Teva Getting Its First non-Israeli CEO as Shlomo Yanai Resigns

One big challenge incoming chief executive Jeremy Levin faces is to wean the generic drugs giant off Copaxone.

Five years after taking the job, Teva Pharmaceutical Industries CEO Shlomo Yanai has announced his resignation, marking the end of a tenure in which the company failed to diminish its dependence on profit from flagship multiple sclerosis drug Copaxone.

Yanai will be replaced in May by Bristol-Myers Squibb executive Jeremy Levin, the first non-Israeli to lead the company. Yanai, 59, wanted "to move on to a new phase in his career," Teva said yesterday.

Yanai's term was characterized by a dogged effort to sustain the company's rapid growth, not an easy task as Teva had already become the world's biggest maker of generic drugs - meaning drugs that are copycat versions of brand drugs, with the same biological activity. Generics are typically sold much more cheaply than the original versions.

Based on the results, it's hard to crown Yanai's tenure a stunning success, though under his stewardship the company doubled sales and sharply increased profit. Also, Yanai led a lot of significant moves. Those moves include spending no less than $22 billion on acquisitions - $7.4 billion of it for Barr Pharmaceuticals alone.

Teva shares underperformed Israeli stock indexes during the five years Yanai was on the job, but that was mainly due to unfavorable shekel-dollar exchange rates. Compared with peer companies, Teva outperformed by 8% against Nasdaq's XLV health care index and 25% against the DRG index of drug companies.

Yet Teva shares slumped during Yanai's last couple of years at the company. Investors lost faith after the firm's optimistic forecasts failed to pan out. It's no coincidence that Teva's forecast for 2012 is conservative, though Yanai said yesterday 2012 should be a great one for the company.

Hooked on Copaxone

Copaxone is one of Teva's two proprietary drugs, the other being Azilect to treat Parkinson's disease. Teva had scorned the possibility that Copaxone could face generic competition, based on the drug's complexity and the difficulty making a biologically equivalent copycat version. Yet generic competition is ready to roll once Copaxone's patent runs out in 2014.

Also, Copaxone is administered by injection, so it faces competition from oral treatments - pills - for multiple sclerosis. If Yanai suffered a failure at Teva, it's a shared one with his predecessor Makov: The company has nothing to replace Copaxone and its $4 billion in annual sales. Teva tried to make a multiple sclerosis pill of its own, laquinimod, but it did not do well in clinical trials.

Copaxone is believed to be responsible for some 40% of Teva's profits. Concern about Teva's results once Copaxone loses patent protection is a chief reason for the share's weakness of late.

Massive loss of patent protection is a good thing for generic drug companies, but in this case it's bad for Teva, because of its heavy dependence on profit from Copaxone. This one drug all by itself creates what's known as a "patent cliff" for Teva.

Yanai thought to resolve Teva's "patent cliff" by acquiring Cephalon, which has a big portfolio of brand drugs. That acquisition closed, for $6.8 billion in October 2011. But it will take years to see if the decision works out.

Trouble in Jerusalem

Teva also ran into trouble in its biggest generic target market, the United States, during the second half of Yanai's tenure.

Sales in the U.S. tumbled 40% in the third quarter of 2011 as its market share plunged following quality-assurance problems at its Jerusalem plant. During that time, Teva had no new product launches.

But Yanai can claim a number of successes as well, including reducing Teva's dependence on the American market. He achieved that by buying companies in Japan and Germany, the second-biggest generic drug consumer after the United States. He also prepared the groundwork for Teva to become more involved in the market for over-the-counter drugs through an alliance with consumer goods behemoth Procter & Gamble.

Now finding solutions to Teva's weaknesses falls to Levin, 58.

Though Teva manufactures and sells worldwide, it has consistently portrayed itself as an Israeli company, with management based here. Levin will be moving with his family to Israel. He and Yanai will be working together to assure an orderly changing of the guard.

Yanai had joined the company from the top position at agrochemicals maker Makhteshim-Agan Industries.

During Yanai's term, Teva morphed from a business of mainly generics with $8.4 billion in annual revenues to a more diversified power with expected 2012 revenues of $22 billion. Under Yanai, it expanded in Europe, Latin America and Asia.

Levin was chosen after a long search by the board, headed by Phillip Frost, with Yanai's participation. Levin stood out due to his strategic vision, deep knowledge of the pharmaceutical industry and leadership and management qualities, Teva said in a statement.

The company said Levin has accrued more than 25 years of experience in the global drug industry. He joined Bristol-Myers Squibb in 2007. He has had direct responsibility for strategy, alliances and transactions, and managed its portfolio of alliances.

Before joining Bristol-Myers Squibb, Levin served from 2003 to 2007 as global head of business development and strategic alliances at Novartis. Earlier, he was CEO of Cadus Pharmaceuticals, a company he took public.

Levin was born in South Africa and has lived in the United States since 1986. He has also lived in Zimbabwe, Britain, Switzerland and Israel, Teva said.