ファイザーの企業ジェット機は取締役会長の出張旅行と一部の個人旅行に使用される。メルクも企業ジェット機を所有している。しかし、米国最大の処方薬供給企業Tevaの会長William S. Marthは国内出張は商用線を使い、海外出張もビジネスクラスを選択している。
That Pill You Took? It May Well Be Theirs
By NATASHA SINGER
Published: May 7, 2010
North Wales, Pa.
PFIZER’S corporate jet is at the disposal of its chief executive, Jeffrey B. Kindler, for business travel and a limited number of personal trips. Top Merck executives also have use of that drug maker’s corporate aircraft.
But when William S. Marth, the chief executive of the largest prescription drug supplier in the United States, travels cross-country, he flies commercial. On trans-Atlantic trips, Mr. Marth, who runs Teva North America, shuns first class, opting for business class instead.
“The day they get their own plane,” says Ronny Gal, an analyst at Sanford C. Bernstein who tracks Teva and is a devotee of the stock, “is the day I downgrade them.”
Mr. Marth oversees one of the most important divisions of Teva Pharmaceutical Industries, an Israeli enterprise that, despite not being a household name, is the biggest generic drug maker in the world. Teva has secured its rise through aggressive acquisitions, strategic discipline, quality control, low prices and an infectious devotion to corporate frugality.
“We’re kibbutzniks,” says Mr. Marth, 55, an Irish Catholic who grew up in Chicago and not on a citrus grove in the Negev. “Frugality doesn’t mean doing less. It means doing as much or more with less.”
Teva, in fact, does quite a bit. Last year, the company’s medicines filled nearly 630 million prescriptions in the United States, making it a larger domestic supplier than such pharmaceutical heavyweights as Pfizer, Novartis and Merck ― combined. And as low-cost generics continue to make inroads with consumers, Teva occupies a pivotal position in a health care industry undergoing seismic changes that will give millions of more patients access to medicine.
Dozens of popular drugs are also about to lose their patent protections, opening the door to a generic boom. Already the generic industry’s leader, Teva is likely to capture even greater market share, analysts say, because it has cultivated a reputation for producing high-quality, low-cost drugs.
“When you are producing 60 billion tablets a year in 38 different locations in the world,” says Shlomo Yanai, a former major general in the Israeli army who is Teva’s chief executive, “you have to be very aware that quality is the No. 1 priority.”
Like a typical generic maker, Teva doesn’t advertise or brand its no-name products. It does, however, supply medications for one out of every six prescriptions dispensed in the United States.
Teva’s size gives it huge advantages. The company now makes so many different products that wholesalers and drugstores turn to it for one-stop shopping. It has enough cash to buy up a strategically located rival generic maker about every other year. And Teva has the bravado, and muscle, to mount patent challenges against name-brand drug makers and wring favorable settlements from them.
All of this has added up to a new track record for the generics industry. From 1999 to 2009, Teva’s revenue grew to about $14 billion from $1.3 billion while its profits soared to $2 billion from about $135.5 million. The share price has nearly quintupled, from about $11.50 in May 2000 to $57.37 on Friday (below a high this year of $64.54). Mr. Yanai told investors in January that he wants Teva to chalk up revenue of $31 billion by 2015.
“There is a culture of excellence at Teva that frankly I don’t see a lot in pharma, period ― branded companies, generics, it doesn’t matter,” says Richard B. Silver, an analyst at Barclays Capital who has been covering Teva since 1993. “They just do it better. That’s all.”
NAME-BRAND pharmaceutical companies typically invest $800 million or more on the research, development and marketing of a blockbuster drug for a chronic disease. They generally charge high mark-ups on their medications to recoup those costs, and they embroider their success with towering headquarters and lush executive suites.
Here at Teva’s North American headquarters, the boss occupies a ground-floor, low-frills corner office with a view of a parking lot.
“This is the executive wing,” Mr. Marth deadpans during an office tour. He notes sheepishly that his humble digs are still about twice the size of the office that Mr. Yanai occupies in Israel.
Not that Teva skimps where it matters; it spent $20 million on a state-of-the-art, 175,000 square-foot distribution center next door.
Inside the hulking facility, forklifts troll along industrial shelving stacked seven levels high with medicines. The shelves are tightly arranged so Teva can maximize the amount of product it stores there, making the lanes between them too narrow for drivers to navigate by human reckoning alone. So radio-frequency wires embedded in the floor guide the trucks along.
Software systems manage inventory and customer orders, identifying the most efficient sequences for drivers to follow as they drop off one case of tablets and pick up another. A tagging system uses bar codes to track every case of medicine, package and pallet in the cavernous warehouse.
