Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography

by Yossi Goldstein

  During our conversation, I began to understand that exporting to America would require a financial investment that Assia did not have at the time.

  Eli’s thinking stemmed from the fact that food exports to the United States from Turkey and other markets outside the US were subject to substantial bureaucracy. US authorities strictly regulated the import of food, adding significantly to the costs involved.

  The solution was to find a bank to underwrite the transaction for the entire cycle of financing. We would have to make a large up-front investment that we didn’t have. Immediately upon my return from Turkey and Greece, I approached the heads of Israel Discount Bank in Jerusalem, which had demonstrated total confidence in Salomon family business endeavors for many years. During our meeting, I convinced the directors of the bank of the benefits of the circular transaction. This meant that the moment the medicines reached the Turkish importer, Assia would receive interim financing from the bank by means of a letter of credit. In the meantime, the Turkish product [the nuts] received in exchange for the pharmaceuticals would be exported to the United States by the pro-Israel Greek [merchant]. After its sale in the United States, the interim financing would be returned to the bank, along with a profit. Assia would also retain a profit, which would certainly be much greater than the sum it had been receiving previously.

  We built a deal that consisted of all these elements worth one million dollars – an unimaginable sum at the time. We planned the import of the products and the payment to the bank so that by the time the bank needed to fund the next payment, it would already have received money from the merchandise sold to the American customers. We built a deal from which everyone profited in the end, especially Assia. It was not even Assia, but rather a subsidiary named Eliyon, which was set up in 1948 and situated in the Jerusalem neighborhood of Mekor Baruch. This subsidiary also produced penicillin, which was the major component of the exports to Turkey…. The profits generated by the barter transaction were extremely high; they exceeded the total profits of the export transactions concluded by Assia during the period in question [1956-1959].

  •••

  The success of the Turkish deal taught Eli and the Assia leadership several important lessons for the future. One clear conclusion was that they must do their utmost to export the drugs produced in their plants. To do so, they would have to significantly increase the company’s export market and craft creative tools for maximizing profit. Another conclusion was that imaginative tools are vital to achieving this goal, since, for example, differential exchange rates meant that exporting was not always worthwhile. Eli’s barter transaction was an original solution that demonstrated that it was possible to profit even in places that made a great effort to prevent this from happening.

  This reinforced another conclusion which Eli had already reached but which was now raised to the level of profound insight: complications are an integral part of transactions and must therefore be considered and dealt with ahead of time. It followed, therefore, that one must never throw in the towel, no matter how difficult or untenable a situation became. The fourth conclusion that the Assia management reached as a result of the Turkish episode was that Eli was a man they could rely on. They already considered him a prodigy when it came to pricing theory, but he now proved himself on a practical level as well. Thanks to his ingenuity, he had crafted a barter transaction to expand Assia’s market using a maneuver that gained the company extensive financial backing from a bank and simultaneously increased public confidence in the company’s capabilities.

  Chapter 6

  A Miracle in Africa

  As Eli gradually came into his own at Assia, he became increasingly convinced that its future depended on rapid growth. If Assia did not grow, he reflected to himself even back in those early days, it would stagnate and possibly even deteriorate. During the second half of the 1950s, five pharmaceutical companies competed for business in Israel, whose population totaled only two million people. This led Eli to conclude that the Israeli market was too small to continue offering Assia the opportunities it needed to grow. While there was some room to introduce new medical products to the Israeli market, it was very limited as the market was saturated and could barely provide a foundation for normal business expansion, let alone growth.

  Eli strongly believed that in order to grow, Assia would have to focus on exports. The company already was marketing its products at a variety of locations around the world, but exports accounted for only a small fraction of Assia’s activities. Eli began trying to change this by addressing the challenges in exporting to Turkey. As time passed, he came to regard facilitating the company’s penetration of promising new markets as his main responsibility.

  This inspired Eli to approach Assia’s leadership in the autumn of 1957 with an unusual proposal: travelling to Africa to identify new markets. He expected the conservative members of the senior corporate management, led by his father-in-law Nachman, to reject his proposal. After all, it was commonly accepted at the time that the likelihood of a pharmaceutical market expanding in a specific country was directly related to how developed that country was. A corollary of this theory was that the successful introduction of new and existing pharmaceutical products was less likely in developing countries and countries with low standards of living, such as the countries that Eli wished to visit in Africa.

  Eli did not deny the logic of this theory. He simply approached the issue in a different manner. He was certain that pharmaceutical markets could also be expanded in less developed countries. He believed that using a few relatively well-known medicines to capture a small share of such markets would generate a much larger volume of trade than introducing individual pharmaceutical drugs to developed markets. He understood that Assia was likely to sustain losses from such activity in less developed countries at first, but was convinced this was a worthwhile investment and that Assia would profit in the long-run.

  Salomon and his partners disagreed. When Eli first raised the idea, they were convinced it was completely impossible and did not take it seriously.

