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Teva Pharmaceutical Industries Ltd.

Teva Pharmaceutical Industries Ltd.

5 Basel Street
P.O. Box 3190
Petah Tikva 49131
Israel
Telephone: +972 3-926-7267
Fax: +972 3-923-4050
Website: http://www.tevapharm.com

Public Company
Incorporated: 1944
Employees: 8,982
Sales: $2.07 billion (2001)
Stock Exchanges: Tel Aviv NASDAQ
Ticker Symbol: TEVA
NAIC: 325412 Pharmaceutical Preparation Manufacturing (pt); 325411 Medicinal and Botanical Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing; 311999 All Other Miscellaneous Food Manufacturing

With more than one-third of the nations drug sales, Teva Pharmaceutical Industries Ltd. is Israels largest pharmaceutical company. Notwithstanding its domestic dominance, the majorityabout 80 percentof Tevas sales are generated outside its home market, with more than 60 percent of its annual revenues coming from North America. Europe is another key growth market for the Israeli company, accounting for more than 18 percent of sales in 2001. A series of drug developments and strategic acquisitions has made Teva the worlds largest generic drug manufacturer. In addition to its generic and proprietary drug businesses, the company manufactures, wholesales, and markets hospital supplies, bulk pharmaceuticals, and veterinary drugs and vaccines.

Tevas many growth strategies multiplied sales from $295 million in 1990 to $2.1 billion in 2001. A publicly traded company since 1951, Teva saw its market value increase from $17 million in 1985 to $9.81 billion by January 2003, making it Israels most valuable public firm.

Company Origins

Teva (Hebrew for nature) was founded in 1935 by Elsa Kuver and Dr. Gunter Friedlander in Jerusalem. The companys early history was influenced strongly by global politics. During the 1930s, three forces converged to encourage Jewish immigration into the British-controlled area then known as Palestine. Underlying this population shift was the Zionist movement, which strove to create a modern Jewish nation in the ancient Hebrew homeland. During the years between the two world wars, the British mandated partition of the region into separate Israeli and Arabic states and sanctioned Jewish immigration to certain areas of Palestine in order to create a Jewish majority. At the same time, Nazi persecution of German Jews drove hundreds of thousands to emigrate from that country. Due in part to the intervention of World War II, the establishment of an Israeli state by the United Nations did not come until 1948, but in the meantime the Jewish population of Palestine increased to more than 600,000.

Prior to World War II, Germany was the center of the global pharmaceutical industry. Many immigrants from that country brought with them pharmaceutical expertise that provided a firm foundation upon which the Israeli drug industryincluding Tevawas built. Notwithstanding the ongoing violence of the Middle East, Teva enjoyed some advantages over its competitors around the world. For one, Israel attracted a high concentration of scientistsmore per capita than any nation in the world. Furthermore, the Israeli government granted Teva tax subsidies to encourage the development and production of new drugs. It was in this environment that Teva grew, going public in 1951 on the Tel Aviv Stock Exchange.

Industry Consolidation Beginning in the 1960s

Eli Hurvitz, the man who would engineer Tevas emergence on the global drug scene, first became involved with Teva in 1968, when he was appointed to Tevas board of directors. Trained as an economist, Hurvitz had started his career in 1953 at Assia Chemical Laboratories. His promotion into management at Assia in 1963 coincided with the beginning of a period of consolidation within Israels pharmaceutical industry. This trend peaked with the 1976 union of Teva, Assia, and Zri to create the nations largest drugmaker, Teva Pharmaceutical Industries. Hurvitz was appointed general manager (CEO) of the merged companies.

In a bid to boost its production capacity, Teva acquired its number two competitor, Ikapharm, in 1980. The deal struck with Ikapharm parent Koor IndustriesIsraels largest manufacturing concernincluded an exchange of 20 percent of Tevas equity for the state-of-the-art drug plant. This element of the agreement would prove troublesome in the years to come. Having accumulated a 42 percent stake in Teva, Koor launched a bid for control in 1984. Tevas Founders Group, composed of the stockholding heirs to Tevas originators, thwarted the takeover attempt. Although the two groups called a truce by the end of the year, Tevas ownership issues would not end there, for the company often used its equity to broker deals.

Overseas Expansion Beginning in the 1980s

Having consolidated its domestic position, Teva began to expand geographically in the early 1980s. The company perceived an opportunity to penetrate the U.S. market when the federal Waxman-Hatch Act passed Congress in 1984. This legislation concerned generic drugs, treatments that have lost their patent protection. Also known as multi-source or off-patent medicines, generics are chemically identical to branded prescription drugs, but are priced at 30 percent to 70 percent less than patented versions. Waxman-Hatch reduced the regulatory hurdles for generics, thereby cutting the time and money required to bring generic drugs to market. Thus, although generics were far less expensive to develop than new drugs, they also commanded far lower profit margins.

