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

by Yossi Goldstein

  In the meantime, he responded by backing up Horn in every way possible and continuing to insist on the implementation of efficiency measures, such as reducing the number of departments from 12 to five (solutions; syrups; capsules and powders; packaging; and the sterile department). He was also not deterred by the threats of the employees’ committee. The entire time, he had no doubt that things would work out, slowly but surely.

  After a few months, the workers realized that Eli, whose intentions they had initially feared, was not so bad after all. They had come to understand that Eli was not going to dismantle the company. All he wished to do was introduce greater efficiency and he was willing to pay for it. Plus the increased demands came with direct and indirect incentives. In addition to the constant increase in production and the provision of relatively high financial remuneration, the management took measures to improve employee services, such as arranging more frequent bus service to the plant and social and cultural activities, to name just two. As a result, chronic tardiness on the part of employees practically ceased.

  At the same time, Eli sought to prepare the plant for the gradual transfer of production lines from Bayit Vegan to the new facility that Assia planned to build on Har Hotzvim. He decided to relinquish the land at Mount Tamir on which Teva’s previous owners had wanted to build a new plant. His decision was based on the fact that Har Hotzvim offered the opportunity to build larger facilities on almost seven acres of land, with an option to expand in the future. He also wanted the new plant to be located in the technology park that the Israeli government and the Jerusalem Economic Corporation were planning to build at Har Hotzvim. The new plant, which required an investment of some 20 million Israeli pounds, was slated to begin operating in the early 1970s. Since at the time of the Teva acquisition it seemed it would take two years to complete the new structure, Eli reorganized the production lines in the old Teva plant in Bayit Vegan. However, several factors resulted in a five-year delay in construction at Har Hotzvim. They included a longer than expected planning process in which Eli was deeply involved; budgetary shortfalls; the urgent need for the construction of an additional chemical plant in Petah Tikva (Chemonim Bet) to meet the demand for exports to the United States; the Yom Kippur War33; and assistance grants that the government had promised Assia but never delivered for various reasons. All these factors forced Eli to change his plans and to concentrate operations in the old, dilapidated facility in Bayit Vegan until the new, modern facility opened in July 1975.

  During this period, Eli needed to focus on the distribution of Teva’s major products. He also sought to discontinue several products that did not contribute to the company’s financial performance and that he was convinced would make no contribution in the future. This was particularly true of Teva products that were similar to low-performing medicines and tonics already being produced in Petah Tikva. He also moved a number of redundant production lines to the plant in Petah Tikva.

  As Eli saw it, every product manufactured by Teva required reconsideration on all levels, from ingredients to the most effective way of increasing production to ways of marketing it in Israel more effectively to, most importantly, the identification of suitable foreign markets for its distribution abroad.

  Despite employee concerns, the number of employees increased from 240 on the day Eli was appointed CEO of Teva Jerusalem to 306 in 1975. In addition, sales and profits increased by hundreds of percentage points during the same eight-year period. The average output per worker also increased. When Eli first took over the plant, sales stood at 12 million Israeli pounds and profits at only 300,000 Israeli pounds. By 1971, sales had risen to 18 million Israeli pounds and profits to 2.9 million Israeli pounds. By 1975, sales were up to 26 million Israeli pounds and profits had reached 6.7 million Israeli pounds.

  The new plant that began operating at Har Hotzvim under Assia’s auspices was considered the most modern and advanced pharmaceutical drug production facility in the world. It is therefore no wonder that in 1976, Eli was awarded the Industry Prize by the Manufacturers Association of Israel for his successful management of Teva.

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  Eli’s duties as CEO of Teva-Jerusalem did not deter him from efforts to continue to expand Assia and Zori in his constant effort to modernize production. Here too he reduced the number of departments, from 12 to seven (tablets, syrups, suppositories, solutions, creams, capsules, and packaging), which significantly increased efficiency in its pharmaceutical operations. Simultaneously, the production lines in Petah Tikva were expanded and the acquisition of plants continued.

  One of Eli’s major pursuits during the early 1970s was increasing efficiency within Assia and integrating all the companies in the group into a single entity. Eli was aware that the mergers and acquisitions had resulted in a great deal of redundancy. There were differences between Assia and Zori, not to mention Teva. All this indicated the urgent need for more focused integration to increase efficiency. Eli initially intended on working in this direction after the full merger of Assia-Zori and Teva, but resolved to take action even before that once he realized that the process would take some time. During the first stage, he tackled integrating the financial system. It was clearly untenable for Teva to continue doing its books by hand while Assia-Zori utilized modern mechanization and one of the most advanced computers in the world (IBM 360/20). Hence, the accounting departments were integrated and Assia-Zori’s sophisticated equipment was introduced at Teva. The new accounting application developed at Assia and Teva by the highly regarded accountant Shmuel Zigelman marked the culmination of this process, which concluded in 1976.

  Eli recognized the need for the entire company to begin operating according to the same accounting standards. He continued working toward more profound integration, first in production and then in marketing. In this way, he sought to end many of the redundancies in products and personnel. One example of these redundancies was the fact Assia-Zori still had two chief pharmacists, one at Assia and one at Zori. Another was duplication in the realm of pain relief products. The company had yet to determine which of the three similar pain relief products to continue to manufacture: Assialgan by Assia, Optalgin by Teva, or Palgin by Zori.

