Israeli drug exploration partnership can save Teva

Prof Eyal Winter  photo: private

Teva, Israel's universities and the state should join forces to find and develop new drugs, says Prof. Eyal Winter.

The trauma of being laid off is one of the worst traumas that can happen to a person in his or her life. Together with the loss of a spouse or a serious disease, it is very high on the list of traumas. Minimizing the layoffs should therefore be a leading goal in the considerations guiding Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) recovery plan.

This goal, however, must not be limited to December 2017. It should also include the coming months and perhaps also the coming years. In order to achieve it, there is apparently no way of avoiding "preemptive" layoffs at the current time. The only thing that will save the company is developing a new business vision - closing down unprofitable business and reinforcing activity that is profitable or expected to become profitable in the foreseeable future.

There is no doubt that Teva has been managed negligently in recent years, but the reason for its sorry plight is not merely unsuccessful management. It is important to keep in mind that a drug company is very similar to an oil exploration company. A drug company searches for a drug that is effective in treating a given disease, while an oil exploration company searches for oil at a given site. Any search, however intelligently it is conducted, is liable to culminate in failure. This failure, however, must not make the company that invented Copaxone into a company whose primary business is producing an everyday pain reliever. There is no alternative to taking the risks incurred in the development of new drugs, and from the standpoint of human capital, there is no more suitable place for this than Israel.

The chances of finding an effective drug for a specific disease are small, but a simultaneous search for drugs for treating different diseases has a much better chance of scoring at least one success. Even a single success can generate a return that covers the costs of all the other attempts that failed.

The government of Israel can help the company exactly in this direction - not with loans or grants contingent on refraining from unavoidable layoffs, but through a tripartite partnership between Teva, the universities, and the state in massive financing for the development of new drugs, the profit from which will be divided between the three partners. This cooperation can be based on a investment fund for the three entities, to which venture capital funds in Israel and abroad investing in specific projects can be added later. The research infrastructure possessed by Teva and the universities, financial capital provided by the government and private funds, combined with the human capital in Israel, will make the difference - even if it does not save those designated for the current wave of layoffs.

The grant that the government considered giving to the company should be invested in the recovery of the 1,700 people being laid off through a suitable training program and a bridging loan for those who need it. Teva is a sick company. Every worker at Teva knows that a drug that treats symptoms of a disease is not as effective as one that uproots the disease and heals it. Preventing layoffs is a treatment of the symptoms that reduces the chances of a real cure.

The author is professor of economics at the Federmann Center for the Study of Rationality at Hebrew University.

Published by Globes [online], Israel Business News - - on December 19, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Prof Eyal Winter  photo: private
Prof Eyal Winter photo: private
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