent expires and quickly produce a generic version, without violating process patents (drug companies patent not only the molecules, but also the way it is produced). Speed is crucial, because in some countries the first company to market a generic drug gains exclusivity for several months.

As well as being the major generic drug manufacturer, Teva has invented its own unique drugs. They were able to take a complex drug, a co-polymer, a mixture of molecules discovered at the Weizmann Institute, and produce it uniformly to create Copaxone, a multiple sclerosis drug, first sold in 1996, that has helped millions and generated $1b. in annual revenue. Teva’s new patented drug is Azilect, which helps those who suffer from Parkinson’s right from its onset. Teva has a talented legal team, able to fight off fierce assaults by global pharmaceutical companies eager to protect their own billion-dollar drugs from Teva’s generic versions.

Teva shares are held widely by Israeli pension funds, which have profited from Teva’s success. At their peak at the start of 2010, Teva shares reached $65. They have since fallen to today’s $36.91, partly because Copaxone’s patents are expiring and because equities have declined worldwide. In 2010, Teva shares comprised over a quarter of the total market value of all Tel Aviv Stock Exchange listed shares.

In an age when Wall Street and greedy overpaid capitalists are under siege, Hurvitz was a mensch, a good person, who served his country. He led the efforts to gain control of Israel’s runaway inflation in 1985, with thenprime minister Shimon Peres. He agreed to become chairman of Bank Leumi in 1987, after the government acquired its shares when they crashed in 1984-5. He was fiercely courted by the Labor Party and reportedly was offered the Finance Ministry, but declined, claiming a lack of the requisite political skills.
In 1998, he was convicted by the Jerusalem District Court on charges of $18 million tax evasion in corporate taxes as head of a Teva subsidiary, Promedico. However, two years later he was acquitted by the Supreme Court.

The immensity of Hurvitz’s achievements with Teva is amplified when one realizes that no Israeli company founded since the mid-1990s has achieved true global scale; Checkpoint and Amdocs were among the last.

“No one, aside from Herzl, has accomplished anything as remotely impressive in this country as Hurvitz,” Hershkovitz said. “It was impossible, million-to-one odds at best, and he still did it. He woke up one morning and starting walking.”

Eli Hurvitz no longer will walk among us. He will be greatly missed. 

The writer is senior research fellow, at the S. Neaman Institute, Technion.


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