  “I remember Dalia’s father telling me to ‘ask that crazy friend of yours why he’s running off to Africa,’” Zvika Levanon recalled years later. “But when they succeeded there, Nachman was not ashamed to admit that it was all thanks to Eli.”

  According to Eli, he was “accustomed to the opposition of his conservative relatives.” His efforts to introduce new ideas to Assia often encountered substantial obstacles. Nonetheless, once he was convinced of something, he was usually able to persuade them to follow his lead. In this case too, he was certain that they would come around and they did agree to let him explore this idea. He decided to begin in Nigeria, Ghana, Togo, Dahomey (Benin), and the Ivory Coast. The choice of these five African countries was relatively straightforward; they were the countries with diplomatic relations of some sort with Israel and Israeli companies were already operating in them.

  •••

  Like Assia’s exports to Turkey, Eli’s goal of finding new markets for Assia products in Africa was related to Israeli foreign policy at the time. Since being appointed Israel’s foreign minister in 1955, Golda Meir had sought to cultivate Israel’s relations with the countries of Africa and had enjoyed relative success. Thanks to her steadfast policies, Israel became a patron of many of the African countries that gained independence during the second half of the 1950s and in the 1960s.

  Both Israel and its new diplomatic partners believed they would benefit from closer relations. The leaders of the African nations sought economic and military aid from Israel due to its experience in security and defense. They also wanted to learn from its agricultural advances, particularly in introducing modern agricultural techniques and cultivating desert areas. Equally important, many influential figures in Africa were convinced that both Israel and the Jewish lobby in Washington could help them secure the aid of the United States and other western countries.

 
Israel’s interest in developing relations with the countries of Africa was quite complex. There were strategic concerns regarding a possible Soviet takeover of the African continent with the assistance of Egypt’s leader, Gamal Abdel Nasser.25 The government of prime minster David Ben-Gurion was convinced that given the chance, Nasser would completely block maritime traffic along the shipping routes to and from Eilat, the only Israeli port on the Red Sea. This would severely damage trade in raw materials that were so plentiful throughout Africa and so necessary to the Israeli economy at the time.

  Then there was Israel’s desire to extricate itself from the diplomatic isolation resulting from the Arab-Israeli conflict. Ben-Gurion and Golda Meir hoped that African countries willing to establish diplomatic relations with Israel would serve as a bridge for peace between it and its neighbors. They also believed that the Africans would have a moderating effect on their Arab partners in what was referred to at the time as the bloc of third-world countries, and that the Arabs would regard them as more fair-minded mediators because they had not engaged in colonial and imperial domination in the past.

  In addition, figures who shaped Israeli economic policy, such as finance minister Levi Eshkol and trade and industry minister Pinchas Sapir, sought to penetrate African markets, believing they possessed immense potential for Israeli exporters. They felt that no efforts should be spared in trying to develop relations with the countries of Africa.

  Aware of the various efforts to implement this aspect of Israeli foreign policy, Eli sought ways to further Israeli policy that also would benefit Assia.

  •••

  Before setting out on his first trip to Africa, Eli asked Dr. Aharon Shochat, a pharmacist who held a senior position at Assia, to travel to the Nigerian26 capital of Lagos to prepare for his visit. Eli respected Shochat and got along with him well. When Eli arrived in the Nigerian capital he found Shochat had already opened an office in which to store the few thousand pounds sterling in Assia merchandise that had been shipped there ahead of time. The merchandise included pharmaceuticals and relatively simple products such as Vitamin B, creams, and shampoo, which sold well. The Israeli pharmaceutical company enjoyed a relative advantage in selling them, at least in terms of their price. And, most importantly, Eli and Shochat were convinced that there was a market for these products in Africa.

  When Eli arrived in Africa, he was aware that pharmacies there already carried similar products, which were being marketed primarily by British companies that had been active since colonial times. Assia could have employed the services of such companies to market its merchandise, but Eli never considered doing so. After all, these companies had their own interests, which would not always be consistent with Assia’s. Eli was also convinced that Assia would benefit from distributing its products in places where it was not worthwhile for the larger companies to operate, due both to their distance from the established commercial centers and their concern that the inhabitants would have no use for the kinds of product in question. Nigeria extended over one million square kilometers and was home to 60 million people, who made up approximately one-fifth of the continent’s entire population. Thanks to its extremely high birth rate, Nigeria’s population was expected to increase rapidly in the years to come, but it had an average life expectancy of less than 50 years. Eli was sure that all this meant there would be a demand for Assia products in the huge country. He still did not know how he would sell them and to whom, but he had no doubt that he would ultimately achieve his goal.

  Eli’s success in Nigeria can be partially attributed to good luck. First and foremost, he found the right person to guide him around Nigeria to search for the right markets. As fate had it, a man looking for buyers for chickens he had raised happened upon the office that Shochat had rented and Eli, who just happened to be there at the time, hired him as his guide, a job the man agreed to perform for a relatively low price. He turned out to be the right man for the job, and, as luck would have it, he would go on to become a well-known figure in the Nigerian government.

