In a hard-hitting editorial, the "Financial Times" says that Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) needs a new chairman, and slams the 16-member board of directors for "knowing nothing about running a company."
In the editorial, entitled "Teva: in need of a shot", the "Financial Times" says, "The board of Teva is a brains trust of scientific and medical knowledge. Shame that so few of its 16 members seem to know anything about running a company."
Teva has been in a management and financial crisis over the pending plunge in revenue profits when the patents for Copaxone, Teva's flagship product for the treatment of multiple sclerosis, expire. Teva's business and share performance has driven Benny Landa, the digital printer entrepreneur, to switch from being a passive shareholder to an active one in an effort to change the makeup of Teva's board and again create value at the generic giant. Landa, who built Indigo and sold it to Hewlett Packard Co. (NYSE:HPQ) over a decade ago, has already made his argument to Teva's board, but it has not yet caused a power struggle or proxy fight.
The "Financial Times" says that Landa's move is needed. "It has taken a shareholder - the Israeli entrepreneur Benny Landa to point out the obvious: that the world's largest generic drugmaker by revenue needs more than a new chief executive. It needs a new (or at least smaller) board, and a new (or at least clearer) strategy and a new chairman."
In short, the "Financial Times" is calling for the ouster of Teva chairman Phillip Frost. Frost (76), considered the strongman at Teva, has been chairman since March 2010, and he is the largest private shareholder in the company, with a 1.5% stake. With Teva's market cap at $34.2 billion, his stake is worth $500 million.
There is a basis for the argument that Teva's board is too big for a company of its size. For example, Pfizer Inc. (NYSE: PFE; LSE: PFZ), which has a market cap of $198 billion, has a 13-member board of directors; and Novartis AG (NYSE:NVS; LSE: NOV; SWX: NOVZ), which has a market cap of $193 billion, has a 14-member board.
Teva's 16-member board includes many elderly men, who do not necessarily have a medical or scientific background. Prof. Moshe Many (84), who was vice chairman until recently and is now a regular director, and who has been on the board for 27 years, is a physician by education. Roger Abravanel (66), a director for seven years, retired from McKinsey & Company. Dr. Arie Belldegrun (63), appointed to the board in 2013, is an expert in urologic oncology. Amir Elstein (57), who succeeded Many as vice chairman in December, has been a director for five years. Chaim Hurvitz (52), the son of the late Teva chairman Eli Hurvitz, joined the board in 2010. Prof. Richard Alan Lerner (74), appointed a director in February 2012, is a professor of chemistry of the immune system. Prof. Roger Kornberg (65), professor of chemistry appointed seven years ago. Galia Maor (70), appointed a director in 2012, was the former CEO of Bank Leumi (TASE: LUMI). Joseph Nitzani (66), has been a statutory independent director since 2008; Prof. Yitzhak Peterberg (62), the former CEO of Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), was appointed director in January 2012. Dan Propper (71), the chairman of food company Osem Investments Ltd. (TASE: OSEM), rejoined Teva's board in 2012, after an earlier four-year stint. Prof. Dafna Schwartz (62), has a Ph.D. in economics, has been a statutory independent director since December 2011. Ory Slonim (70), has been a director since mid-2008, after a previous term a decade earlier. Dan Suesskind (69), Teva's previous CFO, was appointed a director in January 2010. Vigodman (53), the president and CEO of Makhteshim Agan Industries Ltd., has been a director in Teva since 2009.
Landa says that Teva's board should be reduced to 12 directors, which would reduce its total cost. The directors were awarded hefty pay hikes in late 2012, boosting their annual salaries from $76,000 to $190,000. Frost earns a salary of $900,000 a year.
Vigodman, who has not been a seeker of media headlines of late, is apparently the leading candidate to become Teva's next president and CEO, to succeed Dr. Jeremy Levin who was ousted in October 2013. He is reportedly one of three finalists: the others are Teva CFO and acting CEO Eyal Desheh, and a foreign CEO. Vigodman has the support of the board, but his appointment is not final.
"Given the circumstances of Mr. Levin's ousting in October, in a dispute with the board over strategy, it was going to be tough to attract another pharma industry veteran," says the "Financial Times". "Mr. Vigodman is on Teva's board and is no novice. But the company's problems - a bloated cost base, the possibility of imminent patent expiry for Copaxone, the multiple sclerosis drug that accounts for half of profits, and a dysfunctional board chaired by Phillip Frost - require early and radical action."
The editorial goes on to say, "An early sign that board changes are afoot is the appointment of Amir Elstein, who heads the Israel Corporation (TASE: ILCO) conglomerate, as vice chairman. Mr. Elstein must fight to ensure that the new chief executive gets a board seat. The fact that Mr. Levin did not have one was a certain indicator that he was never really in charge.
"There is a lot at Teva to build on, even without Copaxone. The patent expiry is largely priced in. Teva's shares trade on just 8.5 times 2014 earnings, below the sector average, and have fallen 40% since early 2010. A new chief executive could start to recover this lost value - but only with the full support of the Teva board. A brains trust with no idea what to do is worse than having no brains at all."
Published by Globes [online], Israel business news - www.globes-online.com - on January 7, 2014
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