  In order to overcome the complexities of the integrated company and institute a logical, orderly system, Eli and his aides proposed restructuring the company and its operations into two main divisions. Operations at Teva Jerusalem would focus on the manufacturing, marketing, and sale of pharmaceutical products, whereas operations at Assia would specialize in the production and sale of chemicals and veterinary products. This would involve consolidating the relevant activities of Teva, Zori, and Assia into a pharmaceutical division headed by Ami Rosenfeld, a graduate of the Technion in the field of industry and management whom Eli had lured away from Abic. Long-time Teva chemical engineer Gabi Polack was tapped to head the other division, which was initially located in Petah Tikva and consolidated all the chemical operations of the three companies.

  This restructuring occurred between 1972 and 1975. Although Assia and Zori still specialized in tablets, liquids, and heavy powders, Eli’s long-term goal was to have most of these products produced at the new Teva plant in Jerusalem. In the meantime, Teva focused more on the production of sterile products such as ampoules, antibiotics, and sterile drops. Assia’s production of chemical products was concentrated in Petah Tikva and focused on the production of nitrofurans, which fight bacterial illnesses in animals, and the flagship product Furazolidone, which accounted for two-thirds of total sales. With Eli’s encouragement, Polack and his colleagues also began developing new products, such as Furaltadone and Nitrofurazone. At the same time, a small chemical plant at Teva continued focusing on the production of products for human use, such as probenecid and Furosemide, Teva’s two main products, as well as some minor products. Furosemide was a molecule invented by Hoechst AG, which, Hoechst did not patent in Israel. As a result, Teva produced Furosemide in Israel and
exported it abroad and Eli sought to expand its sales. While a seemingly minor event at the time, the Furosemide event began to sensitize Eli to the fact that many pharmaceutical companies routinely failed to seek patent protection in Israel out of the belief that the Israeli market was too small to bother with and out of a desire to curry favor with the Arab nations who steadfastly attempted to maintain an economic boycott of Israel. This phenomenon would lie at the heart of Teva’s explosive growth in the 1980s.

  During this period, Eli also strived to modernize the entire company. Work began on a master plan with forecasts for the coming years, which was updated annually; the first contained projections for 1973-1974. This plan provided the corporate management with a clearer picture of the future direction of the plants. Changes were also made in administration and marketing. Another issue that was addressed in an in-depth manner was corporate consolidation in the field of engineering. Contact between Gabi Polack and Yoram Zinger, who were responsible for engineering at Assia and Teva Jerusalem respectively, was irregular and unstable; Eli sought to integrate the two departments. At times, personal rivalries blocked the progress of reforms that he and his aides sought to implement, but his efforts were ultimately successful here as well.

  At this point, most of the pharmaceutical group’s operations were still based in Israel. Although export was a major priority whose share in Teva’s overall sales distribution increased from year to year (in Assia it jumped from close to 30% in 1971 to 40% five years later), most products of Assia, Zori, Teva, and the other companies in the group were still sold in the local market. This is why Teva fought for the production and marketing rights in Israel of every new medicine that came on the market. One example was the leading antibiotic product Penbritin, one of the most important penicillin drugs to be approved for human use during the period in question. Penbritin was developed by the British pharmaceutical giant Beecham, which did not market its products in Israel in an effort to avoid the ire of the Arab boycott. Eli did not want to miss out on producing this product. Beyond the attributes and quality of the antibiotic drug in question, he regarded the effort to produce it in Israel as part of the struggle against the Arab boycott. He consulted with Teva’s attorney, Amnon Goldenberg, one of Israel’s leading lawyers, and ultimately instructed him to sue the British firm.

  Goldenberg came up with the ingenious idea of suing Beecham for a compulsory license to produce Penbritin in exchange for the payment of royalties. As in other Western countries, Israeli law stipulated that countries facing certain kinds of threats (for example, medical, national security, etc.) are permitted to defend themselves by manufacturing any product required to save human lives. Therefore, if company A (in this case, Assia) were to possess the knowledge to manufacture a product (in this case, Penbritin) for which company B possessed ownership and patent rights (in this case, Beecham), and company A were to ask company B for authorization to use this knowledge in order to manufacture the product in Israel and company B were to refuse, then company A could prove in court that it developed the product independently and that it possessed the knowledge necessary to produce it. The court could then compel company B to allow company A to manufacture the product under a compulsory license, in exchange for the payment of royalties to company B. This, of course, applied only to situations in which the product in question was not already being brought into the country under reasonable commercial conditions.

  In 1973, with Eli’s encouragement and under Goldenberg’s legal leadership, Assia launched a legal battle against Beecham. This was two years after Assia had won a compulsory license to produce a hemorrhoid medication in a legal victory that served as a precedent in the Penbritin case. Once again, Assia emerged victorious and was granted a compulsory license to manufacture Penbritin. Well aware of Beecham’s power in the pharmaceutical market, Eli attempted to settle their differences amicably.

