Teva Pharmaceutical

TEVA Pharmaceutical is a global pharmaceutical company that develops, produces and markets generic drugs. Its subsidiary, formally known as Sicor, is based in Irvine California and is responsible for the production of injectable suspensions and injectable complex drug delivery systems. TEVA USA’s Irvine office markets products from diverse therapeutic areas including analgesic, anti-infective, cardiovascular, oncology, CNS, dermatological and anti-inflammatory.

TEVA’s global structure is vertically-integrated with three main business segments, finishing dosage generic pharmaceuticals, active pharmaceutical ingredients and proprietary branded pharmaceuticals. TEVA’s corporate structure is one of its core competencies.

TEVA has a presence in over sixty countries around the world and employees approximately 26,000 people. TEVA’s revenue ranks among the top 20 among all pharmaceutical companies and is the largest generic drug manufacturer in the world. TEVA markets its products to chains, wholesalers, distributors, hospitals and government agencies. 80% of TEVA’s sales (8.4 Billion in 2006) are generated from Europe and North America. TEVA has been consistently recognized as having one of the best ANDA approval records in the industry.

The corporate headquarters are presently located in Israel, where TEVA was founded in 1901 as Salomon, Levin and Elstein LTD. These men distributed imported medicines on the backs of camels and donkeys. Several pharmaceutical companies were established in the Middle East during the 1930’s as immigrants arrived from Europe. TEVA raised money through the Tel-Aviv Stock Exchange in 1951 and in 1964 merged with Assia and Zori. In 1980, TEVA was focused on becoming the largest pharmaceutical company when it merged with Ikapharm, Israel’s then second largest drug manufacturer. TEVA’s presence in the US began when it acquired the Lemmon Parmacal Company in 1945.

In 1967 new patent laws in Israel allowed Israeli companies to copy foreign patent-protected drugs, as long as they were not marketed in Israel. Then CEO Eli Hurvitz seized the opportunity to copy dozens of foreign drugs, acquiring the expertise on how to produce them efficiently. By law, generic drugs need to be the same as branded drugs, making them a commodity. The only thing that differentiates the different drugs is price competition. Profits are produced by being the first to market. TEVA is often able to be the first to file for drug approval, gaining 180 days of exclusivity. TEVA’s culture is one of informality and is strongly decentralized. TEVA’s focus is on the relationships amongst its people and not its functional roles. There is an expectation of always doing things better than before that helps TEVA be a competitive force in the global market.

TEVA’s mission statement is, “To be a leader in the transformation of the U.S healthcare system through its preeminence in the development, manufacture, and marketing of generic pharmaceuticals.”

Concepts Applied:

Why Smart Executives Fail gave numerous examples of how companies can fail to see reality clearly. For our paper and presentation, we focused on three main areas. The first concept applied is the idea of brilliantly fulfilling the wrong vision, specifically, focusing on yesterday’s answer and a one track mind set. The second concept from the book that we applied was the information breakdowns in regards to mismanaged information and control systems. The third concept we applied was the handling of mergers and acquisitions. The Irvine branch of TEVA, formerly known as Sicor, underwent some major growing pains when they were acquired by TEVA in 2004. For example, the customer service was outsourced to the USA headquarters in Pennsylvania with little attention paid to problems in Irvine, leading to frustration when clients had problems because the experts were all in Irvine, but customer service was across the country.

Brilliantly Fulfilling the Wrong Vision:

In chapter 6, Finkelstein describes how executive’s mindsets push businesses to the brink of failure. TEVA has policy guidelines in place, not policies. The engineers at TEVA, in the interviews we had, were portrayed as exhibiting the one track mind set outlined in the book. TEVA's chemical engineers seemed to have tunnel vision, focusing on the project at hand and ignoring any management involved in the process. The senior chemist for R&D that we interviewed gave a good example. He gave the analogy of a football team where the team was pushed hard to produce but not given the right tools. Without management (a coach) the projects demonstrate chaos. Engineers go from extinguishing one fire to tackling the next one that pops up. The main problem was the lack of management at TEVA. This is attributed to the mindset of the chemical engineers being above businessmen, or not needing the experience of expert managers because they are engineers and feel they can solve all problems themselves.

TEVA operates on the assumption that yesterday’s answers will apply to future markets. TEVA’s focus is on being lean, flexible and able to adjust quickly to the market. They have to be to be first to receive approval on their drugs. However, with price being the basis for competition and the lack of beaucracy and management, the waste that TEVA’s culture creates puts them at serious risk amongst their competitors. The way TEVA deals with a problem is to throw money at it. In fact, there is so much money in the industry there really is no incentive to cut costs. An example was given about inventory control. Standards that are used in the production process are ten times more expensive than gold, yet engineers do not keep track of when they were purchased or where they were being stored. “In R&D for example,” explains the senior chemist, “we have the x-factor…it takes an engineer ten times as long to do anything.” TEVA’s 2002 annual report describes how “recent changes in the regulatory environment may prevent us from exploiting the exclusivity periods that are critical to our success.” A perfect storm in the environment such as a regulatory change would severely cripple TEVA’s core competencies.

Basic management needs to be in place to control waste. The second example that illustrates this lack of management was on laboratory gowns. One department uses expensive sterile gowns, yet the same gowns are used in a department where they are not needed. A cost savings of about $50,000