“It’s exactly the way a grocery store does it for your ketchup and the milk,” Bruce Murray, Teva’s vice president of supply chain operations, says as he gives a visitor a tour.
Nearby, more than a mile of overhead conveyor belts ― “the New Jersey Turnpike of interchanges,” Mr. Murray says ― converge at a camera system that identifies lots of medicine and routs them to pallets designated for specific drugstore chains or wholesalers.
Ten years ago, Teva’s distribution center was less than half this size and operated manually. Employees, Mr. Murray says, picked up individual customer lists and filled their orders by pushing shopping carts around the warehouse, yanking down boxes of medicine by hand. Pharmacies would often call the company, complaining that they got the wrong drugs or that parts of their orders had gone missing.
Today, the streamlined operation ships more than seven million units of medicine a week, and Teva says its delivery times are now far more predictable ― giving it yet another advantage.
Mr. Murray has worked at Teva for 26 years, and he takes understandable pride in the automated system. He helped design it. While Teva offers employees benefits like annual profit distribution worth 2 percent of a person’s salary and free prescriptions filled with the company’s drugs, Mr. Murray says a more communal commitment to expanding Teva’s business and working as a team are why people stick around here so long.
Mr. Murray says he likes hanging out in a glassed-in mezzanine overlooking the warehouse floor.
“It really gives you a sense of a command-and-control operation,” he says, “in a way that the old manual operation could never be.”
TEVA, the largest company in Israel, dates its origins to a wholesale drug business that sold medicines from street carts in Jerusalem more than a century ago.
Eli Hurvitz, Teva’s chief executive from 1976 to 2002, retired this year as its chairman. He often remarked during his tenure that Israel had more Ph.D.’s per square inch than any other country, offering a ripe environment for growing a medical business.
Israel’s pharmaceutical industry was a fragmented hodgepodge of family-owned concerns when Mr. Hurvitz began consolidating it in the 1960s. By the 1980s, according to a case study by the Harvard Business School, Teva, with $50 million in revenue, had nowhere left to expand. Mr. Hurvitz challenged his executives to create a billion-dollar company by expanding into a large Western market.
His timing couldn’t have been better.
In 1984, Congress passed the Hatch-Waxman Act, which created an expedited federal approval process for generic drugs and provided incentives for generic makers to challenge patents on brand-name drugs. (A generic is a federally approved medication that contains the same amount of the same active ingredient as a branded drug).
Generic companies can charge lower prices ― and still turn a profit ― because, unlike pharmaceutical companies, they don’t have to develop a medication from scratch. Instead, they use the active ingredients major pharmaceutical concerns have already created ― at no small expense ― but that have lost their patent protections.
Generics now account for 75 percent of the prescriptions filled in the United States, up from about 47 percent a decade ago, according to IMS Health, an industry research firm. Teva is one of the main engines ― and beneficiaries ― of that escalation. It entered the market in 1985 through a joint venture with W. R. Grace, the chemical conglomerate, and later bought out Grace.
After at least $20 billion in acquisitions over the last decade and heady organic growth, Teva now has a market capitalization of about $53 billion. It has also been busily developing a handful of name-brand drugs ― an unusual move for a generic company and one that Mr. Marth says is part of Teva’s effort to become a generic-brand hybrid.
So far, in collaboration with biomedical researchers in Israel, it has developed one blockbuster drug brand, Copaxone, a treatment for multiple sclerosis. Companies that start out in small countries with finite resources, Mr. Yanai says, learn to use ingenuity to solve problems, to be outward-looking, lean, scrappy and cost-conscious. They don’t stand on ceremony.
“ ‘Need is the father of invention.’ In many languages, you find this phrase,” Mr. Yanai says. “Need is a very important driver.”
As Teva’s gargantuan generic business grows even bigger, however, it faces a challenge common to many expanding companies: maintaining quality control. Last month, the Food and Drug Administration publicly cited Teva for “serious manufacturing violations” at a plant in Irvine, Calif., where the company makes intravenous drugs.
Regulators raised concerns about bacterial contamination of generic propofol, an intravenous anesthetic used in surgery, made at the plant. Teva recalled thousands of vials of propofol last year, but federal health regulators said the company hadn’t adequately ensured that the problem wouldn’t repeat itself.
Teva says it’s working closely with the agency to resolve the concerns, and the company shut the plant during the last week of April so it could assess the production process.
Still, the regulatory action concerns some of Teva’s observers.
