Teva CEO Levin Steps Down in Revamp Dispute With BoardDavid Wainer
Teva Pharmaceutical Industries Ltd. Chief Executive Officer Jeremy Levin stepped down after less than 18 months on the job in a dispute with Chairman Phillip Frost over how to restructure the world’s biggest generic-drug maker.
Teva’s American depositary receipts fell the most in more than two years after the company said Levin and the board agreed he would leave. The departure of Levin raises concern Teva, which this month said it would fire 10 percent of its workers, is “a very dysfunctional organization,” David Maris of BMO Capital Markets told Frost on a conference call.
Levin joined the company from Bristol-Myers Squibb Co. in the U.S., where he was an architect of the drugmaker’s aggressive acquisition strategy. He was overhauling Teva before patents protecting its bestselling multiple-sclerosis drug Copaxone expire next year and as the company grapples with a slowdown in generic medicines. Chief Financial Officer Eyal Desheh will be interim CEO while the board seeks a permanent replacement.
“This is bad news,” Gilad Alper, a senior analyst at Excellence Nessuah Brokerage Ltd. in Ramat Gan, Israel, said in a telephone interview. “Jeremy Levin was doing exactly what he was supposed to do but this is a dire situation. You don’t get rid of a CEO on a whim.”
Levin and the board agreed on strategy, but disagreed on how to carry it out, Frost, a Miami billionaire who is the largest individual shareholder of Petach Tikva, Israel-based Teva, said on the conference call.
“The differences were over nuances rather than disagreement about the strategy itself,” said Frost, 76. “It just got to the point where the slight differences couldn’t be resolved and we thought it was better to part ways.”
Channel 2 television in Israel reported this week the two men had clashed on how to implement cost reductions. Amid objections from unions in Israel, Frost supported a no-compromise approach while Levin has taken a more conciliatory route, according to the report.
Levin, 60, denied two days ago he was considering resigning, and the company issued a statement saying the report contained “baseless claims.” Levin said today that he didn’t quit, Israeli newspaper Calcalist reported. He didn’t respond to text and phone messages today from Bloomberg News.
Analysts on the 50-minute conference call questioned whether Teva would be able to attract a qualified replacement because candidates would be concerned about interference from the board. Levin’s departure is a “big disappointment,” Goldman, Sachs & Co.’s Jami Rubin said.
Teva’s ADRs fell 8.1 percent to $37.70 at 12:35 p.m. New York time, the biggest decline since Aug. 8, 2011.
During Levin’s tenure, the ADRs sank 3.7 percent including reinvested dividends, compared with a 38 percent return for the Bloomberg Europe Pharmaceutical Index. Teva’s stock has fallen about 42 percent from its 2010 peak, giving the company a market value of about $31.9 billion.
Levin took over after his predecessors spent more than $30 billion in the past decade while failing to wean Teva off its dependence on the Copaxone drug.
Saddled with one of the industry’s highest debt loads, Levin opted to boost profitability by trimming costs and building the company’s branded-drug pipeline through small deals and partnerships in areas such as respiratory and neurology. The company said Oct 10 it plans to cut 5,000 jobs.
When asked whether Teva’s strategy will continue on the same path as Levin’s, Desheh said the company will pursue cost reductions “with a sense of urgency.” Teva will seek small to mid-size acquisitions, while avoiding “megadeals,” he said.
One of Teva’s past acquisitions was the 2006 purchase of Ivax Corp., where Frost, a cigar-smoking Miami dermatologist, was chief executive. He joined Teva’s board that year and became chairman in 2010.
Frost, responding to analyst questions, said the company isn’t considering a break-up nor looking to sell itself when asked by analysts about the company’s plans going forward.
Channel 2 showed a letter from the executive committee to the board of directors expressing management’s discontent with the board’s attempts to influence day-to-day business decisions. Desheh said on today’s call there was no such letter.
Desheh is a candidate to be the new CEO, Amir Elstein, a board member, said on a separate conference call with journalists. Levin left because the company needed new leadership, not because of a feud with Frost, Elstein said.
Levin’s resignation comes a day before the company reports third-quarter earnings. Analysts predict that sales of Copaxone, which contributes about 50 percent of Teva’s profit, probably will decline as patients switch to newer oral drugs such as Biogen Idec Inc.’s Tecfidera.
Biogen boosted its 2013 forecast on Oct. 28 after Tecfidera third-quarter sales topped analysts’ estimates.
“It’s possible we are not aware to what extent things have gone bad,” Alper said. “There might be a bigger hit to earnings from Copaxone than what the market is expecting.”