  Next, they had to find a way to get the merchandise they had brought with them from Israel to these markets. Eli did not have his own pharmacies to distribute the products in Nigeria and did not want to use the pharmacies already operating in the country. Instead, he was convinced that commercial vans could be used to transport the merchandise to all parts of the country and serve as travelling pharmacies.

  After renting a van and loading it with merchandise, Eli and his Nigerian driver embarked on a journey to the heart of the massive country to try to sell the small stock of medical supplies they had shipped over from Petah Tikva. The driver, who was well-versed in local customs and served as a guide, proposed that they head to the area east of the Niger River, which was one of the most fertile regions in Africa but also one of the most neglected.

  The delta of the Niger River was replete with large swamps that were home to a rich variety of fish. The area also was replete with disease and epidemics. After receiving the blessing of the local ruler, Eli parked the rented van in the center of town and began selling his wares. He had not even decided yet on prices for the products because he had no idea of the demand he would encounter. All he had in mind was a minimum price below which he was unwilling to go.

  As it turned out, the Nigerians made life easy for him.

  “We were standing beside the van in the city square,” he recalled “and a crowd of women gathered around us and started buying some of the merchandise with cash they were carrying in their purses.… A local woman came up to us and asked how much it would cost to purchase the entire contents of the van.… We didn’t know how to answer.… The Nigerian [driver] proposed splitting the profit – 1,200 pounds sterling for us (principle plus 50 percent of the profit) and 400 pounds sterling for him. The Nigerian woman would end up earning 800 pounds sterling.”

  Eli agreed to the proposal. It may have sounded overly generous, but this was the way he did things. He was thinking of the long-term. He needed the Nigerian and he needed the buyer plus he did not want to be construed as being overly frugal or tightfisted.

  Eli not only sold his first shipment in Nigeria that day, but he also came to truly understand the massive potential for sales in Nigeria, particularly in the outlying areas. If he succeeded in selling the entire contents of the shipment in this one area, there was no reason why he would not be able to do the same in other areas. It was also now clear that there was ample reason to set up a local pharmaceutical company to market Assia products.

  Although his brief experience in Nigeria taught him that he could sell the merchandise on his own, he preferred to partner with an Israeli company that already was operating there and had developed thorough knowledge of Nigeria. He later contacted Dizengoff West Africa, the largest Israeli corporation operating in Nigeria. They established a joint company in which each held an equal number of shares but in which, at Eli’s insistence, Assia maintained exclusive management rights. This way, he was relying only on himself. Eli explained the fundamental principle underlying the joint venture as follows: “Always 50-50, but with management always in our hands.” He alone would control all decisions regarding the marketing, distribution, and pricing of Assia products in Nigeria.

  The combination of this joint company and the skillful direction of his Assia colleagues Yosef Shomer and Aharon Shochat enabled Eli to enter the Nigerian market in a very short time. He set up a system that was similar to that which he had used when he first started selling in the country; it was based on utilizing commercial vehicles to distribute Assia products. As far as the plant in Petah Tikva was concerned, the African company operated almost flawlessly. During the first year, it purchased a few dozen vehicles. Over time, the fleet expanded to more than 200 vehicles, which drove around Nigeria, and subsequently other countries in Africa, selling Israeli-produced pharmaceuticals. Most of the products were the same ones that had been in Eli’s first shipment. One signific
ant addition was penicillin, which, like in Turkey, became the main component of Assia’s exports to Africa. Later, veterinary products, other medicines, and dietary supplements were introduced to the market and became major components of the company’s exports to Africa.

  Eli and other Assia emissaries reached agreements with local organizations and agencies regarding the sale of large quantities of medical supplies. For example, thanks to Assia’s ability to move easily from one location to another, he reached a large-scale agreement to supply a missionary order, with branches throughout the sprawling country, not only with Assia-produced merchandise but also with imported products that Assia did not produce. At the same time, he competed in and occasionally won tenders issued by the Nigerian government and military for the provision and sale of medical supplies. Within a short period, the small joint company Eli had set up with a miniscule investment allowed Assia to gain control of more than 50 percent of the Nigerian market for pharmaceuticals and other products.

  •••

  Eli was not satisfied with Assia’s success in the largest country in Africa. During his initial trip to the continent, he also visited the four other target countries he had selected: Ghana, Togo, Dahomey, and the Ivory Coast. He immediately put the lessons he had learned in Nigeria into practice. After a short time, merchandise was sent to them as well. As time passed, Eli continued working, in coordination with Shochat and other Assia personnel, to identify new markets across the continent. During the early years of Assia’s activity in Africa (1957-1962), he led Assia to much greater achievements than one might expect from a medium-sized Israeli pharmaceutical company. During his second year alone, exports to Africa added an additional 100,000 Israeli pounds to Assia’s income statement. As time passed, the profits only continued to grow.