ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the December 2008 issue


Teva maintains growth

Teva (Hebrew for "nature") was founded in 1935 by Elsa Kuver and Dr. Gunter Friedlander in Jerusalem. 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 was 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 scientists--more 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. Having consolidated its domestic position, Teva began to expand geographically in the early 1980s. Eli Hurvitz, a kibbutznik who joined the company in a junior management position after graduating in economics and business administration from Hebrew University in 1957, was destined to transform Teva into a global pharmaceutical powerhouse. He perceived an opportunity to penetrate the U.S. market when the federal Waxman-Hatch Act passed by 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.

Hurvitz used the generics segment as Teva's entree into the U.S. pharmaceutical market. In 1985 whien the company forged an agreement with chemical conglomerate W.R. Grace to create TAG Pharmaceuticals, a 50-50 joint venture. In 1985, TAG acquired Lemmon Co., a Pennsylvania-based company. Lemmon became the sales and distribution arm for generics manufactured by Teva in Israel. Although CEO Hurvitz later reflected that "an Israeli who's 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. venture's 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.

The company's first major new drug, known as Copaxone, was originated more than two decades earlier in the laboratories of Israel's 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 Copaxone's 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. Copaxone has been approved for the treatment of relapsing-remitting multiple sclerosis.

In a two-year -, randomized, double blind, placebo-controlled trial of 251 patients, Copaxone was shown to reduce relapses by an average of 29 percent when compared with placebo.

Multiple sclerosis is a chronic, often progressive disease of the central nervous system (brain, spinal cord and optic nerves), which affects 350,000 people in the United States (approximately 10,000 people are diagnosed each year).

For Eli Hurvitz the approval of Copaxone by the FDA was one of the great moments in his life and ranks in parallel with his being awarded the Israel Prize.

Under Hurvitz's leadership Teva has become a global pharmaceutical company specializing in the development, production and marketing of generic and proprietary branded pharmaceuticals as well as active pharmaceutical ingredients. It is is among the top 20 pharmaceutical companies and is the largest generic pharmaceutical company in the world.

Net Income for 2007 reached $1.952 billion, a 5% increase over 2006

Net sales for 2007 were $9.4 billion, with global Copaxane sales of $1.713 billion

Teva's share price and net profits rose substantially of percentage points during Eli Hurvits's active leadership. tenure.

He served as Teva's President and Chief Executive Officer for over 25 years and recently completed over forty years with Teva. Hurvitz has served as Chairman of the Board of Teva since April 2002. Hurvitz received the Israel Prize for Lifetime Achievement for a Unique Contribution to the Society and to the State of Israel. Hurvitz, 78, stepped down as CEO in 2002 but continues to serve as chairman.

"The dynamics of the generic industry are influenced by the growing number of people going on pension, people who are sicker and have less money for medicinals. As a result the outlook for generics has become more expansive. When our generics are launched, in a few days we have 90% of the market and in a few weeks the whole market," says Mr. Hurvitz. "As a result, he points out, Teva is able to post 20%, after tax, profit margins. In the western world generics are garnering 60% of the market. In Europe the the development is slower due to the splitting up of industry, an absence of drug chains.

"Teva, by far, is the world's largest generic producer. It has carved for itself market leadership and future strategy'" says Mr. Hutvitz. Teva has about 160 drugs in the FDA pipeline waiting approval. This sum is greater than that of the next two largest companies in the field. Teva is expected to double its sales in the next 4-5 years and to maintain its profit margins.



Reprinted from the Israel High-Tech & Investment Report December 2008

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