Teva used the generics segment as its entree into the U.S. pharmaceutical market. In 1985, the company forged an agreement with chemical conglomerate W.R. Grace to create TAG Pharmaceuticals, a 50-50 joint venture. A relative newcomer to the pharmaceutical industry, Grace contributed more than 90 percent of TAGs $23 million starting capital base, while Teva threw in $1.5 million and its decades of experience and expertise. In 1985, TAG acquired Lemmon Co., a Pennsylvania-based company with a tarnished history. Infamous for marketing Quaaludes in the 1970s, Lemmon had had four corporate owners in its scant 15 years in business. Under its newest parents, Lemmon became the sales and distribution arm for generics manufactured by Teva in Israel. Although CEO Hurvitz later reflected that an Israeli whos coming to the States has a David and Goliath syndrome, he reminded himself that little David prevailed in that Biblical battle. The potential Teva saw in Lemmon soon turned to profits; the U.S. ventures sales more than doubled from $17 million at the time of its acquisition to about $40 million in 1987, by which time it was marketing seven generic versions of branded drugs.

That year, Teva raised $18.4 million through the sale of American Depositary Receipts (ADRs) on the NASDAQ exchange. Around the same time Koor Industries, which by this point was flirting with bankruptcy, sold $14.8 million worth of its Teva holding on the open market, thereby reducing its stake in Teva to about 22 percent. Teva used the proceeds of its equity offering to acquire Abic Ltd., Israels second-ranking drug marketer, for $26.6 million in 1988. The deal included a provision whereby Canadian investor Charles Bronfman took an equity position in Teva. That same year, Teva acquired two Israeli companies from U.S.-based Baxter International Inc.: Travenol Laboratories (Israel) Ltd., a manufacturer of healthcare products and equipment, and Travenol Trading Company Ltd., an importer of Baxter products, for a total of $8.2 million.

Meanwhile, as part of a $1 billion debt restructuring, Koor transferred its stake in Teva to two creditors, Israeli banks Hapoalim and Leumi. The banks, in turn, sold about 17 percent of Teva to British publishing magnate Robert Maxwell for $30.2 million. The Maxwell connection was cut in 1993, when his estate divested the holding for $166 million, a significant appreciation. Teva severed its ties to W.R. Grace in 1991, when it purchased Graces 50 percent share of TAG Pharmaceuticals for $35 million. Grace, in turn, divested its stake in Teva to the public for $36.4 million.

Tevas sales more than doubled from less than $100 million in 1987 to $268.5 million in 1989, and net income increased from about $7 million to more than $16 million during the same period. Although this growth rate must have been a source of pride for CEO Hurvitz and his executive team, it would pale in comparison to the increases chalked up in the 1990s.

Acquisitions and New Drugs Vital to 1990s Growth

In the early 1990s, Teva invested aggressively in acquisitions, research and development, and increased production capacity. From 1992 through 1996, Teva spent a total of more than $420 million on a rash of acquisitions that extended its reach into France, Italy, Great Britain, and Hungary. Tevas U.S. sales surpassed its domestic revenues in 1993, and overseas employment exceeded native workers three years later. In 1996 alone, Teva acquired Approved Prescription Services/Berk, the United Kingdoms second largest generic drug marketer and Hungarys Biogal. That same year, Teva catapulted to the top of the U.S. generics segment via a $290 million stock swap with Americas Biocraft Laboratories, Inc. Since the merger was structured as a pooling of interests, Teva restated its financial information as if the two companies had always been one.

Company Perspectives:

Tevas far-reaching strategic vision is rooted in staying consistently attuned to the dynamic requirements of a diverse, international clientele that includes insurers, physicians, patients and pharmaceutical outlets. In the ongoing effort to make the world a healthier place, Teva values its worldwide staff as an irreplaceable resource that deserves to be nurtured in a carefully cultivated global organizational culture. Teva will focus its future efforts on an expanded international presence while maintaining sensitivity to the localized needs of regional markets, and continue to supply products of uncompromised quality in all areas of its multifaceted operation.

During this same time, Teva plowed hundreds of millions into research and development and capital improvements. The companys new drug developments concentrated on so-called orphan drugs in the therapeutic areas of neurological disorders and autoimmune diseases. The term is most often used to describe compounds that are discovered by major drug companies, but whose patents have been allowed to lapse because the disease or condition targeted by the drug has too few patients to justify the development expenditures required to bring it to market. Smaller companies like Teva who adopted an orphan drug could apply for a new seven-year, exclusive patent on the compound, thereby allowing it time to make a profitable return on its investment.

