Interview: Generic generation

In an exclusive interview, Teva CEO Shlomo Yanai talks to ‘The Jerusalem Post’ about his company’s plans to expand into the emerging global generics market.

By SHARON WROBEL
September 9, 2010 04:02
The Jerusalem Post

Yanai 311. (photo credit: Bloomberg News)

Teva Pharmaceuticals Industries Ltd., the world’s biggest generic drugmaker, which has come to represent the Israeli brand name globally, has topped the BDI Coface list of the 500 largest companies in the country in 2009 in terms of revenue volume for the sixth year in a row. Last year, Teva generated sales of close to $13.9 billion, out of which the generic segment accounted for 69 percent and a turnover of $54.6b.

Following the completion of its $2.7b. acquisition of Barr Pharmaceuticals at the end of 2008, Teva announced the acquisition of Ratiopharm, Germany’s second largest generics company and the sixth largest worldwide, for $5b. this March. In an exclusive interview with The Jerusalem Post, Teva CEO Shlomo Yanai is looking ahead to expanding its global footprint to the emerging generics market building up in Europe and Japan.

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Teva has maintained its position as the global leader in the generics market, while also keeping its position at the top of the 500 leading companies in Israel year after year, overcoming one crisis after another. How do you explain this success?

When I took up my position at Teva at the end of 2006, I asked myself that same question – what is the success of this company? Although it is very hard to point to a specific formula or answer to this question, I came up with two main points characterizing the company’s success. One is the culture of the company, which promotes excellence as a high value and the best way possible to advance workers. The company’s corporate culture makes Teva’s workers feel part of it and gives them a feeling of belonging, or like a US colleague said to me once: we have fire in our belly.

Secondly, Teva has for years been governed by a long-term strategy. As a public company, results are published on a quarterly basis, but all of the decisions are taken with a long-term view, while taking into account market trends.

Teva has a top-down strategy which has been pushed by former chairman Eli Hurvitz [who ended his 34-year tenure in March this year after having transformed the Petah Tikva-based drugmaker into the world’s leading generic pharmaceutical maker].

How has the corporate life changed since you became CEO of Teva?

The long-term strategy approach very much suits me. I think it is the right strategy and one of the reasons Hurvitz brought me into the position at Teva. In line with our long-term approach, we updated our strategy at the beginning of the year, highlighting key opportunities for growth and announcing our long-term goals of doubling revenues by 2015 to $31b.

How is Teva going to keep on track to achieve its long-term targets by 2015 as the world is still dealing with the pains of an economic crisis? Where do you see growth drivers in the coming years?

What is important is to understand the trends in the pharmaceuticals industry. There are a number of trends which together point to strong demand for generic drugs and significant growth in emerging countries in the coming years. The elderly population is going to grow year by year, which in turn will boost the demand for drugs. At the same time, many countries are limiting their health care budgets and governments are implementing austerity measures amid the global economic crisis, creating the need for generic drugs which can provide “the same for less.” In addition we see strong growth drivers in emerging markets like China and India, where the lifestyle is changing and the standard of living is improving, accelerating the demand for generic and other drugs.

Side by side with our long-term strategy at Teva, we operate according to a so-called dynamic rolling strategy to make adjustments where needed to changing environments such as the global crisis. In such an environment we reexamine our long-term projects and question whether they are still valid. What is crucial in such times is the time of response and what you do. We respond faster than others in the market, and quietly implemented efficiency measures during 2008 to improve competitiveness and cut costs and made changes in the organizational structure in 2009.

How about the emerging generic markets, particularly the emerging giants like China and India? What role are they playing in the pharmaceutical industry?

We see continued growth for our business coming from the BRIC countries – that is Brazil, Russia, India and China. But we also expect significant growth coming from those European and international markets that are currently characterized by low generic penetration rates in Eastern Europe and in classical European countries such as Spain, France, Italy and Germany. This is where we see the main potential market with an estimated volume of $120b.

Is the current European crisis having any major impact on Teva in general, and the recently acquired Ratiopharm in particular? Is there concern over accelerated pricing pressure on drugs as governments seek to rein in runaway health care spending?

We are not protected by the crisis. If the euro is weak, we lose, and therefore we hedge against currency fluctuations. However, since the crisis itself will create greater demand for generics as they provide a solution to the problem, and demand for drugs is relatively solid even in difficult times, we are hurt less than other industries.

With regard to downward pressure on prices, the game in Europe is only starting, but we know how to cope with it. Teva has been operating for years in competitive environments, facing price pressure for example in the US, where every year prices are coming down by 7 percent to 9%. We believe that growth in numbers of users will compensate for price erosion similar to what we expect in the US following the health care reform, which will have a downward impact on prices but boost the number of US citizens using generic drugs.

Teva has been making great efforts in recent weeks to convince the public and investors that the day is still far away before the emergence of any generic competition to its multiple sclerosis blockbuster treatment Copaxone, which accounts for onefifth of Teva’s revenues and will go offpatent in 2014. Can other generic drug companies challenge Teva’s patents on the drug? How far along is the approval for Teva’s generic version of Lovenox?

Copaxone combines attributes of efficacy and safety. Other alternatives might be more potent, but they don’t have the safety aspect of minimum side-effects like Copaxone. We believe that a generic version of Copaxone is not possible because of its complex chemical identity to an extent that standard equivalence studies for generic applications will be insufficient to get approval for a Copaxone generic. It is like a soup. What this means is that approval by the US Federal Drug Administration will require full clinical trial studies for the generic version to prove its safety, and such tests cannot be completed before the patent expires in 2014.

We are confident that we are very close to getting the approval for our generic version of deep vein thrombosis treatment Lovenox after providing all the answers requested by the FDA. Lovenox is considered a very complex drug to replicate, but it would be a mistake to draw an analogy to the possibility of replicating Copaxone as has recently been suggested.

The past decade has seen even more M&A activity from Teva, with the recent acquisition of Germany’s Ratiopharm for $5b. this year and the takeover of American women’s health drug-maker Barr Pharmaceuticals in 2008 for $7.5b. That nearly matched the previous record set by Teva’s 2005 acquisition of drug giant IVAX for $7.4b.

Track record shows though that over time most mergers fail. What do you think made Ivax’s integration into Teva successful? Are there more acquisitions in the pipeline?

Our strategy is a process of integration in cooperation with the acquired company. There is no patronism, all synergy decisions are taken on the basis of merit only and preference is given to who or what is better. We are not afraid to learn from others, and if they are better or more professional, we are happy to take them over.

One-third of our growth target to double sales over the next five years will be generated from new acquisitions and the rest from organic growth. Thus it is part of our strategy to grow through further acquisitions in emerging generics markets if and when opportunities present themselves.

How does the current political environment impact Teva? We often hear of threatened boycotts of Israeli products, especially following events like the Gaza incursion or the flotilla incident.

Teva is a truly global company, often operated by local country managers in countries around the world. We haven’t had such a problem.

We may have received a random concerned call during sensitive times, but with no significance on our activity.


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