Teva CEO exits in ongoing crisis of confidence at drugmaker

By Tova Cohen and Steven Scheer

TEL AVIV (Reuters) - Teva Pharmaceutical Industries was left without a permanent chief executive on Tuesday after Erez Vigodman stepped down, leaving new management to restore confidence in the world's biggest generic drugmaker after a series of missteps.

A string of costly acquisitions, along with delayed drug launches, have sent Teva shares plummeting and led to calls for management and structural changes, including a possible split into separate generic and branded medicine units.

Teva, Israel's largest company, said late on Monday that Vigodman was departing immediately and would be replaced on an interim basis by Chairman Yitzhak Peterburg.

 

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 needs to set a clear strategy, said Eldad Tamir, head of investment house Tamir Fishman, whose funds have cut their holdings in Teva by 90 percent 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 told Reuters.

Teva's bad run continued on Tuesday, when the company said it was being investigated in Israel over the same issues that led to a $519 million U.S. bribery settlement in December over criminal and civil allegations that it bribed overseas officials to gain business.

DRUG PRICE CRACKDOWN

Compounding the challenge for Teva, U.S. President Donald Trump has pledged to crack down on drug prices and a number of shareholders are pushing Teva to split into separate branded and generic companies.

"A single management team of a global corporation really can't focus on two businesses that are as diverse as these and do justice to both," Benny Landa, an industrialist who in 2014 led an investor bid to shake up Teva's board, said.

Landa said Teva's recent "fixation on mega-generic acquisitions" had "mortgaged its ability to make substantial investments in speciality drugs."

Teva shares fell around 2 percent in Tel Aviv on Tuesday following Vigodman's departure, which comes after the head of Teva's generics business, Siggi Olafsson, left. At 1435 GMT, its New York-listed stock was down 2.9 percent at $33.35.

STUMBLES

Tal Levi, buyside analyst for Israeli investment house Halman-Aldubi, said Teva needed to better manage cashflow and deliver the hoped-for synergies from its acquisition last year of the Actavis generics business.

Teva's New York-listed shares, which hit $72 in July 2015, tumbled to around 10-year lows last week after a U.S. court found Copaxone patents to be invalid. The drug accounted for almost a fifth of Teva's revenue last year.

Investors and analysts have raised concerns Teva might have to cut its dividend if Copaxone faces short-term generic competition.

Vigodman joined Teva in 2014 after success in rejuvenating an ailing Israeli agrochemicals firm, but he embarked on a costly buying spree that culminated in buying Actavis for $40.5 billion, a price many investors believe was too high.

Teva now has debt of nearly $36 billion, similar to its market value, making it difficult to raise new equity, Tamir said.

Meanwhile, a $2.3 billion deal for Mexican drugmaker Rimsa has led to both sides suing each other and last month Teva forecast 2017 revenue and profit below Wall Street's estimates.

THOROUGH REVIEW

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 it searches for a permanent CEO.

RBC Capital Markets analyst Randall Stanicky said it was unclear 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.

Should Teva spin off its speciality drug business, it might please U.S. activist investors as it could give a short-term boost to the stock, said Levi, whose firm 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.

(Additional reporting by Bill Berkrot in New York; Editing by Mark Potter and Alexander Smith)