When the Ottoman Empire found itself fighting Britain in World War I, it deported British citizens from its territories. The deportees included Levin. Although Elstein held American citizenship and was therefore also considered an enemy subject, the Turks permitted him to remain on condition that he transport nitroglycerin from Damascus to Palestine. He hauled the dangerous explosives by wagon. While making the descent from Zikhron Ya’akov, his wagon overturned and only by sheer luck did not explode. As a result, Elstein was exiled from Jaffa to Petah Tikva and from there to Hadera and then Haifa. Meanwhile, Salomon, who was spared expulsion thanks to his Ottoman citizenship, had no choice but to look on passively as the Ottoman authorities confiscated the company’s entire stock of medicines and bandages for the war effort, almost completely crippling operation of its three retail stores. Despite this, the three stores continued to operate throughout the war, the Ottomans’ defeat, and the establishment of the British Mandate of Palestine. The majority of their business revolved around importing medicine (primarily from Germany) to sell at their stores and distribute across the land.
The company had many competitors, the most prominent being the Halabi family’s chain of pharmacies, which operated throughout the Middle East. However, Salomon, Levin, and Elstein faced virtually no competition in selling pharmaceuticals to the hospitals and pharmacies operating under the auspices of the Jewish community. Their most popular products included live leeches, powders for the relief of heartburn, and quinine for the treatment of malaria.
After the Nazis’ rise to power in Germany in 1933, the number of German Jews immigrating to the British Mandate of Palestine rose significantly. This wave of immigration, which was known as the Fifth Aliyah, included physicians and pharmacists, who dramatically transformed the pharmaceutical sector. This included founding several companies to produce medicines, such as Teva, Zori, and Pisan (later known as Ikapharm). The new immigrants from Germany played a prominent role in these companies. The Zori pharmaceutical plant was established in 1932 near the old central bus station in Tel Aviv by physicians and scientists of the Fifth Aliyah, such as Paul Weiss, Raphael Horn, and Walter Grotto. These immigrants asked Hayyim Nahman Bialik, the most prominent Hebrew-language poet in the land who would later be recognized as Israel’s national poet, to name their company, deeming it part of their integration into the new society. Bialik rose to the challenge, proposing the Hebrew word zori (balm), drawn from the biblical passage, “Is there no balm in Gilead; is there no physician there?” (Jeremiah 8:22). For his efforts, the poet was paid five pounds, which was a handsome sum in those days.
Teva also began operating a plant in Jerusalem’s Bayit Vegan neighborhood during this period. German émigré Dr. Gunter Friedlander and his aunt Dr. Elsa Kuver officially opened it in May 1935. One of Friedlander’s aims in establishing the company in Jerusalem was to facilitate cooperation between the pharmaceutical plant and the scientists of the Hebrew University. The founders of the plant also sought to advance scientific development within the local Jewish community.
Once the partners of Salomon, Levin, and Elstein understood that their new competitors had the potential to make their retail pharmaceutical business irrelevant, they decided to open a pharmaceutical production plant of their own. The three partners, in cooperation with Haim’s son Nachman, purchased land in the Petah Tikva area near Tel Arieh (today Kiriyat Arieh). They built a plant, naming it Assia Laboratories Ltd., after the Talmudic word for doctor. In October 1934, the Ha’aretz newspaper reported on the new plant that was about to open its doors:
The proprietors of Salomon, Levin, and Elstein enterprises are opening a plant named Assia near Tel Arieh. The plant will employ experts from abroad and will manufacture medicinal drugs and other pharmaceutical supplies for pharmacies. In their endeavor, its owners hope to make use of many raw materials from within the country.
The partners mainly recruited new immigrants to work in the plant. Their employees included physicians who preferred working in a plant to working in the Histadrut-run medical clinics, as well as experts in chemistry and the pharmaceutical industry. The most prominent of these was Dr. Ludwig Shere, who they appointed to be the first CEO of Assia. In 1935, like their competitors, they inaugurated their plant with great fanfare.
During the second half of the 1930s, the four newly established pharmaceutical plants had a difficult time supporting themselves; they were in a constant state of financial hardship. The small market they shared meant their chances of survival were slim and the violence that rocked the British Mandate of Palestine between 1936 and 1939 did not make the situation any easier. Salvation appeared in 1941, when the British army became a regular customer of the four companies, from whom it started purchasing supplies for its forces throughout the Middle East. From that point on, the four pharmaceutical companies supplied approximately 75 percent of all the pharmaceuticals consumed in the British Mandate of Palestine.
•••
By the time Eli Hurvitz joined Assia, it was already relatively well established with approximately 100 production workers that marketed the products of pharmaceutical companies from around the world, exported some of its own products, and made an effort, using the meager resources at its disposal, to manufacture new medical products in the laboratory where Eli had begun working. Most of its production consisted of ampoules, which it supplied in large quantity to the local market, primarily to Clalit Health Services and the Israeli Ministry of Health. The company also produced dozens of other pharmaceutical products, including an analgesic known as Assialgan, injections (including an injection of Vitamin B12 for the liver), cough syrup, a cream to treat rheumatism, Vichy mineral water, sodium tablets to prevent dehydration, ether as an anesthetic for operations performed in field conditions, and the Dalia cosmetic line, which included toothpaste, shaving cream, and aftershave cologne for barbershops.
