“He asked me if I was in favor of it [the agreement that had been put together]. He said that if my answer was ‘yes,’’ he would be willing to consider it, but that if it was ‘no,’ he would respond negatively. ‘If you don’t want it,’ he told me, ‘there won’t be a deal.’” Eli said no and the businessman in question tendered a negative response.
Eli was deeply hurt by the affair, which he referred to as a “putsch.” He felt as if he had been stabbed in the back.
“It was betrayal,” he said in no uncertain terms.
Eli was not upset by the negotiations themselves, which could have been legitimate. What troubled him was that their outcome had the potential to completely change the face of Teva. Since the money involved was American, the deal would have caused Teva to lose its Israeli character, something Eli had long sought to preserve at all costs.
Makov did not limit his expression of thoughts on this matter to his close associates, but rather began to speak about it publically. On one occasion, an economic correspondent from the media asked him why, “if the generic drug business is so promising…. has no giant institution or drug company tried to acquire Teva thus far?”
“At this moment, there is no such concrete situation,” Makov answered, “[however] if a giant company were to offer a price that could not be refused, I assume that Teva would be sold.”
Thus, with a wave of his hand and without batting an eyelash, Makov revoked a principle which Eli his colleagues in the corporate management regarded as sacred and for which they had fought over the years: maintaining Teva as an Israeli company.
“I sustained many blows from Israel [Makov], but I was never surprised,” Eli explained years later.
However, he felt differently about the putsch. In this case, he felt as if he had been betrayed. Much more serious, from his perspective, was the fact that “Teva had been betrayed.”
“Israel did something that was forbidden,” Eli asserted. “He had no authority to do what he did.”
Makov sought to establish a new order at Teva and he sought to do so using companies that would completely distance Teva from the company spirit that Eli had created with the help of an extraordinary team of talented people over the past 40 years. Eli could no longer restrain himself. As far as he was concerned, Makov could not continue on as CEO for another term. He was no longer worthy of the position.
•••
Eli was not the only one who felt this way. Throughout Makov’s five-year term as CEO (2002-2007), many members of the board of directors and some members of the corporate management found it difficult to accept not only Makov’s manner of operating and his management style, but also his decisions. For example, they felt that, time after time, he failed to effectively manage expectations of Teva. In addition, Makov carried out a series of personnel changes which he said were “part of [Teva’s] provisions for continued accelerated growth.” However, to those familiar with Teva’s inner-workings, it appeared that Makov was trying to create a new layer of management that was not loyal to Eli. One change came at the expense of George Bart, a close friend of Eli who until that point was the most senior Teva executive in the United States. Bart had been serving as president of IVAX LLC since January 26, 2006, and as president and CEO of Teva North America, a holding company of Teva Pharmaceuticals USA, since January 2005.
Members of the corporate management and the board of directors also voiced other, more business-oriented criticism of Makov, such as one board member’s assertion that Makov “is an excellent manager when it comes to regular company operations, but is unable to delineate long-term strategy and to immediately begin implementing it.” They also were uncomfortable with the fact that he did not keep them informed about and involved in company activities and complained that he was “skipping over” them. Many were accustomed to Eli’s open updates, to the cooperative attitude with which they felt that Eli approached them, to their joint consultations and collective pondering of various issues, and, in many instances, the at-times serious disagreements they had with him. According to one of his friends, Makov did things differently, in a way that was less open, “as if he thought he was not obligated to report to the board of directors.” According to another Teva official, “Makov’s reports were nothing more than self-glorification.”
When some members of the board of directors learned of Makov’s remarks regarding the possibility of selling the company to an American entity which would result in Eli’s removal from the chairmanship, they completely identified with Eli’s fury. In a vote conducted at the Ikapharm facility in Kfar Saba, Teva’s board of directors unanimously resolved to end Makov’s tenure as CEO at the end of his current term. Makov’s contract with Teva was renewed in December 2004 and was valid until 2009, but one of its clauses stipulated that in February 2007 he would cease functioning as CEO and begin serving as “senior advisor to the company’s board of directors.” Makov requested to extend his term as CEO, but received a negative response from the board. What appeared to be a disagreement over the timetable for a planned retirement process could also be understood as Makov’s ousting as CEO.
Despite his discomfort with Makov and his behavior, Eli managed to overcome his anger and insult and recognized that Makov was a talented man who did his job well. He therefore decided not to seek his immediate dismissal but to wait one more year until the end of his term in February 2007. In the time that remained, he decided simply to “stand guard.” In addition to thwarting the deals that Makov had crafted and explicitly informing him that he would not allow him to execute them, Eli increased his presence in his office and the halls of Teva and, in his own words, became “much more alert.” At the end of the day, he also found a replacement for Makov.
