Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography
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Eli applied what he had learned in Nigeria in the other four countries, achieving similar results. After assessing a country’s sales potential and determining the ideal sales location within the country, Eli always tried to be the first one on the ground to decide upon the best way of working in each location. He made dozens of trips to Africa in the late 1950s and the decade that followed. From time to time, he would pop over to one of the African countries that had been designated for Assia exports or work to improve marketing and increase exports there. Later, he would seek out and find a local Israeli partner, appoint a local branch director on behalf of Assia and the partner company, and together set the strategy for the country in question, including the products to be exported, the form of distribution, and other such issues. In some countries, such as Nigeria, he did not limit himself to just one center and established multiple sales and distribution centers in other cities as well.
Once he was completely certain that Shochat, who was appointed to be the Assia official directly responsible for activities in Africa, had full command of the logistical systems involved in exporting and marketing within each African country, Eli made sure that the Assia management transferred as much authority as possible to the local employees. He regarded this as a critical aspect of the marketing strategy he had developed since they possessed better knowledge of the local customs, bureaucracy, and language than foreign Assia personnel did. Most importantly, they understood the medical needs of the local population.
Eli did not stop there. He paid attention to the smallest details in order to constantly improve export operations and increase exports. This required involvement in a variety of areas, including packaging. Until that point, medicines had been shipped in large packages, which greatly complicated Assia’s marketing capabilities. Eli was the first to use small cardboard boxes for the varying and sometimes unusually shaped pharmaceutical products, such as ampoules and injections of all different sizes. Eli made a constant effort to improve packaging methods, striving to minimize volume with the most compact and convenient shape possible.
“By the end of the 1950s, I came to the conclusion that it would be worth our while to ship merchandise in cardboard boxes,” Eli explained.
I learned that orange juice, for example, was shipped in special cartons…. I told my colleagues at Assia: “If orange juice can be put into cardboard boxes, why can’t I fill them with medicine?” That’s how we started. We were the first in the world to ship medicines in this manner…. A similar thing happened to us with the terrible, unsightly boxes used for marketing in Israel. [Israel’s health care services] were unwilling to pay us more and this was the cheapest packaging around. “That’s the price,” I was informed by the monopolistic Histadrut. “That’s what it costs me and that’s what I pay. I have no need for different packaging.”... For the exports to Africa, we decided to change the packaging. For example, we invented a goblet cone-shaped box that allowed us to insert one box inside another box, thereby saving us a great deal of space.
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Eli built a uniquely sophisticated system that played an important role in introducing Assia medicines to African markets. The orders that reached the production plant in Petah Tikva were filled quickly, despite their relatively large volume. Exports to Africa were transported by ships that usually set sail from Eilat. Eli made sure that standard delivery time would be no more than one month. During the 1960s, he further improved efficient delivery by teaming up with a local manufacturer to set up a small plant in Lagos to produce medicines that they had been shipping there from Israel. He also took steps to ensure that marketing by means of Assia’s Israeli partner company would be efficient and relatively simple, that the bureaucratic apparatus he had constructed to operate on his behalf in each African country was sufficiently sophisticated and consistent with its needs, and that the merchandise reached its end customers “no matter where they were located” (using Eli’s own words) and using almost no intermediaries or pharmacies, even though that was standard practice in other countries.
In one instance, Aharon Shochat travelled to the city of Benin in central western Nigeria to meet the country’s minister of health, who was the brother of a veterinarian from Lagos with whom the company had a relationship. This story, as recounted by Eli below, offers insight into Assia’s activities in Africa.
Aharon met with the minister, who referred him to the chief pharmacist. The pharmacist, in turn, gave him a long list of products they needed. “How long will it take you to supply it?” the pharmacist asked. “One week,” Aharon replied with complete confidence. Many of the products were in stock in the company’s facilities in Lagos so he was sure of his words. The pharmacist laughed and said: “I ordered the same products from Crown Agent [the largest pharmaceutical marketing company in Nigeria] one year ago and I still have not received them. So, I’ll try ordering them again. You can commit to supplying them within one week?” Again, Shochat’s positive answer was decisive. He called Assia’s office in Lagos from Benin and requested that the requested merchandise be loaded and shipped out immediately and then continued on his way to the eastern part of the continent. On his way back, he stopped to check whether the pharmacist had received the merchandise. “You are like God!” the pharmacist exclaimed, after being supplied with the merchandise on such short notice. This reliability enabled us to fill orders and beat out other suppliers.
In retrospect, Eli’s success in Africa is astounding in numerous ways and by all possible criteria. The business unit that evolved on the continent became Assia’s most profitable for some time. Prior to his work in Africa, Eli had been recognized as an important figure in Assia due to both his talents and abilities and his familial relationship to one of its three owners. His success in initiating exports to Africa and the creative and highly unusual manner in which he did so made him one of the most prominent figures in the company. Although he still held no official position, it was clear by the early 1960s, particularly after the death of Haim Salomon in 1960, that he had become the most important figure in Assia after its three partners.
