Hubris destroyed Teva

Teva Photo: Tamar Matsafi

Neither bad timing nor business necessity excuse the mistake over Actavis, writes Avishai Ovadia.

Teva will lay off thousands of employees, and it has no other choice. It's painful, even outrageous, to have to pay for other people's mistakes, but it's necessary to look ahead, and it's preferable to lay off thousands now than to lay off many more later.

Teva's big mistake was of course the acquisition of Allergan's generic division Actavis. Teva "committed suicide" over that deal, and vastly overpaid. That mistake bears the names of former CEO Erez Vigodman, CFO Eyal Desheh, and the board of directors. They were the ones who rushed to throw away nearly $40 billion to preserve the company's leadership in generics, and to try to compensate for the fall in revenue from MS drug Copaxone.

The mistake was not a matter of bad timing, nor was it a case of having no choice. It's true that the timing was unfortunate for this deal. After it was announced, the generic drugs sector began to slide. So why was it not a matter of timing? Because Teva's management could have withdrawn from the deal. That they did not was perhaps a worse mistake than the original one. Alright, you bought a business that isn't worth the price you paid, but you have an escape, so use it, admit you blundered, and get out of there. But to admit making a mistake was too much for the egos of Teva's managers.

The deal was also not a matter of having no choice. True, Teva had to change, dramatically, to prevent a collapse in profits with the advent of generic competition to Copaxone. Teva enjoyed, and still enjoys, astronomical profits from Copaxone, but generic equivalents will take a large slice of those profits. Yes, it's ironic: generics gave, and generics took away. But erosion of profits doesn't mean you have to take a suicidal step, a risk that even at the time was clearly liable to rock the company (this is not the wisdom of hindsight).

Teva's management and board ought to have examined other possibilities and decide, in a spirit of modesty, on the right course of action - and incidentally it was possible to take no action.

Essentially, it was hubris that did for Teva, the wish to impress investors and please the crowd. That way, the crowd basically runs Teva, not the CEO. And the price of the management's mistake is paid by the workers. It's an upside-down world.

Published by Globes [online], Israel business news - www.globes-online.com - on December 14, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Teva Photo: Tamar Matsafi
Teva Photo: Tamar Matsafi
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