During his first three years at Assia, Eli washed laboratory equipment and learned the fundamentals of the company. His position was convenient and conducive to his studies; it encouraged him to begin specializing in pharmaceuticals and to master the field of chemistry. In practice, he also specialized in analyzing methods common in pharmaceutical production at the time. His teacher was his supervisor at the lab, Amihud Carmi, who developed a good relationship with Eli and provided him with broad training in pharmaceutical production.
Although Eli came to feel increasingly at home at Assia as time passed, his low salary forced him to consider finding a job elsewhere, particularly after he was offered positions in the Economic Department of the Histadrut and as a research assistant for his economics instructor, professor Gershon Cyderovich. It was a difficult decision for Eli to make. On one hand, he was ready for a change and was hopeful that a new position would pay more. On the other hand, Yitzhak Elstein, one of Assia’s three shareholders, attempted to persuade him to stay on at the pharmaceutical plant, apparently on behalf of Dalia’s father Nachman. Elstein assured Eli not only that his wages would be raised to the level of production technicians in the plant, but also that “his future at Assia was guaranteed.” This convinced Eli to stay at Assia.
Slowly but surely, Assia became Eli’s second home. The birth of his eldest daughter Vered in November 1954 was a major reason why earning a livelihood for his family now became his primary focus, relegating his university studies to the status of an undertaking he sought to finish up as quickly as possible. To gain additional insight into other aspects of Assia’s operations, he began taking courses at the Tel Aviv-based Israeli Institute of Labor Productivity, where he studied theoretical and practical aspects of company management. In this manner, without ever intending to do so, he began training himself to manage Assia.
Because the plant was a family business run by its owners and their agents, Eli came to see himself as a representative of the Salomon family. Dalia’s father Nachman never discussed the matter with him, perhaps out of a sense of loyalty to his two p
artners and a desire to avoid claims he was seeking to seize control of the company with the assistance of his relatives. He also played no role in supporting or promoting Eli within the company and if he needed to interact with Eli regarding business matters, he made sure to do so via the appropriate channels.
Nonetheless, it soon became evident that Eli had been designated to run the plant. The other partners did not oppose this and may have even supported it. After all, he was obviously gifted in the field of management and, after undergoing the necessary training, he would undoubtedly find his place within the company’s senior management. Until then, however, his task was clearly to acquire skills and tools, which is what he did during the period in question. In this context, he was regarded not only as the Salomon family’s representative in the next generation of senior managers at Assia, but as Nachman’s heir apparent.
This was also why from time to time, in addition to his menial responsibilities in the lab, he was assigned an increasing number of executive responsibilities. For example, he began assessing the costs of medications that were slated to be produced by the plant, as well as those of unprofitable medications that were already in production. Until that point, everything had been done by intuition, as Eli liked to describe it. Over the years, Nachman had developed close relationships with figures within international pharmaceutical markets and, on this basis, was granted authorization to manufacture a large number of pharmaceutical drugs in Israel. Immediately after Nachman received authorization abroad to produce a medicine, Assia would activate a production line and begin manufacturing it. However, the company did not conduct a thorough assessment of the costs of producing new medicines. Everything was done based on experience that had accumulated over the years. When Eli began working at Assia, he took note of this and brought it to the management’s attention. From then on, cost assessment was assigned to him.
They would come to me and say: “There’s a problem. We don’t know how much it costs – there’s no pricing… Eli, how much do the raw materials, the marketing, and the other expenses cost?” I would sit down, take everything I learned about pricing, and try to construct a method capable of accurately computing the cost. Up to that point, purchasing had been done by an unrivaled professional – Nachman Salomon. But he had never been concerned with pricing. When he would buy, it would always cost less than what others paid. But we needed to know how much it would cost us to produce and this had never interested him. Why? Because he would sell the ampoule no matter what at whatever was the best price he could get for it.
Nachman’s intuition was gradually replaced by Eli’s calculations. Although Assia had generated profit before he arrived, Eli’s cost assessment clearly offered a better way of doing business, certainly in the long term.
Another efficiency-building measure that Eli implemented stemmed from his desire to incorporate innovative management practices that were consistent with the professional approaches then espoused by academic circles and the Institute of Labor Productivity. For example, he measured the time it took for tasks to be completed in the different departments and concluded that work at many stations was being performed inefficiently, leaving a great deal of room for improvement. Although he approached Nachman regarding the subject and tried to convince him of the need for a production engineer to improve efficiency, Nachman was a conservative CEO and ruled out the idea.
“He saw no need for it,” Eli explained. “His approach was always based on thrift and simplicity. Production engineering was a new area with which he was unfamiliar.”
Eli did not relent until he succeeded in convincing Nachman. Assia eventually hired a production engineer named Kobi Even-Ezra, a decision that Nachman did not regret.
