In late 2014, renowned digital printing pioneer and Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) shareholder Benny Landa took the lead in trying to cut back the number of directors on Teva's board and appoint directors with pharmaceutical experience. Four directors have since been replaced, but according to Landa, not much has changed. "It's hard to look at this," he told "Globes" today. "The company has lost half of its value. It's worth less than its debt.
"I don't understand (Teva CEO Erez) Vigodman's strategy, but it's clear to me that they need one of two things: either a CEO with pharma experience or an experienced board of directors to guide him. They can't have both a CEO and a board without pharma experience. Today, there's one director with real pharma experience, (Celgene founder and former CEO Dr. Sol Barer). Don't they have anyone they can bring? I'd like to see at least a third of the directors with substantial experience - at least one third. For that, the board of directors would have to replace itself, and that's not happening."
"Globes": The board of directors should be replaced, not the CEO?
Landa: "One or the other, but I'd choose the board first. All the directors are excellent people with experience in their fields, but they can't devise a strategy for a company like Teva. It's no wonder that the company made such mistakes. The directors don't even know what questions to ask. They say that the board is passive. Well, what did they think? Have they ever been in such situations? Do they understand what the pharma industry is? They didn't know what to do in the past, they don't know what to do now, and they won't know what to do tomorrow."
Is Teva's board of directors exposed now to lawsuits because of the company's conduct?
"Certainly. Such lawsuits have even been filed, but every director has insurance."
Other than Vigodman and Barer, the other Teva directors are Teva chairman, former Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) CEO, and former CHS director general Prof. Yitzhak Peterburg; former Bank Leumi CEO Galia Maor; former senior consultant at consultant company Mckinsey & Co. Roger Abravanel; former Teva executive and chairman of Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) and other companies Amir Elstein; Dr. Arie Belldegrun, founder of a number of successful biotech companies and currently CEO of Kite Pharma, a company listed on Nasdaq with a $2.5 billion market cap; Adv. Ory Slonim, who has been a director at a number of leading Israeli companies; Jean-Michel Halfon, a former marketing executive at Pfizer; former Johnson & Johnson and Bristol-Myers Squibb executive Rosemary Crane; former Hadassah Medical Center chairman Joseph Nitzani, a former senior executive in the financial sector; Gerald Lieberman, a former investment executive in the US; and Gabrielle Sulzberger, another investment executive.
Landa gained the support of 37% of Teva's shareholders for his previous attempt to replace Teva's board of directors. Under the Teva Articles of Association, however, abstentions are counted as voting with the company, and his proposals were eventually rejected. He said at the time that he felt that the company had at least gotten the message, but he now feels that the message missed its target.
What do you think about the company's strategy?
"In my opinion, the emphasis on generics is a big mistake. It's a misguided return to the comfort zone, based on the idea that what worked so well in the past will go on working. The world has changed, however. Generics is now competition over price - who can produce the most cheaply. Is that Israel's advantage? Cheap production? That's not what we are.
"Teva should follow the trail blazed by Copaxone - Israeli innovation and technology. Teva knows how to be innovative. It's such a pity that all this capital is going to generics. It's just tying the company's hands, and it can't make innovative acquisitions. Teva has to rid itself of its dependence on generics.
"When I listen to Teva's conference calls, I hear about operations and I hear numbers. I don't hear a vision. It's no wonder that the market has lost confidence."
Vigodman is regarded as a visionary
"Maybe he's acting according to a vision of Teva going back to being a more generics-oriented company, but I don't think that's the right direction."
Does the company still have the option of changing direction, or has it been lost?
"It's certainly not lost, but from this situation, getting back on track will be very painful. The market will have to swallow a loss of profit in the short term, more than it already has, so that the necessary investments in innovation can be made."
That was short-lived Teva CEO Dr. Jeremy Levin's vision.
"Levin was probably not suitable for the board of directors, and maybe not to the company's Israeli culture, but that doesn't mean that he wasn't thinking correctly. Bringing international experience into the company was a good idea. I wouldn't want to see a non-Zionist CEO in the company, but that wasn't the case.
"I'm sure that Vigodman's heart is in the right place, and he's right that the company's character should be suitable for Israel, but that means that it mustn't be the Walmart of the drug market. It can't operate in the cheap mass sector."
The business difficulties and loss of investors' confidence experienced by Teva over the past year have been reflected in a drop of nearly 50% in its share price during this period, pushing its market cap down to $35 billion.
The huge acquisition of Actavis at the inflated price of $40 billion, given substantial erosion of prices in the generics industry; the farce of the failed acquisition of Mexican company Rimsa, which cost the company $2.3 billion; and the concrete threat of losing exclusivity for Copaxone, Teva's flagship product that accounts for 35% of its profit, have made a big dent in investors' confidence in Teva's ability to resume its growth in the coming years.
This comes on top of two legal affairs. Teva reached a compromise with the US authorities on one of them, which involves bribery in developing countries, in which Teva is paying a $500 million fine, followed by a derivative lawsuit by an Israeli shareholder. The other is a US investigation of leading generics companies on suspicion of price fixing.
Published by Globes [online], Israel Business News - www.globes-online.com - on January 9, 2017
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