Generics continued to form the core of Tevas sales. From January 1996 through July 1997, in fact, Teva garnered more generic drug approvals from the U.S. Food and Drug Administration than any other company in the world. Proprietary drugs, however, emerged as a high-profit growth vehicle in the early 1990s. The companys first major new drug, known as Copaxone, was originated more than two decades earlier in the laboratories of Israels Weizmann Institute, where doctoral student Dvora Teitelbaum was studying the use of synthetic proteins to quell multiple sclerosis (MS) attacks in animals. Together with Professors Michael Sela and Ruth Arnon, Teitelbaum spent 15 years isolating and researching the polymer COP-1 (later branded Copaxone), passing preliminary clinical trials in 1986. The treatment reduced the relapse rate for people in the early stages of relapsing-remitting MS by anywhere from 25 percent to 30 percent in clinical trials. At that time, the Weizmann Institute teamed up with Teva to bring the drug to market. Since Copaxones patent had expired during the long development process, Teva requested and received orphan drug status from the U.S. Food and Drug Administration (FDA). About one-third of the 350,000 MS sufferers in the United States stood to benefit from the treatment.

Initially launched in Israel, Copaxone earned FDA approval in 1997. The rollout achieved several milestones, both for Teva and for MS sufferers. Copaxone was the first drug developed in Israel to achieve FDA approval for distribution in the United States. Unlike its interferon-based competitors, it was also the first drug developed specifically to treat MS.

Since Teva had little experience marketing branded drugs on the world stage, it enlisted the help of global pharmaceutical powerhouse Hoechst Marion Roussel. This David and Goliath team formed a joint venture, Teva Marion Partners (TMP), to coordinate distribution. Initial sales reports on the drug were promising. Within one month of its launch, TMP recorded 10,000 inquiries from doctors and patients about Copaxone. Within six weeks, the company had 4,000 patients on the daily injection program and reported adding more than 1,000 more each month. Analysts forecast that Copaxone alone would add at least $50 million to Tevas sales total in 1997 and increase from there.

The story of Tevas transformation from a tiny Israeli drug company into an international pharmaceutical innovator garnered a great deal of attention from investment houses around the world in the mid-1990s. Even before the Copaxone launch, Tevas sales had tripled from $295 million in 1990 to $954 million in 1996 as net income increased from $18.7 million to $73.2 million. But while Merrill Lynch, Standard & Poors, A.G. Edwards, and others had rated the stock a buy, it remained a somewhat volatile equity, surging from less than $50 per share in April 1997 to $67 in June, then backsliding to $57 in September.

This roller-coaster performance could be attributed to any number of black marks on Tevas record. In March 1996, CEO Hurvitz was indicted on charges that he had evaded $18 million in corporate taxes as head of Tevas Promedico subsidiary (since divested) from 1980 to 1986. Nonetheless, Tevas board signed him to a five-year contract in January 1997. That August, Teva was subjected to an FDA recall on a batch of antibiotics. The problem (which rendered the drugs less effective, but not harmful, Teva officials emphasized) was traced to a supplier. That same year found the company in a dispute over Copaxone royalties with its development partner, the Weizmann Institute. Finally, Teva U.S. subsidiary GATE pharmaceuticals was named among the nine defendants in a class-action suit over the diet drug fen-phen.

Still, most of the investment firms following Teva stood by the company. In July 1997, U.S. brokerage Gruntal & Co. asserted, Teva should be seen as a rising star in the dynamic world medical drug market. Israeli business newspaper Globes called the company This centurys Israeli success story.

Key Dates:

1935:
Elsa Kuver and Dr. Gunter Friedlander establish Teva.
1951:
Teva becomes a publicly held company.
1976:
Teva merges with two other drug companies, Assia and Zri, to create Teva Pharmaceutical Industries.
1980:
Teva acquires Ikapharm.
1985:
Teva joins with W.R. Grace to create TAG Pharmaceuticals to penetrate the U.S. generics market; TAG acquires Lemmon Co.
1988:
Teva acquires Abic Ltd., Travenol Laboratories Ltd., and Travenol Trading Company Ltd.
1991:
Teva buys out W.R. Graces share of TAG Pharmaceuticals, becoming the sole owner.
1996:
The company acquires Approved Prescription Services/Berk and Biogal; merges with Biocraft Laboratories.
1997:
Tevas Copaxone receives FDA approval for treatment of multiple sclerosis.
1998:
Teva acquires Pharmachemie Group.
1999:
Teva acquires Copley Pharmaceuticals.
2000:
Teva acquires Novopharm Ltd.
2002:
The company acquires the French generics division of Bayer Pharma AG and Honeywell Pharmaceuticals Fine Chemicals.

