Teva CEO departure highlights strategic muddle
Just as Teva appeared to be on the verge of emerging from a period of inertia, chief executive Jeremy Levin abruptly resigned today, an event that throws more doubt over how well the company will cope with the imminent loss of market exclusivity on its multiple sclerosis drug Copaxone.
Conflict with the board and labour unrest over looming job cuts were the trigger for the departure, although it has been apparent for some time that the Israeli group was struggling with its strategic focus. In retrospect, moving a big pharma acquisitions ace into the C-suite of a company still largely dependent on speciality and generics income might not have been the best fit; what the company needs to decide now is how committed it is to its innovative pharma pipeline.
A nuanced decision
Without going into specifics, Teva's chairman, Phillip Frost, described the conflict between Mr Levin and the board as one of “nuance”, and not overarching strategy, but it was big enough to prompt the latter’s departure. Mr Frost stopped short of saying the board had been the instigator of the departure, saying the board “agreed with” Mr Levin that he should leave.
“We have had different views on the best way of carrying out the strategy, and we concluded together that it was best to part ways,” Mr Frost said.
Mr Frost spoke in a tense analyst call filled with questions about corporate culture, dysfunction and board micromanagement - it could only have been made more tense by denials of the personnel shuffle made separately by both Mr Levin and the company earlier this week. A chief worry among analysts is governance, specifically as the Teva chief executive does not sit on the board of directors as in most companies, preventing the incumbent from having a more active role in strategy development.
Mr Frost described this as a common practice in Israeli companies, and although he did not articulate the point it certainly makes it easier for the board to push out a chief executive. However, it also could prove to be a barrier to recruiting a new one, not to mention strategy development if current plans need to be refined or rewritten.
If that strategy does need to be rewritten, Mr Frost gave no indication if it. He gave full endorsement to pipeline development, acquisitions and cost reductions as a way to generate value.
To much acclaim, Mr Levin was brought in nearly two years ago to replace Shlomo Yanai, a retired Israeli army general with experience of chemicals companies but no pharma industry background (Regulatory and clinical developments over the Christmas period, January 3, 2012).
Mr Levin had been a successful dealmaker at Bristol-Myers and presumably he was thought to be the right person to optimise a number of transactions the company had made in preceding years, including Ratiopharm and Cephalon.
But in reality, Teva shares struggled to make progress as bullish sales growth targets stretched out of reach and, most importantly, the outlook for Teva’s big money-spinner Copaxone dimmed (Teva looks for plan B as investors desert, October 4, 2013). The $4bn-a-year drug loses US patent protection in seven months. Today's news caused Teva’s US-listed shares to fall 7% to $38.28.
However, in recent weeks there has been a clear desire to improve the visibility of its pipeline to help boost investor faith. It had hosted a webinar on its respiratory R&D work three weeks ago – which includes both innovative and generic or near-generic products – and has planned one in December to discuss its plans for “new therapeutic entities”, which are reformulated versions of already marketed products that in theory have a faster path to launch.
Job cuts and other savings also are offering the promise of bottom line expansion, although that was also reportedly a point of contention as the group has benefited from tax cuts in Israel, where around 800 of the 5,000 jobs are slated to be eliminated (Teva gets uplift from job cuts but needs growth, October 11, 2013).
Finance chief Eyal Desheh will be warming the chief executive’s seat while recruitment is under way. While that should give some day-to-day continuity to the organisation, investors are anxiously awaiting a permanent replacement able to make the tough calls on clinical programmes or acquisitions. These are decisions Teva needs to establish strategic momentum.