Levin sets scene for Teva cuts

Gali Weinreb

New Teva CEO Dr. Jeremy Levin has already said that part of his strategy will be greater "budgetary discipline."

The classic strengths of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) stood out in the company's second quarter report published last Thursday. Teva continues to be creative and combative. Despite difficult market conditions and problems with certain drugs, the company continues to cope with the range of markets and products in which it operates, by increasing efforts around existing products, and changing pricing methods and distribution patterns as well as marketing and financing activities.

Even in a period when many factors are working against the company, Teva has still managed somehow to reach the analysts' estimates, and maintains growth from quarter to quarter in both profitability and revenue, even if this is mainly through its acquisitions.

When Teva CEO Dr. Jeremy Levin assumed the helm earlier this year, these were the areas about which the market was less certain. It was known that Levin was a strategist and highly capable business development man, but what about the basic fields?

Meanwhile, it appears that Levin has so far successfully passed the basic field test. He has not hesitated in taking significant steps in areas such as logistics, pricing and manufacturing. In order to support the company's activities in these fields, Levin has also brought in a backup player in the shape of Dr. Carlo De Notaristefani as president and CEO of global operations, who previously served as VP operations at Bristol-Myers Squibb Inc. (NYSE: BMY), Levin's old firm. De Notaristefani is known as a "cuts" man and Levin has already said that part of his strategy will be greater "budgetary discipline," in a company that has never been known as wasteful.

Repeating the success at Bristol-Myers Squibb (BMS)

It seems as if Levin is trying to signal to the capital market that he is preparing to repeat at Teva exactly the brilliant rescue measures that he implemented at BMS. It worked at BMS where the company's share price has risen 50% over the past three years and BSM has become one of the world's largest companies.

However, it is by no means certain that it will be possible to exactly replicate at Teva the success of BSM. First of all, it was not Levin who led the rise of BSM as CEO but rather he was VP business development, who took major credit for the achievement but did not implement the measures by himself. Secondly, it is by no means certain that the business environment that Levin is operating in today is similar. Levin succeeded at BSM with acquisitions of several assets at the right prices. But today there are no good assets to be bought at such prices as were available to Levin during the economic crisis. The question must also be asked as to whether he is again able to accomplish such magic when controlling a pharmaceutical company that is a giant generic drug distributor and continues to grow its core areas.

However, even if Levin does not manage to realize investors' hopes and transform Teva into BSM, there is still a good chance that he will satisfy investors' hopes and find a substitute for Copaxone. To do this he just needs to choose correctly once. In such a scenario, it won't be a breakthrough, but Teva will continue to be a large and valued company.

And what if he can't? What will happen if he does not find a blockbuster drug to replace Copaxone over the next five to ten years. Isn't such an eventuality already priced into Teva's low share value?

The answer is no. Analysts covering Teva has not priced such a failure into the share. If the company does not succeed in replacing Copaxone, then the share price is likely to fall even further, and the company won't have the wherewithal to recover.

Published by Globes [online], Israel business news - www.globes-online.com - on August 5, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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