Generic drug giant Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) has always been an exemplary model to be emulated, at least for other Israeli companies. The way it has grown and increased its value, continually swallowing up companies, has made it into the "share of the nation."
Every Israeli company dreams of being the next Teva and every other Israeli manager aspires to manage such a company, while entire MBA courses in Israel are based on the successful path of the pharmaceutical giant.
Nothing is perfect, and in recent months, cracks have appeared in Teva's image. This does not refer to the company's financial results but rather capital market concerns about Teva's ability to maintain its past pace of growth, and the manner in which it is coping with the day that patent of Copaxone expires, the company's flagship branded drug which is responsible for a substantial portion of the company's profits.
Teva's image is cracking and will continue to crack further because of the failed conduct of its senior managers and board of directors in matters concerning the capital market. Teva management's "dialogue" with the capital market, which until recently was as it should be, consistent and appropriate for a company of its size, has changed direction and for the worse. From a company managed according to US standards and proud of it, Teva has degenerated into an Israeli company with slips of the tongue, erroneous expectations, management mistakes vis-a-vis investors reminding us that it is still an Israeli company. Perhaps too Israeli.
This crisis in credibility, is being reflected in Teva's share price, which soared 15% in January but has since changed direction from a peak of $45.66 to its current price of $38.61, giving a market cap of $34 billion. In fact since the beginning of February, Teva has wiped out the boost it was given from the appointment of Dr. Jeremy Levin as CEO in place of Shlomo Yanai.
The appointment of Levin had raised a feeling of confidence in Teva's share with the new CEO considered an expert in innovation (the development of branded drugs). However, in the ensuing months, at least in terms of the share price, the value of the company has returned to what it was before the announcement of the departure of Yanai and the appointment of Levin.
Remarks that pushed the share price down
Levin must take principle responsibility for the fall in the share price, and that's before he has even taken a significant step as Teva's CEO. During the conference call three weeks ago when Teva announced its first quarter results, Levin defiantly refused to approve Teva's 2012 guidance (previously prepared by Yanai) and only said that he would provide guidance later in the year.
This slip, or premeditated management decision (it is difficult to see it any other way) by Levin, was his first mistake as CEO. The capital market, justifiably, did not let this error pass unnoticed. While last Thursday's conference call, designed to attempt to repair the damage Levin had caused, soothed the market somewhat, it was still two weeks later than it should have been, a critical amount of time in stock market terms.
Levin was perhaps motivated by the ego of a new CEO (it almost always happens). He forgot that a company of Teva's size cannot allow itself such remarks. Or it ratifies the guidance or revises them up or down but it relates to the current guidance and doesn't ignore them.
The new CEO chose to ignore them and the stock market reacted. Behind closed doors senior analysts and investors on the Tel Aviv market described Levin's debut conference call as a "freak appearance" and wondered where the captain of the ship had disappeared to. The captain appeared last Thursday but the market had already fallen after Levin's first appearance and taken into account that the guidance would be lowered. Last week's conference call, however, did serve to calm investors, and the share price remained stable.
Levin has never before managed a public company of the size of Teva. He previously served as senior vice president strategy, alliances and transactions, at pharmaceutical company Bristol-Myers Squibb (BSM). But his baptism of fire at Teva proved that his supposed expertise in investor relations was not enough.
Levin is not alone
Levin's slip is not the only thing that has gone wrong recently between Teva and its investors. Teva chairman Dr. Phillip Frost decided to throw out that the board of directors had chosen him for another term of three years during the press conference for the first quarter results. This was before the official press release on the matter had been put out by the company.
Frost is not naive and he does have experience in running public companies. The battle to become Teva chairman had risen a notch and Frost understood that people were breathing down his neck and questioning his continuation in the role.
The struggle itself is legitimate and so were Frost's concerns but the slip of the tongue by the incumbent chairman was not appropriate. Frost, an American, should have bitten his tongue and not thrust himself into the swamp of rumors. Instead of preserving Teva's supposed US image, Frost merely proved that Teva is yet to shrug off its Israeli image. While its chairman and CEO are not careful what they say, Teva will remain an Israeli company.
Published by Globes [online], Israel business news - www.globes-online.com - on May 29, 2012
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