With this newfound status, 27-year-old Eli Hurvitz was like a fish in water. His achievements in Turkey and many African countries were decisive proof of his talents; he no longer had to apologize for being related to one of Assia’s owners. His prominence now stemmed less from his family and more from his own merit. He felt like someone who had been brought up in the company and he had indeed acquired a great deal of experience there. The birth of his second child, Chaim, in 1961 was also symbolic of his increasing maturity. In his own eyes, he had developed from a young student and dishwasher hired by his father-in-law into a family man, a diligent worker with impressive intellectual capabilities, and, most importantly, the advocate of an independent and unconventional way of thinking, which had already started to lead Assia to new heights.
Chapter 7
The Perfect Merger
Eli’s achievements in Turkey and Africa made him realize how much more could be achieved by an Israeli company that was willing to seek out opportunities that the entrenched players had overlooked. He understood that even if he continued to find new markets in developing countries, growth would be limited by the manufacturing capacity of Assia’s plant in Petah Tikva and focused his energy on a finding a strategic solution. The traditional approach for an Israeli company would have been to grow organically, expanding supply incrementally. However, Eli’s university studies, his constantly growing understanding of the industry, and the lectures by experts he attended all led him to realize that Assia could achieve much more through mergers, acquisitions, and partnerships.
Pinchas Sapir, Israel’s energetic minister of trade and industry (between 1955 and 1965),27 strongly advocated increasing the number of factories in Israel and expanding industrial production by all means possible. To this end, in the summer of 1962, he invited a world-renowned American economist, Professor Don Jeffries, to Israel to
offer his advice on the expansion of industry. In one of the lectures that Jeffries delivered, to CEOs and senior management of Israel’s pharmaceutical companies, Eli heard what he already knew: size is a distinct advantage in industry. This meant that the existence of six relatively small competing pharmaceutical plants was not beneficial to Israel’s pharmaceutical sector and placed it at a disadvantage.
One might have thought that the large number of small plants in Israel would foster competition in the pharmaceutical sector and lower prices. This was not the case. Instead each one developed its own niche, focusing on bringing different products to the Israeli market, with the exception of a small number of medicines that were in high demand, such as antibiotics and pain relievers. Since pharmaceutical imports were subject to extremely high taxes the pharmaceutical sector in Israel operated like a monopoly to a large degree. Jeffries told the owners and managers of the small companies, some of which were struggling to survive, that to achieve optimal efficiency they needed to merge with one another to form a smaller number of larger enterprises. For Eli, who strongly believed that Assia needed to expand immediately, the speech was a major revelation. He met personally with Jeffries to learn more. The meeting left him even more determined to seek ways to expand through acquisition.
Eli’s first move toward acquisition was born, in part, of his love of Tel Katzir and pangs of remorse for leaving the kibbutz. As chance had it, around this time, Eli received an invitation to Kibbutz Maabarot to meet another frustrated kibbutznik, Haim Ashkenazi. Both men pined for their younger days in the fields. Unlike Eli, however, Ashkenazi had not officially left his kibbutz. Following his success in developing agriculture at Kibbutz Maabarot, Ashkenazi had been sent abroad by Israel to seek seeds from other countries that could be cultivated in Israel. He then served as the secretary-general of the Israeli vegetable growers association and founded and directed Israel’s vegetable and fruit council.
In 1962, Askenazi had planned to return to his kibbutz by establishing a plant that would produce veterinary drugs and other products. He invited Eli to Maabarot to discuss this. The heart-to-heart talks between the two men, who became fast friends, apparently touched on the sense of frustration they both felt due to their absence from their respective kibbutzim. This ultimately resulted in the establishment of Assia-Maabarot, a joint plant at Kibbutz Maabarot for the production of veterinary products, which Eli would market.
With this partnership, Assia sought to establish a new branch whose products were closely related to its own and for which it could supply a portion of the raw materials. This allowed Assia to benefit from economies of scale in the production of active pharmaceutical ingredients (APIs), which are at the heart of the pharmaceutical industry. APIs must be produced in sufficient volume to achieve cost efficiency and Israel’s six small pharmaceutical companies were constantly faced with a choice between making their own APIs in limited and inefficient quantities and importing APIs at high prices.
According to Eli’s calculations, there was significant profit to be made from the joint venture’s potential sales, especially when the miniscule investment required was taken into consideration. According to the plan, the kibbutz would lease the location to the joint venture and Assia would provide the expertise and raw materials as well as appoint a manager to run the enterprise alongside Ashkenazi. Both partners would transfer a modest sum to the enterprise to purchase the remaining raw materials and cover its expenses. Afterwards, the partners would market the products together and split the profits. Eli had little trouble persuading Assia’s owners to approve this idea.