•••
Makov’s decline in Eli’s eyes appears to have seeped into the Israeli public consciousness. In late March 2005, Eli was selected as “Business Leader of the Decade” by senior figures in the Israeli economy. At the awards ceremony, which was part of the events marking the twenty-fifth anniversary of Dun and Bradstreet’s (D&B) Dun’s 100, he was awarded the title, “based on criteria such as leadership and personal charisma, strategic outlook, long-term vision, and business results.” The ceremony also announced the 10 most influential business leaders of 2004, who included Galia Maor, CEO of Bank Leumi; Nochi Dankner, chairman of IDB; Erez Vigodman, president and CEO of Strauss-Elite; Sami Sagol, the chairman of Keter Plastic; and others. This time, Makov’s name did not make the list.
Chapter 23
Teva’s Plans for the Future
As he entered his seventies, Eli’s daily routine did not change significantly. One reason for this was his family, which continued to serve as the anchor for which he did everything and from which everything flowed. Eli loved his family and it gave meaning to his life. His children grew and changed, but, not unexpectedly, remained closely attached to the family, which Dalia and Eli were firmly at the center of. This is how they had been raised. This had been the way of the Salomons and Hurvitzes in the past and it was the way of the Hurvitzes in the present. Each of the Hurvitz’s three children rebelled in his or her own way to some degree, but ultimately all returned to the warm, accepting, and loving embrace of the family. The Hurvitz family code, in which loyalty occupied a central place, was also adopted to varying degrees by Eli and Dalia’s nine grandchildren: Vered and Sariel’s children Lior (1979), Tal (1986), and Lihi (1992) (Vered and Sariel were divorced in 1996); Chaim and Michal’s children Tomer (1987), Keren (1992), and Noah (2003); and Dafna and Tomer’s children Ronnie (1995), Alon (1999), and Yotam (2002).
Eli also extended his sense of family to some of his friends, whom he saw frequently and who, as far as he and Dalia were concerned, were part of the family. Some of these friends, such as Zvika Levanon (and his wife Tamima), Moshe (and Dina) Tzvikel, Carmella and Kobi Even Ezra, and Naomi (and Menachem) Yam Shachor had been part of his life since childhood, the k
ibbutz, or the army. Others, such as Hasia and Muzi Wertheim, Sarah and Michael Sela, and many others, were people he had met at different points over the years. They were people with whom Eli and Dalia liked to spend time, travel, celebrate joyful events, and share their moments of sadness.
For his seventieth birthday, Eli’s family surprised him with a grand celebration attended by 100 of the people who were closest to him, from family members and intimate friends to members of Teva’s management, including Bill Fletcher, who flew in from the United States for the occasion. The celebration took place in the Negev, with accommodations at the modest Mitzpe Ramon hotel and jeep trips through uncharted landscapes. Chava Nachshon called on ERETZ Magazine Publisher Yadin Roman to plan and lead the trip, which like the many other special trips he had planned for Eli over the years was dedicated to the things that Eli loved most: nature, landscape, the desert of southern Israel, archaeology of the Land of Israel, family, friends, and love of the country.
•••
Teva continued to serve as Eli’s second home as the second decade of the new millennium began. He carried on leading the group, which continued to expand and grow stronger at the pace he had set (doubling its sales every four years) based on the same three strategic methods: increasing its supply of generic drugs and constantly expanding distribution; increasing the sale of Copaxone and, after 2005, Azilect, a drug that Teva developed to treat patients with early-stage Parkinson’s Disease or, in combination with other medications, patients in more advanced stages of the illness; and acquiring and taking over other pharmaceutical companies.
In March 2002, approximately one month before Eli began his tenure as chairman of Teva’s board of directors, the Israel-based Ilanot Batucha investment firm issued a comprehensive report on Teva, offering the following overall assessment:
Teva was and remains prominent as a remarkable company in the pharmaceutical industry in recent years. As a result of internal growth and a long list of successful acquisitions and mergers over a period of many years, Teva has become the largest generic drug company in the world, with a turnover of more than two billion dollars in 2001. The company has a huge stock of drugs for which it has submitted requests for FDA approval for sale in the United States. Its successful acquisitions and mergers policy, in conjunction with ongoing efficiency measures and full utilization of the synergy between the merged businesses, has resulted in ongoing enhancement of the company’s profitability.
Other analysts offered similar evaluations of Teva and it seemed that Eli could sit back with pride and take a long-deserved rest.
Once again, however, rest was not in the cards for Eli. He began working toward new strategic goals which were much more long-term in nature. To this end, between 2004 and 2008, Teva acquired three giant generic companies and seven small-to-medium-size companies for $22 billion. The three giants were Sicor, acquired for $3.4 billion; Ivax, acquired for $8.3 billion; and Barr Pharmaceuticals, acquired for $9 billion. The seven smaller companies purchased during the same period for sums that came to more than $1 billion made Teva not only the world’s largest generic company, but also one of the world’s largest pharmaceutical companies. In 2009, the group had 40,000 employees, maintained representatives in 60 countries, operated 56 production sites for the manufacturing of drugs and 21 for the production of raw materials for the drug industry, had 17 R&D centers, and distributed its products in more than 120 markets. Total sales stood at $14 billion and total net profits had reached $3 billion. The first decade of the new millennium showed that the sky was the limit for Teva.