  “Your packaging has a reputation in Israel,” he told Beecham’s representative when he exited the court. “We won’t change the packaging, but we will change the name a bit. Your product is called Penibrin. We’ll call ours Penbritin so that the public understands that it is the same medication and not a generic version. We will also demonstrate that we bear no malicious intent by paying you royalties.”

  Eli went even further by proposing to pay Beecham higher royalties than the reduced rate typically determined in cases of compulsory licenses.

  The Histadrut, Clalit Health Services, and Ikapharm (the pharmaceutical company that had been taken over by Koor) then attempted to thwart Assia’s efforts to market Penbritin in Israel. Shortly after the court ruling and Eli’s verbal agreement with Beecham’s agent, which was supposed to be translated into a contract, the agent informed him that he was ceasing all negotiations and would not sign a contract in light of Clalit Health Services’ declaration that it would only purchase the medicine if it was manufactured by Ikapharm. Disenchanted and frustrated by “Beecham’s betrayal,” Eli instructed Goldenberg to sue both companies: Beecham for breach of contract and Ikapharm because it did not possess the ability to manufacture the medication independently in its own facilities. The experienced attorney assured Eli that they had no chance of winning such a case, but Eli did not give up. In the end, Assia sued both companies and won, after proving in court that the Histadrut-owned company lacked the capability to produce Penbritin, whereas Teva was built for it. The presiding judge ruled that when Ikapharm could prove that it was capable of manufacturing the drug, it could return and present its case in court.

  Again with an eye on the long term, Eli was interested in reaching an agreement with Ikapharm under which one company would produce the raw materials, the other company would produce the final product, and they would split the profits. To this end, he set a meeting with Ikapharm’s CEO Daniel Zurr, but Zurr did not show up.

  Eli’s persistence paid off almost immediately; Assia’s production and marketing of Penbritin brought the company’s profits and production volume to a new high. Moreover, Goldenberg’s legal victory served as a warning to the companies that had supported the Arab boycott. On a practical level, the legal victory meant that Israeli companies would now be able to manufacture products that were of critical importance for the Israeli public, even if they had not been awarded a license to do so. It was a legal decision with implications on a variety of levels.

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  Penbritin’s introduction to the Israeli pharmaceutical market was another manifestation of Assia-Zori’s goal of domestic expansion. Although this market still purchased the lion’s share of its products, Eli understood, as he had in the past, that true growth could occur only through export and he therefore sought every means possible to increase international sales. After the Six Day War in 1967, Eli and his advisors had concluded that the profitability of exports to countries in Africa was insufficient and uncertain in the long term, sparking a decisive change in Eli’s choice of export destinations. Western European countries and the United States became the primary export destinations, while exports to African countries were reduced dramatically.

  For Eli, the chill in relations between Israel and the countries of Africa that followed the Six Day War in 1967 and, more dramatically, the Yom Kippur War in 1973, confirmed the need to cease operating in Africa as quickly as possible. Many African countries turned out to be more sympathetic to the Arab world that to Israel, severing diplomatic relations with Israel and terminating trade agreements with Assia. Some countries, such as Ethiopia, even nationalized Assia plants, production facilities, and merchandise within their borders. Eli ultimately concluded that if he wanted to substantially increase his business, he would have to begin making inroads in the markets of Europe and especially the United States.

  Assia’s exit from the countries in which it was operating in Africa was extremely problematic due to concerns about the possible nationalization of facilities, products, raw materials, and offices. In the end, only a small port
ion of the equipment was nationalized and a few offices and facilities were looted; most was salvaged in one way or another. Eli, Aharon Shochat, and Assia personnel worked tirelessly to save what they could and to leave each country immediately. In Nigeria, for example, Assia sold its interests to its partner Dizengoff West Africa, while in Ethiopia, Assia remained partners with the Hungarian company even after nationalization. They attempted to find suitable solutions for each individual country and in most cases they were successful.

  Eli appeared to view the massive change in Africa with mixed feelings. He had personally built the complex system of merchandise export, delivery, marketing, and sales to Africa. Since 1957, the pharmaceutical plant in Petah Tikva had earned millions of dollars from these export deals. Now, it had all come to an end. The fact that this conclusion had been initiated by the African countries lessened his sense of frustration somewhat. He was also consoled by the fact that the damages sustained were not great. Moreover, following the conclusion of legal proceedings in Paris, Ethiopia paid Assia $3.5 million for its nationalization of company facilities, which was much more than the damages sustained. Perhaps the most important factor was that Africa was replaced as an export destination by the markets of Europe and the United States, which Eli now did his utmost to enter.

  After his adventures in Africa, Eli’s aspiration to penetrate the markets of the West could be understood from a financial perspective. However, it could also be understood in light of the far-reaching diplomatic changes that took place following the Six Day War and the Yom Kippur War.The bilateral changes in US-Israeli relations during the 1960s and 1970s provided the backdrop for the shift in Eli’s priorities and his aspiration to dramatically expand Teva exports to the United States in particular and western countries in general. Thus, for example, in 1975, after searching for anchors in Europe, Eli and his colleagues established an Assia-controlled British company to consolidate all its marketing operations in Europe.