It later became clear that the significance of the partnership between Eli and Ashkenazi – a former kibbutznik and a kibbutznik reestablishing himself on his home kibbutz – transcended each party’s mundane business interests. The actual products they marketed (which included dog food, poultry vaccines, calf feed, dietary supplements, and pesticides) were not nearly as significant as the cooperative effort between Assia and Kibbutz Maabarot, which was a new phenomenon in the kibbutz industrial sector. As time passed, it became a symbol of the possibilities for cooperation between Israel’s capitalist companies (in this case, Assia) and the standard-bearers of Israeli socialism (the kibbutz’s leadership) and demonstrated that these two economic and social extremes did not necessarily have to be alienated from one another as previously believed.
“The members of Maabarot were known for their uncompromising ideological positions and the socialist ideology of Hashomer Hatza’ir that pulsed through their veins,” Eli explained. “Despite this, the members who worked with us at Assia-Maabarot did not hide the fact that they were working with us. On the contrary, they proclaimed it loudly and with great pride. They referred to us as ‘partners.’ They said that only we were able to give them what they could never have [accomplished on their own] at home.”
This landmark partnership led some to regard Ashkenazi as the prophet of kibbutz industry and one of the first to understand the meaning of entrepreneurship and the need to be innovative in finding sources of income.
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Even before the joint plant began operating at Maabarot in 1964, Eli was certain that the venture was an important step forward in Assia’s expansion. Yet he understood that this project alone would not achieve the substantial growth he believed was possible. The kibbutz sector was too small to fulfill his ambitious new goals. Moreover, from 1962 onward, he acted with the clear understanding that his goal of dramatically expanding Assia’s exports was consistent not only with the Israeli government’s policies, but with the economic needs of the young state.
From Eli’s perspective, Assia’s goal was to increase exports however possible, through partnership and acquisition. The joint plant at Maabarot was a step in this direction, as were the plants that Assia established during this period in Congo, Nigeria (this plant actually started operating earlier and expanded), and Ethiopia. In Ethiopia, Assia partnered with a Hungarian company to acquire a local firm which had gone bankrupt. The Hungarian company, along with a British company and the Ethiopian government, had previously been losing one and a half million dollars per year on this firm. It ceased losing money less than a year after it was acquired.
Expanding production at Assia’s plants required major investment, which required new sources of growth capital. Like Assia’s three owners, Eli was concerned that economic hardships in Israel could cause the company considerable financial problems. They were most worried about the impact of government policy. Although government ministries tended to support exports, and even though exporters received higher foreign currency exchange rates from the Bank of Israel28 than others, these rates were not always updated in a timely manner and exporters did not always receive preferential treatment. From time to time, disparities emerged between government declarations regarding preferential treatment for exporters and actual government practice. In the winter of 1962, Israeli policy underwent dramatic changes that encouraged Eli to continue focusing on exports.
In 1961-62, Israel recorded a significant trade deficit, in which imported goods and services outweighed the country’s exports at a ratio of two to one. Furthermore, a number of issues were troubling Israel’s economic leadership. First of all, the post-Holocaust reparations that Germany paid to the State of Israel (referred to in Hebrew as Shilumim at the time),29 which were playing a major role in providing the hard currency needed to fund that trade deficit, would end in two years. Second, in 1960-1961, the income of the United Jewish Appeal (UJA) in the United States declined because of a recession in the United States. In addition, a large number of Israeli bonds (marketed as independence loans) that had been sold during the 1950s to supporters of Israel in the Diaspora were expected to be redeemed in the next few years. These factors, combined with the growing trade deficit, posed a grave risk that Israel could face a dire shortage of foreign currency.
Since August 1954, the exchange rate between the Isra
eli pound (lira) and the US dollar had been 1.8 dollars per Israeli pound, even though inflation had increased by 36 percent during the same period (1954 and the fall of 1961). This caused severe distortions in the Israeli economy. To support Israeli exports, exporters were awarded increased subsidies for every dollar of goods they exported. At the same time, however, exports were subject to custom duties that increased over the years. Toward the end of 1961, as the gap between imports and exports continued to widen monthly, finance minister Eshkol resolved to institute a new policy based on major devaluation of the Israeli pound and a series of complementary measures. On February 9, 1962, the Israeli government met for a special session at which Eshkol proposed introducing “a new economic plan” based on the devaluation of the Israeli pound from 1.8 to 3 Israeli pounds to the US dollar. The plan, he believed, would result in “an increase in our ability to compete in foreign markets and in the stability of the Israeli economy.”
All these developments worked to the benefit of Eli’s ideas for expanding Assia by increasing exports. He agreed with Israel’s economic leadership and sought to increase production and expand product lines however possible in order to increase exports.