Teva CEO quits amid shares slide
• Generics maker Teva says it needs a thorough review
Teva Pharmaceutical — Israel’s largest company — has announced that CEO Erez Vigodman has stepped down and would be replaced on an interim basis by chairman Yitzhak Peterburg. Plummeting shares after a series of missteps prompted calls for change.
The CEO of Teva Pharmaceutical Industries has stepped down, leaving new management to overhaul the world’s biggest maker of generic drugs and restore confidence after a series of missteps have sent its shares plummeting.
Teva, Israel’s largest company, said on Monday that CEO Erez Vigodman was departing immediately and would be replaced on an interim basis by chairman Yitzhak Peterburg.
Questionable and costly acquisitions, along with delayed drug launches, have prompted calls for a management overhaul and structural changes — such as a spin-off of its branded drugs businesses — to restore investor confidence.
Investors say Teva, which faces pricing pressure in its core generics business and recently lost patent protection on its key branded drug Copaxone for multiple sclerosis, must choose a new CEO with extensive pharmaceutical experience.
The new boss needed to set a clear strategy, said Eldad Tamir, the head of investment house Tamir Fishman, whose funds have slashed holdings in Teva by 90% in the past two years.
“Is it the biggest generics company or is there an understanding that generics is hitting a glass ceiling and it should do other stuff,” such as investing more in branded drugs, he asked. Compounding the challenge for Teva, US President Donald Trump has pledged to crack down on drug prices.
DELIVER SYNERGIES
Tal Levi, an analyst for Israeli investment house Halman-Aldubi, said Teva needed to manage cash flow better and deliver the hoped-for synergies from the 2016 acquisition of the Actavis generics business.
Teva’s New York-listed shares, which hit $72 in July 2015, tumbled to a 10-year low of $32.20 last week after a US court found Copaxone patents to be invalid. The drug accounted for almost a fifth of Teva’s revenue in 2016.
Teva shares traded down 1.7% in Tel Aviv on Tuesday following Vigodman’s departure, which comes after the head of Teva’s generics business, Siggi Olafsson, left. The New Yorklisted stock was down 2.5% in premarket trading.
Vigodman joined Teva in 2014 after his success at rejuvenating an ailing Israeli agrochemicals firm earned him a reputation as a turnaround specialist and deal maker.
But a series of stumbles have dismayed investors.
Vigodman went on a costly buying spree that culminated in the Actavis acquisition for $40.5bn, which many investors believe was too high.
Tamir said Teva was now saddled with nearly $36bn in debt, similar to its market value, making it very difficult to raise new equity.
A $2.3bn deal for Mexican drug maker Rimsa has led to both sides suing each other. And in December, Teva agreed to pay more than $519m to settle US criminal and civil allegations that it bribed overseas officials to gain business.
In January, Teva provided a 2017 revenue and profit forecast below Wall Street’s estimates.
Interim leader Peterburg, who will work alongside Teva’s new chairman, former Celgene CEO Sol Barer, said he would conduct a “thorough review” of Teva’s business while the company searched for a permanent CEO.
RBC Capital Markets analyst Randall Stanicky said it was unclear what this entailed and whether asset sales could be on the agenda.
“We find it interesting that Teva would pursue a review before naming a permanent CEO, which may be suggestive of further close involvement of the board and broader management team,” Stanicky said.
Some investors said they would like to see Teva spin off its speciality drug business.
This might please US activist investors as it could give a shortterm boost to the stock, said Levi. Halman-Aldubi has been slowly raising its Teva stake in the past month.
“But Israeli institutions are long-term investors. I’m not sure making a short-term profit is a good idea for the Israeli market and Teva,” he said.
Bernstein analyst Ronny Gal, in a video to clients, called Peterburg “a good caretaker CEO but clearly not a candidate to run the company long term”.
Prior to rejoining Teva’s board of directors in 2012, Peterburg led the company’s research and development efforts as head of global branded products, from 2010 until October 2011.