“Can they keep their finger on the pulse of every single smaller company they acquire, every generic maker and ingredient supplier?” says Joe Graedon, a consumer advocate, pharmacologist and co-founder of a drug information Web site called the People’s Pharmacy. “I don’t have an answer on that, but we have clearly seen some missteps over the last few months.”
Teva points out that the F.D.A. action is a rare public rebuke for the company and that its commitment to quality remains such that, unlike some of its competitors, it isn’t moving operations to India or China in pursuit of cheaper manufacturing. (Teva’s manufacturing centers are primarily in Israel, the United States and Europe.)
WHEN Mr. Marth took the helm of Teva’s North American operations in 2008, one of the first things he did was to abolish reserved parking spots for management. He also opened up a side entrance, previously reserved for vice presidents, to all employees.
The cherry-wood furniture in Mr. Marth’s office is second-hand; it was left over after Teva acquired a company and the price ― free ― was right. “So we kept it,” Mr. Marth said. (Framed artwork from the same acquisition adorns walls elsewhere at Teva’s headquarters here.)
Teva does have its own company plane, but top executives don’t travel on it for business or for leisure. It is used to shuttle quality assurance and control managers to and from Teva plants in places like Kansas City, Mo., and Forest, Va.. Teva acquired the plane, a used, twin-engine Hawker 800A, after it took over another company in 2008. Like the used furniture in Mr. Marth’s office, the aircraft didn’t have much resale value, so Teva kept it.
On a weekday in March, Mr. Marth invited a reporter for lunch in what passed for Teva’s executive dining room ― a conference room, borrowed for the occasion. The menu was take-out pizza. Earlier that day, he met with a group of visiting investors.
“They own 40 million shares. We dress up for them,” Mr. Marth said, taking off his jacket so he could dig into his pizza. “The suit? It’s Burberry. My wife bought it in 2004.”
To make sure that every one of Teva’s 40,000 employees shares a sense of purpose, the company has instituted a new internal marketing campaign: “Everyone is 31,” a reference to the $31 billion revenue target Teva has set for itself.
“Your people should understand where you are going to take them,” Mr. Yanai says, “and they should be inspired to get there.”
While the revenue target may be brash, investors and analysts say they’re hesitant to question it.
“They are sticking their necks out,” says Mr. Silver at Barclays. “But I hate to bet against them because everything they have promised in the past on their publicly stated goals, they have more than delivered.”
Teva grew so quickly in part by aggressively challenging patents on name-brand drugs. One of its more calculating maneuvers involves flooding the market with a carefully calibrated amount of a new generic drug while patent litigation is still continuing ― a move intended to put pressure on a brand company to settle out of court.
“They actually launch it,” says Mr. Silver of Barclays, “and the brand side cries uncle and says. ‘O.K., we’ll settle.’ ”
Although other generic makers use the same technique, Mr. Silver says it’s still a calculated risk, even for Teva. The tactic has prompted some companies to settle with Teva. But Pfizer, for example, isn’t settling one case and said that if it wins it will seek damages.
Teva has been equally fierce in defending its own branded turf. In April, a judge upheld a patent on Seasonique, a Teva birth control brand, preventing a rival firm from making a generic alternative.
Since 1999, Teva has acquired about a dozen drug ingredient and generic makers around the globe. Now some generic and name-brand companies come to buy their drug components from Teva, giving the company insight into the competition. Buying up generic makers in growth markets also keeps Teva’s competitors at bay.
“They have been very successful at keeping out competition from India and China,” says Tarun Khanna, a professor at the Harvard Business School and lead author of its Teva case study. “I’m not quite sure how they pulled that off. They are just buying things up much faster.”
AS recently as a decade ago, the pharmaceutical industry disparaged generics as “copycat” drugs that profit off the innovations and research of brand-name makers. But lately, some of the biggest name-brand makers have been buying stakes in or doing distribution deals with generic makers, particularly in Brazil, India and other emerging markets.
But name-brand makers accustomed to wide margins may not be able to keep up with Teva, says Mr. Khanna.
“If you are used to the fat margins of big pharma, it’s hard to compete in the rough and tumble of price-cutting generics,” he says.
Generic drugs saved the American health care system $734 billion between 1999 and 2008, according to a study by IMS, the research firm. That may be no consolation to name-brand drug makers whose profits Teva has helped erode, or to rival generic makers that lack Teva’s resources.
But for patients, its ascent means that medicine has ultimately become much more affordable.
“We are aggressive and not everybody likes us,” Mr. Marth says. “But we are doing something every day that lowers health care costs and helps consumers.”
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