The development and introduction of new generics, expanding sales of Copaxone, and a variety of acquisitions and strategic alliances characterized Tevas business in the succeeding years. Whereas some manufacturers of generics, unable to differentiate their companies in the marketplace and consequently suffering declines in sales and profits, changed their focus to proprietary drug development, Teva forged ahead productively. Relying partly on the momentum generated by Copaxone, it moved to create increased dominance in the generic sector. In a February 1998 interview with Euromoney Institutional Investor, Eli Hurvitz was quoted as saying, We are doubling our [generic] business every four years.

In the three years following 1997, Teva purchased a number of pharmaceutical companies that furthered access to foreign markets and enhanced Tevas line of products. In 1998, the Dutch Pharmachemie Group was bought for $87 million; Phar-machemie controlled at that time 40 percent of the generic drug market in Holland. Copley Pharmaceuticals of Canton, Massachusetts, followed in 1999 for $220 million. The U.S. company had formerly been controlled by the drug firm Hoechst AG, which had decided to target the higher-priced branded products. Finally, in 2000, Teva acquired Novopharm Ltd., the second largest producer of generics in Canada, with operations in the United States and Hungary. Through these acquisitions, Teva appeared likely to obtain considerable advantage in resources and efficiency, particularly with regard to R&D and distribution.

During this period, newly formed strategic alliances also strengthened Tevas position. Such an alliance with Biovale Corp. in 1998 furnished Teva with access to an important drug delivery technology. The agreement provided for Teva to have U.S. marketing rights in connection with Biovales line of controlled-release pharmaceuticals, an advantage for manufacturers of generics in a highly competitive market. Appraising the success of particular companies in this field in an August 2001 interview with Chemical Market Reporter, UBS Warburg analyst Steven Valiquette said, We favor companies with proprietary controlled-release drug technology to develop both branded and generic drugs. These companies ultimately face less competition and thus more sustainable profit growth. A 1999 alliance with Bio-Technology General Corp., under similar terms, brought Teva resources in another areathat of recombinant therapeutic products.

There were also occasional setbacks. Most notably, in 1998, Teva was charged with violating the patent on U.S. pharmaceutical company Eli Lillys drug Prozac, and ordered to pay compensation to Lilly for the losses it sustained. Sales of Copaxone continued to be strong, however. The way was prepared for even greater Copaxone sales in 1999, when the drug received Swiss approvala forerunner to general EU approval.

The year 2000 was one of record sales for Teva. Although there was an economic slowdown in its key U.S. market, this did not injure Tevas sector. Rather, it may have proven advantageous; economic downturns tended to encourage cost-cutting measures, such as replacing expensive branded prescription drugs with generic equivalents. The period was also one in which an unprecedented number of branded pharmaceuticals were soon to relinquish their patents, an ideal situation for Teva.

A wave of new products and acquisitions followed. Teva won, in 2001, a lawsuit against giant GlaxoSmithKline (GSK) concerning the patent on GSKs arthritis drug Relafen, allowing Teva to begin marketing a generic equivalent. In 2002, GSK was again the loser when its patent on the antibiotic Augmentin was declared invalid. Teva was also able to bring a generic version of Roche Laboratories Rocaltrol, used in cases of hyperthyroidism, to market. The antidepressant Remeron, formerly under patent by Organon, also was slated to join the product line.

A new CEO was appointed at Teva in 2002; Israel Makov, who had been with Teva for eight years, was designated to succeed the veteran Hurvitz. Expansion continued, as Teva purchased the French generics division of Bayer Pharma AG and Honeywells subsidiary Honeywell Pharmaceutical Fine Chemicals, with production facilities in Italy. In a generics friendly economic climate, and with 59 drugs in the pipeline for FDA approval in the United States, Teva appeared to be well positioned to continue its dominance in the generic pharmaceuticals sector.

Principal Subsidiaries

Teva Pharmaceuticals USA, Inc.; Abic Ltd. (99.3%); Salomon, Levin and Elstein Ltd.; Asia Chemical Industries Ltd.; Plantex Ltd.; West-European; Biogal Pharmaceutical Works Ltd. (Hungary; 97%); Approved Prescription Services Ltd. (U.K.); Prosintex-Industrie Chimiche Italiane S.r.l. (Italy); Teva Medical Ltd.; Teva Medical Trading Ltd.; Gry-Pharma GmbH (Germany; 93.3%); Biological Laboratories Teva Ltd.; Paca Industries Ltd.; Teva Holdings Ltd.; Prographarm Laboratories (France; 34%); Portman Pharmaceuticals Inc. (U.S.A.; 30%).

