The Pharma Job From Hell: Low Salary to Fix Sinking Giant TevaBy and
Outgoing Teva CEO Vigodman was second-lowest paid in industry
Teva shares plunged as Vigodman cut profit outlook by 25%
The world’s biggest maker of generic drugs is looking for a new CEO to oversee one of the toughest turnaround jobs in the industry.
The only thing that probably won’t be big about the role is the pay: Teva Pharmaceutical Industries Ltd.’s outgoing chief executive officer, Erez Vigodman, earned $5.7 million in 2015, making him the second-lowest paid CEO among rivals tracked by Bloomberg with at least $20 billion market value.
Vigodman’s successor has a lot to clean up. Teva’s stock has plunged by half since 2015 and some analysts and investors predict the drugmaker will need to cut thousands of jobs and revamp its business model to avoid becoming a takeover target itself.
Finding the right man or woman to replace him may mean Teva has to abandon unspoken recruitment principles it’s abided by in recent years, namely, that the CEO be Israeli, live near Tel Aviv and show the same penchant for the fewer-frills lifestyle endorsed by past CEOs.
"Whoever will join as CEO will either need to be someone who can substantially turn around the company or someone who knows how to maximize a major sale," said Leemor Machnai, CEO of Machnai Weiss & Partners, an executive search firm that’s helped Teva fill jobs domestically and abroad for more than a decade.
After three management shake-ups in just five years, the Israeli company can hardly afford any more recruitment missteps.
Vigodman stepped down after the $41 billion acquisition of Allergan Plc’s generics unit he engineered last year failed to live up to the sales boost he promised. That revealed cracks in Teva’s strategy of aggressive acquisitions that made it into a pharmaceutical giant but also left it with a debt burden that’s almost as big as its market value.
Adding insult to injury, Teva’s best-selling drug Copaxone is set to face competition from cheaper knock-offs after U.S. courts denied its attempt to protect its patents.
"It will be hard to find a candidate even on a global search who can turn around a company with 40,000 workers," said Shmuel Ben Arie, the head of investments for Israel at Pioneer Wealth Management Ltd., who started buying Teva shares in January as they fell to 12-year lows. He predicts the new CEO will need to cut 10 percent to 20 percent of jobs.
If its competitors are anything to go by, Teva will need to up its pay package multiple times to lure qualified candidates.
Generics drugmaker Mylan NV rewarded its CEO Heather Bresch with $19.4 million in 2015, almost four times more than Vigodman. The compensation Valeant Pharmaceuticals International Inc. offered its CEO Joe Papa last year to restructure the company was almost four times more than that.
It’s not only Teva’s remuneration policies that need a rethink. Israel’s biggest company, which was founded in 1901, turned itself into a global giant this century by acquiring rivals like Ivax Corp. in 2006 and Ratiopharm GmbH in 2010 with the aim of rolling out as many new generic drugs as possible to shore up revenue.
The fact that the Actavis acquisition failed to bear fruit as quickly as anticipated shows Teva can no longer rely on the same playbook, according to Rudi van Den Eynde, who helps oversee about $1 billion in assets at Candriam Investors Group, including Teva shares.
Just before the Actavis deal closed in July, Vigodman, 57, predicted 2017 profit-per-share would range from $6.5 to $7. Five months later, he conceded he’d misjudged the pace of new product roll outs, and slashed the guidance by 25 percent.
Teva’s stock has fallen 5.7 percent in the past two days to 120.80 shekels by 11:29 a.m. in Tel Aviv, on course for the lowest close since 2005.
For its part, Teva isn’t revealing details on what will happen next beyond saying it’s planning a "thorough review of the business." Yitzhak Peterburg has stepped down from his post as chairman to stand in as chief executive during the recruitment process.
Investors, though, are already divining theories on what Teva’s new CEO might do.
Den Eynde of Candriam said the drugmaker should focus on biosimilars, or copies of medicines produced using the body’s own cells rather than through chemical reactions in a lab, and typically delivered in the form of injections.
Others, like Janus Capital Management money manager Andy Summers, hope Teva will agree to split its generics and branded drugs businesses into separate entities. A survey of clients conducted by New York-based Evercore ISI showed more than half also favor this strategy.
“I can’t think of anyone in Israel who can step up to this job right now," said Raphael Eppler, CEO at Eppler Consulting, which provides recruitment advice to big Israeli companies. "If they want someone major from abroad, they might need to dispense with that part of the culture and certainly pay as much as needed.”
— With assistance by Johannes Koch, John Ainger, and Sharon Wrobel