These astonishing figures must be credited to the employees of Teva over the generations. As their leader, Eli provided the group with consistent, diligent guidance and left his imprint on every step that Teva took. His leadership and management were systematic.
“Only a leader can manage,” he explained in 2007, at the annual Herzliya Conferences51, in which he so enjoyed taking part. “Leaders see the long-term, they see the horizon – not just what is obvious, but also what barriers stand before them, the cost versus the achievement.”
On another occasion, he remarked, “If you want leadership, ask yourselves as many questions as possible, as early as possible, and as daringly as possible. When you are certain, move ahead with full force. When things are more risky, do so in stages. The one condition for doing this is that you know where you ultimately want to be in the future.”
•••
Eli had begun thinking about taking over Sicor in the late 1990s, mainly because it was extremely well suited to the strategy he had demarcated for Teva’s immediate future. Sicor was growing and could help the group achieve the goals that Eli and his colleagues had set.
“The road to rapid growth is not simply an aspiration or desire,” he explained in one of his speeches. “In my view, it is vital to our very existence.”
Sicor fit the schema. Not only was it in solid financial shape, but its market was primarily American, a critical factor in light of Teva’s primary strategic target: the US market. Sicor’s sales in the European market, another important Teva target, also were helpful. Furthermore, the company produced a variety of chemical products that could contribute to achieving the group’s marketing goals and its operations complemented those of Teva. Up to that point, Teva had manufactured and sold generic medicines administered in pill or capsule form. The unique products that Sicor was known for included medications administered by injection. Eli wanted to enter this sector of the pharmaceutical market, which would contribute to Teva’s ability to increase sales in the US hospital market. In late 2003, an opportunity presented itself.
Sicor was an American company that had been formed by the merger of Rakepoll Holdings, a European pharmaceutical company operating in Europe and Mexico, and the production division of the American drug manufacturer Gensia. Sicor specialized in two areas in which Teva had yet to make inroads. Taking it over had the potential to benefit Teva in a number of ways, in addition to the fact that, like Teva, Sicor produced raw materials for the generic drug industry and was expected to expand Teva’s presence in this market as well. The first benefit, as already noted, was the production and development of injection-administered generic drugs, primarily for treating cancer. The second benefit was the development and production of biotechnology medications, meaning medicines that consist of complex proteins that are generally manufactured through bacterial synthesis or other complex processes, rather than the simple chemical compounds that make up traditional small molecule drugs.
Until that point, most biotech products had been produced primarily by drug companies that also develop traditional drugs. Biotechnological medicines generated enormous profits, totaling $22.3 billion in 2003. The drugs they produced were brand-name and patent protected, which meant they were not subject to competition. For some time, the FDA had been considering permitting generic drug manufacturers to submit applications to produce the first generation of generic biotechnological drugs, such as growth hormones and insulin. According to FDA commissioner Mark McClellan, the FDA was interested in finding safe ways to reduce drug prices in the US market and regarded finding a safe way of producing generic biotechnological medicines or biological continuations products (pharmaceutical products based on biological medicines that already exist on the market) as an important step in doing so. Eli was aware of this niche in pharmaceutical production and wholeheartedly concurred with McClellan’s assessment. He intended to use Sicor, which had already developed several generic versions of biotechnological products, to enter this sector of the market.
Furthermore, Sicor was a profitable, financially stable company. Its corporate management in Irvine, California, in conjunction with its 1,900 employees, had impressive achievements, finishing the third quarter of 2003 (after which it was purchased by Teva) with a profit of $29 million and a quarterly sales turnover of $143 million. It had finished 2002 with an income of $450 million and a profit of
$140 million. A survey conducted by Business Week ranked Sicor one of the 15 quickest growing companies in the American industrial sector.
On the day it signed the sales agreement with Teva in November 2003, Sicor was being traded on the American stock exchange at a total value of $3 billion. Although the company appeared to be well suited for Teva’s strategy, Eli hesitated and requested a second opinion. He was not yet convinced that it would be worthwhile to purchase the company for $400 million more than its market value, which he thought was inflated. Makov, however, advocated purchasing the company at this price, regarding it as the only way of enticing shareholders and acquiring a profitable company that could provide Teva with important pharmaceutical advantages. The fact that the group was capable of paying for the company with its own capital – $2 billion in cash and $1.4 billion in Teva stock – was also an important consideration for Makov. In the end, these factors tipped the scales in favor of acquisition.
Analysts speculated whether a massive company such as Sicor “could contribute to Teva’s overall balance sheet during the first few years after its acquisition.” Makov’s immediate response was, “the acquisition of Sicor would have a positive impact on Teva’s results during the first year.” In retrospect, however, Eli’s concerns were well founded. During its years in operation, Teva had either acquired or taken over dozens of companies, the vast majority of which proved themselves by enhancing the group’s profitability. Sicor was an exception. It was one of the few companies that not only failed to live up to Teva’s expectations, but became a source of disappointment.
Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography Page 38