Principal Competitors

Alpharma, Inc.; Barr Laboratories, Inc.; Schering A.G.

Further Reading

Beck, Galit Lipkis, Teva to Raise More Than $100M in US Bond Issue, Jerusalem Post, February 25, 1997, p. 8.

Blimey: Koor, Economist, April 3, 1993, pp. 66-67.

Burton, Jonathan, Eli Hurvitz, Chief Executive, July/August 1995, p. 24.

Byrne, Harlan S., Teva Pharmaceutical, Barrons, February 7, 1994, pp. 53-54.

Copaxone Maintains Teva Optimism, Israel Business Today, July 15, 1997, p. 16.

Dichek, Bernard, Teva Pharmaceuticals Industries, Israel Business Today, August 27, 1993, p. 35.

Friedlin, Jennifer, Playing with the Big Boys, Jerusalem Post, October 16, 1996, p. 6.

Goldgaber, Arthur, Teva Pharmaceutical: Slammer Dunk, Financial World, April 15, 1997, pp. 26-27.

Loyd, Linda, Top Maker of Generics in U.S. Is Not a Household Name, Knight Ridder/Tribune Business News, July 1, 2002.

Mann, David, and Cynthia Miller, Israeli Company Develops Breakthrough MS Treatment, Northern California Jewish Bulletin, October 14, 1994.

Medical Success Story: With Copolymer-1, Weizmann Scientists Offer M.S. Patients the Gift of Hope, Jewish Exponent, January 23, 1997.

Olster, Marjorie, In the Land of the Profit$: A Guide to Personal Investing in Israel, MOMENT, August 31, 1995.

Reichert, Kent, After Rocky History, Fletcher Pins Hopes on Lemmon Partners, Philadelphia Business Journal, October 12, 1987, pp. 1-3.

Sandler, Neal, Grace Ups Its Stake in Teva, Chemical Week, August 5, 1987, p. 12.

Sivy, Michael, Soaring to Lofty Profits on the Wings of Peace, Money, November 1993, pp. 54-56.

Sherrid, Pamela, The New Drug War, U.S. News and World Report, December 2, 2002, p. 41.

Timor, Emanuel, and Ronen Kotlowsky, Teva: This Centurys Israeli Success Story, Globes, http://www.globes.co.il/cgi-bin/Serve/Arena/level/English/1.4.4/19970123/l.

April Dougal Gasbarre

update: Shawna Brynildssen

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Teva Pharmaceutical Industries Ltd.

Teva Pharmaceutical Industries Ltd.

5 Basel St.
P.O. Box 3190
Petach Tikva 49131
Israel
+ 9723-926-7267
Fax: +9723-923-4050

Public Company
Incorporated:
1944
Employees: 2850
Sales: US$954 million (1995)
Stock Exchanges: Tel Aviv NASDAQ
SICs: 2834 Pharmaceutical Preparations; 2833 Medicináis
& Botanicals; 3842 Surgical Appliances & Supplies;
2099 Food Preparations, Not Elsewhere Classified;
2860 Industrial Organic Chemicals

With over one-third of the nations drug sales, Teva Pharmaceutical Industries Ltd. is Israels largest pharmaceutical company. Notwithstanding its domestic dominance, the majority over two-thirdsof Tevas sales are generated outside its home market, with more than half of its annual revenues coming from North America. A series of drug developments and strategic acquisitions made Teva Americas largest generic drug manufacturer by 1996. Europe was another key growth market for the Israeli company, accounting for over 17 percent of sales in 1996. Teva emphasized the development of patented drugs in the early 1990s as well, launching ethical Pharmaceuticals for the treatment of multiple sclerosis and Wilsons disease. In addition to its generic and proprietary drug businesses, the company also manufactures, wholesales, and markets hospital supplies, bulk pharmaceuticals, and veterinary drugs and vaccines.

Tevas many growth strategies multiplied sales from $295 million in 1990 to $954 million in 1996. A publicly traded company since 1951, Teva saw its market value mushroom from $17 million in 1985 to $3.3 billion by January 1997, making it Israels most valuable public firm.

Company Predates Israeli State

Teva (Hebrew for nature) was founded in 1935 by Elsa Kuver and Dr. Gunter Friedlander in Jerusalem. The companys early history was strongly influenced by global politics. During the 1930s, three forces converged to encourage Jewish immigration into the British-controlled area then known as Palestine. Underlying this population shift was the Zionist movement, which strove to create a modern Jewish nation in the ancient Hebrew homeland. During the years between the two world wars, the British mandated partition of the region into separate Israeli and Arabic states and sanctioned Jewish immigration to certain areas of Palestine in order to create a Jewish majority. At the same time, Nazi persecution of German Jews drove hundreds of thousands to emigrate from that country. Due in part to the intervention of World War II, the establishment of an Israeli state by the United Nations did not come until 1948, but in the meantime the Jewish population of Palestine increased to over 600,000.