Eli continued washing lab equipment, but at the same time was receiving new assignments and responsibilities from members of the management. To be more precise, he began assuming more and more authority, without the owners asking him to do so. Later, Eli spelled out the logic behind this approach.
“Authority is not given – authority is taken,” he explained. “Responsibility is not divided. There is no such thing as: ‘I’ll share the responsibility with you.’ That’s just nonsense. Either I take responsibility, or you do.”
According to Eli, if someone fails to “take responsibility,” teamwork is impossible.
“This is not my own personal belief,” he maintained. “It is a truth of organizational systems.”
•••
Eli’s command of economic theories of pricing soon earned him the reputation of a prodigy of sorts throughout Assia’s corporate management. Another clear indication of Eli’s business prowess was the ingenious deal he engineered to ensure future Assia exports to Turkey. The company had been trading with Turkey since the days of Nachman’s father Haim Salomon. Nachman continued trading with Turkey following Israel’s War of Independence and sales to the country grew gradually but steadily. Most of these exports consisted of antibiotics, for which there was an ever-increasing demand in the Turkish Republic.
One reason for this increase in trade was Israeli foreign policy, which at the time called for cultivating relations with Turkey. Although both domestic and international politics led Turkey to turn its back on Israel after the Sinai War of 1956,23 relations between the two countries began to develop nonetheless. Diplomatic relations between the two countries were virtually nonexistent after the war. Israeli Foreign Minister Golda Meir’s24 secret meeting with her Turkish counterpart Fatim Zorlu in Zurich on August 2, 1958, changed this. The meeting ended with “heartfelt words of salutation and farewell” and relations between the countries solidified and grew stronger. One of the ways this was expressed was increased foreign trade, which benefited Assia.
However, it also became clear during the mid-1950s that this increased trade with Turkey was not profitable. Although the Turks were still paying the same number of Turkish liras as they had in the past for the products they purchased, the exchange rate being used in the transactions resulted in a sharp decline in profit and, in some cases, its disappearance altogether. Like Israel, Turkey had adopted differential exchange rates for its currency. This meant that when the Turkish exporter exported products, the bank paid it a higher rate for the foreign currency it exchanged. During the import process, the opposite was true: the government paid the importer using a low Turkish rate.
Assia’s management thus faced the question of whether to continue exporting to Turkey since the low exchange rates it was receiving had started to take a serious toll on profitability. At one point, Assia was even losing money on its exports to Turkey. The matter was brought to Eli, whose calculations revealed that Turkish payments for the products supplied by Assia had remained the same and even increased, but that the amount the Turkish banks paid when exchanging the local currency for foreign currency had become much lower. Eli sought a creative solution. Halting exports to Turkey and losing a market with a significant demand for Assia products was clearly out of the question, but Eli was convinced that something had to be done to prevent further losses. He came up with a solution based on the following principle: instead of selling pharmaceuticals to Turkish buyers for payment in currency as had been the case until then, Assia should negotiate “barter transactions” for Turkish products, which he had no doubt would be more profitable than the Turkish liras received in previous transactions. His assumptions were subsequently proven correct and the results surpassed even his own expectations.
The first step of his plan involved joining his father-in-law Nachman on one of his many trips to Turkey in order to find a local merchant willing to pay for the pharmaceuticals with Turkish goods. The solution also depended on Assia’s ability to locate a foreign market for the Turkish product where buyers would pay its real value. As Assia would have to wait a significant amount of time before receiving financial remuneration for the exported products while the Turkish products received in exchange for the pharmaceuticals we
re sold abroad, the Israeli company would need funds to maintain its cash flow. This meant that the plan also required a bank to underwrite the risk involved by facilitating intermediary financing for an appropriate fee.
Eli later provided the following account of the plan’s evolution:
I went to Turkey with Nachman as his assistant and we made some calculations…. At the bank, we paid 30 Turkish liras per dollar, yet on merchandise for export they paid us no more than seven liras per dollar. I was convinced that we could not continue exporting on such terms. I proposed a barter transaction that enabled us to use the system’s folly to our advantage…. We found a few customers who were willing to help us. Initially, they were the ones who purchased the medical supplies we brought into Turkey and paid for them with merchandise. At that point, we were still not certain what kind of product we would receive in exchange for the medicines we sold…. [Next,] to assess what type of product would be worthwhile to acquire from the Turks in exchange for merchandise supplied by Assia, I traveled from Turkey to Greece, where merchants were in close contact with the American market. In Athens, I met a Christian merchant who had been born in Palestine, spoke excellent Hebrew, and had been a good friend of Israel during the War of Independence in 1948. I asked him: “What merchandise would be the most profitable for me to export from Turkey to sell in the United States?” His answer surprised me: “Nuts.” He marketed pistachio nuts to the Americans and proposed marketing almonds along with his pistachios – that way everyone would profit. Although selling almonds and pistachios together would not generate a higher price for each of the products individually, it would enable us to sell a larger quantity of merchandise.
Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography Page 9