News & Events
A tale of Teva – a waning star
The sudden downfall of the giant pharmaceutical company Teva based in Israel but has branches in many countries sent shivers down the spine of international investors.
Things have been going very wrong lately for Teva Pharmaceutical Industries Ltd., the drug maker that has been a source of national pride being classified as Israel’s biggest company. It has struggled in recent months to fend off competition on a key medical product and as its shares have plunged, billions of dollars have been wiped out from Israelis’ savings portfolios.
News of an anti-trust lawsuit brought by over 40 US states alleging a price-fixing effort among drug manufacturers and putting Teva at the heart of the conspiracy have so far dealt an added blow to the firm.
It is struggling with massive debt, price cuts in its key activities, and declining sales of its flagship drug. According to a recent suit against Teva, it is being accused that during a period from 2013 to 2015, it is said to have significantly raised prices on around 112 generic drugs and colluded on at least 86 other drugs. Some of the increases were more than 1000%.
The suit stated that Teva acted through its senior-most executives and account managers, and participated in a wide-ranging series of restraints with more than a dozen generic drug manufacturers, all of whom did knowingly and willingly participate.
At its peak, Teva was the darling of the Israeli government. Without doubt it was a flagship company that was supported in many ways by various fiscal incentives showered over the past three decades with astronomical tax benefits.
It reported that owing to the smart creation of innovative clusters in Tel Aviv, this government policy resulted in hundreds of technology startups being created and obviously some are snapped up by global US firms.
Due to this smart policy, with a bias towards helping start-ups by direct support for innovation especially in biotech and digital sectors, one meets many success stories. In Israel these are fully funded by venture-capital and other business angels.
One notes that this policy of directly helping private companies will meet stiff resistance in EU as it is prohibited under State aid rules. Not so in Israel, where there is a booming “startup-nation” economy. It is ranked as the most dynamic innovation ecosystem outside America.
As a result, such firms grew in stature and expanded in international markets specializing in manufacture of top-quality medical equipment. During its meteoric growth Teva supported tens of thousands of families and contributed to the prosperity of Israel’s economy, listed as one of the world’s largest and best run pharmaceutical company.
In its heyday, Teva kept its plants in Israel, worth over $55 billion even when it could reduce production costs and transfer some of them to India. Over time, it expanded in other countries and acquired plants in Malta.
So, what went so wrong at Teva which contributed to its financial downfall?
This results from a number of strategic management errors. In Malta, Teva announced the acquisition of Actavis Generics in a bid to improve its international commercial opportunities and significantly enhance the global market.
In 2014, Actavis employed around 850 people having dismissed some 100 workers the year before when it closed down some of its manufacturing units and its R&D department. Without its R&D in Malta, the generics producer was out on a limb as any future development of new medical products depends exclusively on innovation created at its overseas headquarters. At its peak, Actavis run two manufacturing facilities in Bulebel and Hal-far.
Teva completed its ambitious purchase, of Actavis Generics, for a cool $40.5bn and piled up additional debt of $35bn. A few months following the acquisition of Actavis saw the Malta plant lay off 200 workers including qualified lab technicians. It may be opportune to reflect that the strength of Teva lies in the support it constantly received from Israeli government to build up its research and development potential as part of its unique quality to penetrate the international markets. Readers may ask what caused this recent slide in value.
The answer is mostly due to bad management yet the fact remains that Teva was a national champion that made Israeli very proud of its protégé both locally and in the international arena. Perhaps, in Malta we can learn a lesson and try to cultivate a flair for home-grown research hubs which may be the start of an incubator for local and international research staff to focus on cutting-edge technology.
Government promised in its last budget over €75 million to build a new campus in Smart City but no progress has been registered so far. It goes without saying that to attract international business we must be ready to help them build a top-end R&D hub.
Naturally, this is easier said than done since talent is a particularly shy bird. It is not an easy journey and many countries want to emulate the commercial success which rewarded Boston, Silicon Valley, Singapore and Israel over the past fifty years.
Even China is investing massively in Pearl River Delta town of Shenzhen to emulate the success of Silicon Valley. Can our country, albeit small and lacking indigenous materials rise to the occasion to surf gloriously over the tide to seize this opportunity?
Alas the elixir of having an international innovation and business accelerator centre of caliber may prove to be a true catalyst to attract and retain such investment. Three years ago, a PKF delegation visited Massachusetts Institute of Technology (MIT) and CIC an accelerator in Boston, USA to explore links to promote Malta as a potential business accelerator and/or Life Sciences hub. CIC also has a non-profit sister, the Venture Cafe Foundation (this provides a Forum for venture capitalists to scout and help fund new talent).
Having toured its offices and laboratories, staff from PKF were impressed by the number of dedicated entrepreneurs who work hard to seek the proverbial Alchemist Stone while competing within an active ecosystem.
Granted, this is not an easy journey since many countries want to emulate the commercial success of Silicon Valley. Perhaps the Teva saga will teach us a lesson to be proactive and not wait for disruptive technology to overtake our manufacturing sector. To survive competition, and prepare ourselves for the 4th industrial revolution, we should aim to be beyond the curve.
As always, fortune favours the bold.