Prior to World War II, Germany was the center of the global pharmaceutical industry. Many immigrants from that country brought with them pharmaceutical expertise that provided a firm foundation upon which the Israeli drug industry including Tevawas built. Notwithstanding the ongoing violence of the Middle East, Teva enjoyed some advantages over its competitors around the world. For one, there is Israels high concentration of scientiststhe nation boasts more scientists per capita than any nation in the world. Furthermore, the Israeli government granted Teva tax subsidies to encourage the development and production of new drugs. It was in this environment that Teva grew, going public in 1951 on the Tel Aviv Stock Exchange (TASE).

Industry Consolidation Begins in 1960s

Eli Hurvitz, the man who would engineer Tevas emergence on the global drug scene first became involved with Teva in 1968, when he was appointed to Tevas board of directors. Trained as an economist, Hurvitz had started his career in 1953 at Assia Chemical Laboratories. His promotion into management at Assia in 1963 coincided with the beginning of a period of consolidation within Israels pharmaceutical industry. This trend peaked with the 1976 union of Teva, Assia, and Zri to create the nations largest drugmaker, Teva Pharmaceutical Industries. Hurvitz was appointed general manager (CEO) of the merged companies.

In a bid to boost its production capacity, Teva acquired its number-two competitor, Ikapharm, in 1980. The deal struck with Ikapharm parent Koor IndustriesIsraels largest manufacturing concernincluded an exchange of 20 percent of Tevas equity for the state-of-the-art drug plant. This element of the agreement would prove troublesome in the years to come. Having accumulated a 42 percent stake in Teva, Koor launched a bid for control in 1984. Tevas Founders Group, comprised of the stockholding heirs to Tevas originators, thwarted the takeover attempt. Though the two groups called a truce by the end of the year, Tevas ownership issues would not end there, for the company often used its equity to broker deals.

Overseas Expansion Begins in 1980s

Having consolidated its domestic position, Teva began to expand geographically in the early 1980s. The company perceived an opportunity to penetrate the U.S. market when the federal Waxman-Hatch Act passed Congress in 1984. This legislation concerned generic drugs, treatments that have lost their patent protection. Also known as multi-source or off-patent medicines, generics are chemically identical to branded prescription drugs, but are priced at 30 percent to 70 percent less than patented versions. Waxman-Hatch reduced the regulatory hurdles for generics, thereby cutting the time and money required to bring generic drugs to market. Thus, while generics were far less expensive to develop than new drugs, they also commanded far lower profit margins.

Teva used the generics segment as its entree into the American pharmaceutical market. In 1985, the company forged an agreement with chemical conglomerate W.R. Grace to create TAG Pharmaceuticals, a 50/50 joint venture. A relative newcomer to the pharmaceutical industry, Grace contributed over 90 percent of TAGs $23 million starting capital base, while Teva threw in $1.5 million and its decades of experience and expertise. In 1985, TAG acquired Lemmon Co., a Pennsylvania-based company with a tarnished history. Infamous for marketing Quaaludes in the 1970s, Lemmon had had four corporate owners in its scant 15 years in business. Under its newest parents, Lemmon became the sales and distribution arm for generics manufactured by Teva in Israel. Though CEO Hurvitz later reflected that an Israeli whos coming to the States has a David and Goliath syndrome, he reminded himself that little David prevailed in that Biblical battle. The potential Teva saw in Lemmon soon turned to profits; the U.S. ventures sales more than doubled from $17 million at the time of its acquisition to about $40 million in 1987, by which time it was marketing seven generic versions of branded drugs.

That year, Teva raised $18.4 million through the sale of American Depositary Receipts on the NASDAQ exchange. Around the same time Koor Industries, which by this point was flirting with bankruptcy, sold $14.8 million worth of its Teva holding on the open market, thereby reducing its stake in Teva to about 22 percent. Teva used the proceeds of its equity offering to acquire Abie Ltd., Israels second-ranking drug marketer, for $26.6 million in 1988. The deal included a provision whereby Canadian investor Charles Bronfman took an equity position in Teva. That same year, Teva acquired two Israeli companies from U.S.-based Baxter International Inc.: Travenol Laboratories (Israel) Ltd., a manufacturer of health care products and equipment, and Travenol Trading Company Ltd., an importer of Baxter products, for a total of $8.2 million.

