Erez Vigodman stepped down on Monday as CEO of Teva Pharmaceuticals, plunging Israel’s biggest company into yet another crisis after a series of major setbacks over recent months.
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The stock market reaction to the move was mild, with Teva shares down just 2.2% to 125.20 shekels ($33.33) late afternoon local time. But the stock had already been trading at a 10-year low and has fallen more than 50% in the last 18 months. In pre-market trading on the New York Stock Exchange, Teva shares were down 3.1% at $33.30.
Meanwhile, analysts and company insiders were calling for a wider shake-up of management and of the company’s business strategy, which has been characterized by repeated missteps.
“Teva CEO Erez Vigodman’s departure was unavoidable, but it’s not enough,” Benny Landa, a key shareholder and frequent critic of the company, told Israel's Army Radio on Tuesday. “The company needs change on both the board and management level.”
The resignation of Vigodman, whose three-year stint was marked by blunders and turbulent conditions in the industry, went into effect immediately. He was replaced on an interim basis by Yitzhak Peterburg, who has served as Teva’s board chairman and formerly headed its research and development division.
Because Israeli law requires that different individuals hold the posts of chairman and CEO, Petersburg will no longer head the board, which elected former Celgene Corporation CEO Sol Barer in his place on Monday.
The company said it has hired a search firm to help identify candidates for a permanent CEO. Barer said he and Petersburg would conduct a “thorough review” of Teva’s business policies while the company is involved in that process.
RBC Capital Markets analyst Randall Stanicky said it was unclear what their effort would entail and whether asset sales would be on the agenda. “We find it interesting that Teva would pursue a review before naming a permanent CEO, which may be suggestive of further, close involvement of the board and broader management team,” said Stanicky.
As Israel’s biggest company, with a market cap of nearly 130 billion shekels – by far the biggest on the Tel Aviv Stock Exchange despite the stock’s sagging performance – the fate of Teva will affect millions of Israelis whose pensions and other savings are invested in its stock. Teva is also one if Israel’s biggest exporters and employers.
The world’s biggest maker of generic drugs, Teva has had a difficult time over the last several years finding a new direction and revenue-generator to replace its best-selling Copaxone drug while its copes with a changing global pharma market. Vigodman’s predecessor, Jeremy Levin, left in 2013 after just 18 months on the job, amid bitter boardroom fighting.
Vigodman, who came on board a few months later with reputation as a turnaround expert, helped revive investor confidence in the company. At its peak in July, 2015, Teva’s share price climbed as high as $72. But the bad news began piling up shortly afterward and the stock tumbled to a 10-year low of $32.20 last week after a U.S. court found Copaxone patents to be invalid. The multiple sclerosis medication accounted for almost one-fifth of Teva’s revenue last year.
Vigodman had also come under fire for his $40.5-billion acquisition last year of the generics business of U.K.-based Actavis, and for the massive debt Teva took on to finance the purchase.
Teva has also been ensnared in a U.S. investigation into generic drug price-fixing, and must pay out hundreds of millions of dollars to U.S. authorities for bribing officials in various countries, and as part of a deal with another company under which it took a payment to delay introducing a generic drug. These cases all predate Vigodman’s arrival as CEO, but the timing undermined his standing and hurt Teva stock.
Teva also claims it was defrauded in its $2.3-billion acquisition of the Mexican drug firm, Rimsa, embarrassing Vigodman who completed the deal on his watch. Meanwhile, the pharmaceutical industry in general has come under sustained fire from regulators and elected officials, among them U.S. President Donald Trump, for price gouging, making drug stocks drop even lower.
In the last few months Teva reduced its profit forecast twice, most recently a month ago when it said earnings per share would be in the range of $4.90-$5.30 on revenue of $23.8 billion-$24.5 billion in 2017. Analysts on average were expecting a profit of $5.41 per share on revenue of $24.82 billion, according to Thomson Reuters I/B/E/S.
Shareholder Landa echoed the view of many that Teva should split itself into a generics company and a maker of branded drugs.
“Is it the biggest generics company or is there an understanding that generics is hitting a glass ceiling and it should do other stuff?” such as investing more in branded drugs, asked Eldad Tamir, head of the Israeli investment house Tamir Fishman, whose funds have slashed their Teva holdings by 90% in the past two years.
Such a split might please U.S. activist investors as it could give a short-term boost to the stock, but Tal Levi, buyside analyst for Israeli investment house Halman-Aldubi, had doubts. “Israeli institutions are long-term investors. I’m not sure making a short-term profit is a good idea for the Israeli market and Teva,” he told Reuters.
With reporting by Reuters