"I Pray for the Welfare of Your Company..." - Pharmaceutical Executive

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"I Pray for the Welfare of Your Company..."
And why not? Big Pharma's drugs fill Teva's pipeline. CEO Isræl Makov says he's not the enemy. To prove it, he offers lessons in survival.


Pharmaceutical Executive


Jacob Winter, Teva's vice president of global generic resources, says most efficiencies stem from large batches, long runs, and automation. In one of its manufacturing facilities, for example, Teva used automated warehouse technology to eliminate many labor-intensive activities, such as picking the product from shelves, and packing and shipping it. "Automation," Winter adds, "is more reliable. It's where you avoid human mistakes and gain efficiencies."

The generic industry strives to keep things simple, says David Bergstrom, senior vice president and general manager of pharmaceutical development for Cardinal Health. "I think this results in efficient manufacturing, less analytical testing, and the use of new or numerous excipients."

Another one of Teva's key competitive advantages is its robust API business—with sales totaling more than $1 billion in 2005. Teva manufactures many of its own raw materials, which makes it less dependent on outside sources, keeps production costs low, and provides absolute transparency in terms of timing and availability of materials. Such vertical integration drives Teva's gross profitability higher, quarter for quarter.

Teva is its own API unit's biggest customer. During 2005, Teva-to-Teva sales were approximately 51 percent of total API sales. It sells the other 49 percent to competitors. Makov calls this "co-opetition"—the ability to cooperate and partner with your competitors.

To bolster its API business, Teva acquired an Indian subsidiary called Regent Drugs in 2003 to reduce manufacturing costs. That division buys and sells raw materials in India.

LESSON #5

Beating Brands at Their Own Game

Teva thinks like a generic company, even when it produces innovative drugs. A look at the balance sheet explains why: In 2005 alone, Copaxone, Teva's multiple-sclerosis drug, became the company's first blockbuster, with revenues of almost $1.2 billion—about 25 percent of the company's total sales. And from January to June 2006, sales of Copaxone rose 21 percent from a similar period last year to $483 million.

"Historically, branded and generic businesses have been distinct in the industry," says Teva's US chief George Barrett. "But Teva applies the managerial approaches and culture to our branded businesses that really comes from our generic approach to the world."

For example, after Teva licensed Copaxone from the Weizmann Institute of Science in Israel, it spent just $100 million dollars to bring it to market. Azilect (rasagiline), the company's second innovative drug, which treats Parkinson's disease, was launched in the United States in July 2006. Teva bought research originating from the Technion Israel Institute of Technology and once again kept development expenses under $100 million.

How can Teva succeed in the innovative industry with such small budgets? Makov points out that the budget isn't the problem. "Even with huge budgets, the problem is that the productivity of innovative companies' R&D is going down," says Makov. "How do they try to overcome it? By pouring in more money.

"I've managed many scientists in my life, and each of them is a prima donna. And one day you expect that this prima donna will develop an innovation which will change the world." But in reality, Makov says, most of them just produce higher R&D budgets.

Teva also runs a tight ship when it comes to marketing. For Copaxone, it targeted a select group of physicians who treat multiple sclerosis and has been "particularly effective in building relationships with key opinion leaders," says Wood Mackenzie's Milton. Teva co-markets Copaxone with Lundbeck in the United Kingdom and Sanofi-Aventis in the United States.

Teva signed a co-marketing and co-development agreement with Eisai for Azilect, the Parkinson's disease treatment, in the United States. That partnership made sense because Azilect may also be effective as an adjunct to Eisai's Aricept (donepezil) in treating Alzheimer's disease. A study of that indication is still ongoing. But Eisai pulled out of the co-marketing deal, leaving Teva with sole US rights.


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