Meanwhile, as part of a $1 billion debt restructuring, Koor transferred its stake in Teva to two creditors, Israeli banks Hapoalim and Leumi. The banks, in turn, sold about 17 percent of Teva to British publishing magnate Robert Maxwell for $30.2 million. The Maxwell connection was cut in 1993, when his estate divested the holding for $166 million, a significant appreciation. Teva severed its ties to W.R. Grace in 1991, when it purchased Graces 50 percent share of TAG Pharmaceuticals for $35 million. Grace, in turn, divested its stake in Teva to the public for $36.4 million.

Tevas sales more than doubled from less than $100 million in 1987 to $268.5 million in 1989, and net increased from about $7 million to over $16 million during the same period. While this growth rate must have been a source of pride for CEO Hurvitz and his executive team, it would pale in comparison to the increases chalked up in the 1990s.

Acquisitions and New Drugs Play Vital Roles in 1990s Growth

In the early 1990s, Teva invested aggressively in acquisitions, research and development, and increased production capacity. From 1992 through 1996, Teva spent a total of over $420 million on a rash of acquisitions that extended its reach into France, Italy, Great Britain, and Hungary. Tevas U.S. sales surpassed its domestic revenues in 1993, and overseas employment exceeded native workers three years later. In 1996 alone, Teva acquired Approved Prescription Services/Berk, the U.K.s second-largest generic drug marketer and Hungarys Biogal. That same year, Teva catapulted to the top of the U.S. generics segment via a $290 million stock swap with Americas Biocraft Laboratories, Inc. Since the merger was structured as a pooling of interests, Teva restated its financial information as if the two companies had always been one. [Editors note: This corporate history quotes actual financial figures.]

Company Perspectives:

Teva is committed to uncompromising quality standards. The Company is constantly striving to improve the efficiency of the systems that nourish research, development, production and marketing the components needed to maintain Tevas position as a leading company in the generic global market. By investing a sizable portion of income in innovative research, supported by the firm base of Israeli science, Teva will continue to develop innovative products. Adherence to this formula will guide Teva into the next millennium stronger and bigger than ever before.

During this same time, Teva plowed hundreds of millions into research and development and capital improvements. The companys new drug developments concentrated on so-called orphan drugs in the therapeutic areas of neurological disorders and autoimmune diseases. The term is most often used to describe compounds that are discovered by major drug companies, but whose patents have been allowed to lapse because the disease or condition targeted by the drug has too few patients to justify the development expenditures required to bring it to market. Smaller companies like Teva who adopted an orphan drug could apply for a new seven-year, exclusive patent on the compound, thereby allowing it time to make a profitable return on its investment.

Generics continued to form the core of Tevas sales. From January 1996 through July 1997, in fact, Teva garnered more generic drug approvals from the U.S. Food and Drug Administration than any other company in the world. However, proprietary drugs emerged as a high-profit growth vehicle in the early 1990s. The companys first major new drug, known as Copaxone, was originated more than two decades earlier in the laboratories of Israels Weizmann Institute, where doctoral student Dvora Teitelbaum was studying the use of synthetic proteins to quell multiple sclerosis (MS) attacks in animals. Together with Professors Michael Sela and Ruth Arnon, Teitelbaum spent 15 years isolating and researching the polymer COP-1 (later branded Copaxone), passing preliminary clinical trials in 1986. The treatment reduced the relapse rate for people in the early stages of relapsing-remitting MS by anywhere from 25 percent to 30 percent in clinical trials. At that time, the Weizmann Institute teamed up with Teva to bring the drug to market. Since Copaxones patent had expired during the long development process, Teva requested and received orphan drug status from the U.S. Food and Drug Administration (FDA). About one-third of Americas 350,000 MS sufferers stood to benefit from the treatment.

Initially launched in Israel, Copaxone earned FDA approval in 1997 and was expected to be approved for sale in Canada and Europe by the end of that year. The rollout achieved several milestones, both for Teva and for MS sufferers. Copaxone was the first drug developed in Israel to achieve FDA approval for distribution in America. Unlike its interferon-based competitors, it was also the first drug developed specifically to treat MS.

Since Teva had little experience marketing branded drugs on the world stage, it enlisted the help of global pharmaceutical powerhouse Hoechst Marion Roussel. This David and Goliath team formed a joint venture, Teva Marion Partners (TMP), to coordinate distribution. Initial sales reports on the drug were promising. Within one month of its launch, TMP recorded 10,000 inquiries from doctors and patients about Copaxone. Within six weeks, the company had 4,000 patients on the daily injection program and reported adding over 1,000 more each month. Analysts forecast that Copaxone alone would add at least $50 million to Tevas sales total in 1997 and increase from there.

