More than seven months after its last CEO quit, Teva Pharmaceuticals on Monday named Kaare Schultz, president of the Danish company H. Lundbeck, to lead Israel’s biggest company at a time when it is struggling on multiple fronts.
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For Teva, which has been battered by one setback after another over the past year, the new elicited cheers from investors, who judged Schultz to be the right person for the job, and powered its shares 16.6% higher on the Tel Aviv Stock Exchange to a 63.55 shekel ($18.05) closing.
In New York, Schultz got an even more enthusiastic welcome, with Teva shares up 19.6% at $18.54 in early afternoon local time. Even before entering company headquarters, Schultz had added more than $3 billion to Teva’s market capitalization.
“The new CEO has rich and proven experience in building revolutionary strategies side by side with implementing reorganization and efficiency measures. His strategic and operation experience we believe can be implemented not only in proprietary drugs but in improving its generics operations,” Steven Tepper, pharmaceutical analyst at investment house IBI, said in a note on Monday.
Schultz, 56, will move to Israel and work out of Teva headquarters in Petah Tikva. He will be compensated generously, with $40 million plus shares for signing on. His predecessor, Erez Vigodman, didn’t get a signing bonus and was offered just $4.5 million for his first year on the job in 2014.
“They were desperate. If you were looking that long for a CEO and nobody is willing to take the job, you pay big,” Ori Hershkovitz, chief investment officer of Nexthera Capital, a New York-based healthcare hedge fund with $300 million under management, which holds a short position on Teva’s stock, told Reuters. “It’s huge. Even for U.S. pharma this is big.”
Teva made numerous serial missteps in recent years, starting with a boardroom battle that led CEO Jeremy Levine — Teva’s first non-Israeli head Teva — to step down four years ago.
Vigodman, an Israeli, succeeded him in 2014 to much fanfare, but led Teva into a badly mistimed $41 billion acquisition of U.K. drug company Allergan’s generics unit last year. The deal failed to deliver the sales boost he promised and saddled Teva with a $35 billion debt burden, which today is almost twice its market value.
Vigodman resigned in February, leaving the company leaderless, as price pressures on its generic drugs emerged and the patent to its best-selling proprietary drug, the multiple sclerosis treatment Copaxone, is expiring. For the second quarter, Teva posted a huge $6 billion loss, slashed its dividend and announced big job cuts.
After Vigodman left, Teva was led by chairman Yitzhak Peterburg. He introduced spending cuts as the search began for a new chief. Peterburg will stay on as acting CEO until Schultz fully takes the reins, Teva said.
Until Monday’s rally, Teva shares were down 80% from their peak in summer 2015, a decline that will be felt by millions of Israelis who have pension and other savings with the firm, once the favored stock of local investors.
“I’m the kind of person who likes challenges and am inspired by challenges. I normally thrive on that,” Schultz said in an interview with Bloomberg Television Monday. “It’s important to work very fast and create a clear strategy and bring the company on strategic course.”
Schultz has led Lundbeck since May 2015, where his mission also involved leading a corporate turnaround and its share prices climbed 300%. As CEO, one of his first steps was to cut some 1,000 jobs, around 17% of the payroll.
He led the launch of several new drugs including the antidepressants Trintellix and Rexulti, and oversaw a $3 billion restructuring program.
Schultz’s exit from Lundbeck sent the company’s shares down 13.8% to 354.90 krone ($57.06).
However, the task before him at Teva is considerably more daunting than anything he faced at Lundbeck.
For starters, he has to decide whether to split Teva’s generics and specialty drug lines into two different businesses and needs to drum up enough cash from asset sales and job cuts to avoid breaching debt covenants in the coming months.