Analysts fearful for Teva after CEO's departure

Aviv's Erez Zadok: Levin's resignation is bad news for Teva's employees in particular and for Israel in general.

Should Teva's employees be more concerned following the departure of Jeremy Levin as CEO? Erez Zadok of Aviv Risk-hedged Funds Management says that the resignation is bad news for the employees, because the winner in the battle between the management and the board of directors is chairman Phillip Frost, who been a hardliner on downsizing.

"Levin's resignation is bad news for Teva's employees in particular and for Israel in general," says Zadok. "Frost has taken a tough stance on layoffs at the company and against any rise in taxation, while his salary and the financing of fuel for his private plane continue to flow from the company untouched. If a CEO is appointed who follows Frost's line, Teva will not hesitate to transfer activity out of Israel if it is required to pay higher taxes, nor will it hesitate to lay off workers, while the failed management, including the board that approved the leveraged acquisitions and the problematic strategy, continues to enjoy all its privileges.

"It could be that, for investors, this is good news in the short term, but unless there is substantial change in the company's senior management, and if the frequent changes of CEO continue, then the share will probably continue to underperform in the long term."

Gilad Alper, Deputy Head of Research at Excellence Nessuah Brokerage, adds that "Levin's departure is of course very bad news. First of all, in our opinion, he did the right things shifting the emphasis to drug development, halting the acquisitions of huge companies with no strategic value, and an aggressive downsizing program all these are correct measures that were an attempt to start putting right the considerable mistakes made in the past few years.

"Secondly, the departure of a talented CEO in a period of crisis without a planned replacement (Eyal Desheh is only a temporary CEO) is a recipe for lack of stability, and indicates deep problems in the company's leadership. Thirdly, although this is only speculation at this stage, one wonders whether there is a connection between the timing of Levin's departure and the fact that Teva reports on its third quarter tomorrow (Thursday). The Israel Export Institute reports that pharmaceuticals exports fell 50% in the third quarter in comparison with the corresponding quarter last year. It's true that these are very volatile numbers, but at the same time Biogen Idec reported that, in the third quarter of 2013, its sales of Tecfidera (the oral MS treatment that competes with Copaxone) totaled $289 million, compared with an expected $217 million. Are we about to see, as early as tomorrow, the start of the impact of Tecfidera sales on sales of Copaxone, and will this add to the pressure on Teva's management?"

Tamir Fishman CEO Eldad Tamir says Levin's resignation is no surprise, and stems from the fact that he is a foreign CEO. "Jeremy Levin got into a difficult situation at the company, one in which the need for a cultural connection with the Israeli company and the ability to communicate were critical. They took a non-Israeli CEO, who came into a company with severe operational and strategic problems. The rift that developed between the company and investors and the media resulted in a lack of faith. The combination of a foreign CEO with a company that is international but Israeli in its ways, in the absence of a strategy, leadership, and a way forward, is highly problematic. I believe that Eyal Desheh is a superb choice and represents the possibility of a new path."

"As far as the performance of Teva's stock and the value created for shareholders are concerned, Jeremy Levin's short tenure was a resounding failure," was the response of Ayalon chief strategist Yaniv Pagot to Levin's resignation.

Pagot points out that Teva's share price has dropped 10% since mid-2010, when Levin was appointed CEO. In 2012, the share price fell 7%, while so far this year it has risen only 6%, underperforming the market, since US healthcare companies have risen about 35% year to date.

He says that there is concern that Teva will again be dragged into a round of strategic changes and replacements at the top, at a time of growing competition in the industry, and when the company is at a critical juncture because of the fears of the loss of profits from Copaxone.

"After the strategy of the previous CEO Shlomo Yanai dissipated and Levin changed strategic direction, there is now the fear that the company will suffer from strategic vertigo in a super-competitive market in which lack of strategic focus is a lethal competitive deficiency," says Pagot, adding, "Pressure at the company is liable to lead to large mergers and acquisitions in the foreseeable future such as we have not seen recently. There is a fear of renewed managerial musical chairs that will damage the company's ability to function in the short term, after Levin carried out a personnel revolution in Teva's management backbone, and with a new CEO liable to shake up the management again."

Published by Globes [online], Israel business news - - on October 30, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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