The story of Tevas transformation from a tiny Israeli drug company into an international pharmaceutical innovator garnered a great deal of attention from investment houses around the world in the mid-1990s. Even before the Copaxone launch, Tevas sales had tripled from $295 million in 1990 to $954 million in 1996 as net income increased from $18.7 million to $73.2 million. But while leading brokerage houses like Merrill Lynch, Standard & Poors, and AG Edwards had rated the stock a buy, it remained a highly volatile equity, surging from less than $50 per share in April 1997 to $67 in June, then backsliding to $57 in September.

This roller-coaster performance could be attributed to any number of black marks on Tevas record. In March 1996, CEO Hurvitz was indicted on charges that he had evaded $18 million in corporate taxes as head of Tevas Promedico subsidiary (since divested) from 1980 to 1986. Nonetheless, Tevas board signed him to a five-year contract in January 1997. That August, Teva was subjected to an FDA recall on a batch of antibiotics. The problem (which rendered the drugs less effective, but not harmful, Teva officials emphasized) was traced to a supplier. That same year found the company in a dispute over Copaxone royalties with its development partner, the Weizmann Institute. And Teva U.S. subsidiary GATE Pharmaceuticals was named among the nine defendants in a class action suit over the diet drug fen-phen.

Still, most of the investment firms following Teva stood by the company. In July 1997, U.S. brokerage Gruntal & Co. asserted that Teva should be seen as a rising star in the dynamic world medical drug market. Israeli business newspaper Globes has called the company This centurys Israeli success story. With several new drugs in the pipeline and ongoing development of generic drugs, Teva appeared poised to carry through its saga of success into the 21st century.

Principal Subsidiaries

Teva Pharmaceuticals USA, Inc.; Abie Ltd. (99.3%); Salomon, Levin and Elstein Ltd.; Asia Chemical Industries Ltd; Plantex Ltd.; West-European; Biogal Pharmaceutical Works Ltd. (Hungary; 97%); Approved Prescription Services Ltd. (U.K.); Prosintex-Industrie Chimiche Italiane S.r.l. (Italy); Teva Medical Ltd.; Teva medical Trading Ltd.; Gry-Pharma GmbH (Germany; 93.3%); Biological Laboratories Teva Ltd.; Paca Industries Ltd.; Teva Holdings Ltd.; Prographarm Laboratories (France; 34%); Portman Pharmaceuticals Inc. (U.S.A.; 30%).

Further Reading

Beck, Galit Lipkis, Teva to Raise More Than $100M in US Bond Issue, Jerusalem Post, February 25, 1997, p. 8.

Blimey: Koor, Economist, April 3, 1993, pp. 66-67.

Burton, Jonathan, Eli Hurvitz, Chief Executive, July/August 1995, p. 24.

Byrne, Harían S., Teva Pharmaceutical, Barrons, February 7, 1994, pp. 53-54.

Copaxone Maintains Teva Optimism, Israel Business Today, July 15, 1997, p. 16.

Dichek, Bernard, Teva Pharmaceuticals Industries, Israel Business Today, August 27, 1993, p. 35.

Friedlin, Jennifer, Playing with the Big Boys, Jerusalem Post, October 16, 1996, p. 6.

Goldgaber, Arthur, Teva Pharmaceutical: Slammer Dunk, Financial World, April 15, 1997, pp. 26-27.

Mann, David, and Cynthia Miller, Israeli Company Develops Breakthrough MS Treatment, Northern California Jewish Bulletin, October 14, 1994.

Medical Success Story: With Copolymer-1, Weizmann Scientists Offer M.S. Patients the Gift of Hope, Jewish Exponent, January 23, 1997.

Olster, Marjorie, In the Land of the Profit$: A Guide to Personal Investing in Israel, MOMENT, August 31, 1995.

Reichert, Kent, After Rocky History, Fletcher Pins Hopes on Lemmon Partners, Philadelphia Business Journal, October 12, 1987, pp. 1-3.

Sandler, Neal, Grace Ups Its Stake in Teva, Chemical Week, August 5, 1987, p. 12.

Sivy, Michael, Soaring to Lofty Profits on the Wings of Peace, Money, November 1993, pp. 54-56.

Teva Pharmaceutical Industries Ltd., http://www.macom.co.il/Government/MIT/economy/Done-voll/teva.html.

Timor, Emanuel, and Roñen Kotlowsky, Teva: This Centurys Israeli Success Story, Globes, http//www.globes.co.il/cgi-bin/Serve_Arena/level/English/1.4.4/19970123/1.

April Dougal Gasbarre

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