When Jeremy Levin left his position as CEO of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) four years ago, some said it proved that a non-Israeli CEO could not succeed at Israel's largest and leading company. Levin did whatever he could to connect with Israel: he moved his home to Israel, learned Hebrew in record time, and talked a lot about his youth on a kibbutz. He was not particularly successful, however, at getting along with the Israeli board of directors or with Phillip Frost, Teva's chairperson from the US, even though those people were quarreling with each other. In the end, Frost decided to fire Levin only 18 months after Levin entered his position, making his term the shortest ever for a Teva CEO.
When Levin was appointed to manage Teva, the company's share price soared. As time went on, however, and Levin presented a relatively modest strategic plan based on small innovative acquisitions, improving existing products, and large-scale layoffs, rather than the large and rousing acquisitions to which Teva's investors had become accustomed to over the year, the company's share price began to falter.
Today, many people in Teva miss Levin and his feasible and low-debt strategic plan; the cutbacks he wanted to make in the company, which now appear essential; the emphasis he planned to put on the innovative market, rather than the generics market; his understanding of the international pharma industry; and most of all Teva's share price during his period in office - an average of 2.5 times the current price. For his part, Levin does not miss Teva as much.
In an exclusive "Globes" interview, he says, "To this day, I still don't understand this episode (in which he was fired, G.W.), but I don't look back. A large proportion of the board of directors that made that decision is no longer at the company."
"Globes": Is there any chance that you will ever return to Teva?
Levin: "Absolutely not. I love Israel, and I gained many friends at Teva, but it's not a company I regard as part of me, despite my great appreciation for (chairperson) Sol Barer and (incoming CEO) Kare Schultz."
Levin has consistently refused to express his opinion of what happened at Teva after he left. Now that the picture has been revealed in all its gloominess, however, he has decided to change this, and to present his analysis of the events that have occurred, and which have brought Teva to its current plight. He sets out five reasons for the decline.
"The causes of the current decline are mostly known: the attack on Mylan, the acquisition of Actavis (at the time, when the acquisition was first made, and few dared to criticize it, Levin said cynically that the acquisition was 'excellent' for Allergan, the selling company, G.W.), the acquisition of Rimsa, and the failure to build a significant innovative business. The fifth element is the failure to improve the generics business," Levin says.
"During the period of Eli Hurvitz, Israel Makov, and Shlomo Yanai, Teva relied primarily on one business plan that included the launching of generic products based on Paragraph IV (which allowed a long period of exclusivity for the first concern reaching the generics market), and later also on Copaxone. In 2011, when I joined the company, it was already clear that these two sources, which generated a lot of cash, were about to dry up.
"The drop in prices in the generics market was also expected. In a commodities market like the generics market, in which there is a lot of competition over similar products, prices always eventually fall. When I got to Teva, everything was already clear - the expected consolidation of drug purchasers and the growing competition from India and China. 90% of the prescriptions now written in the US are generics prescriptions, but in order to maintain profit margins in such a competitive market, you have to renew yourself more quickly than the market. You have to streamline your production facilities, take up automation, introduce efficient production methods, and innovate in generics research, so that your generic products will be the best.
"As Teva's CEO, I devised a comprehensive plan designed to cope with all of these things. I don't know whether it was implemented. I do know that with the acquisition of Actavis, they acquired many plants, and that immediately made them less efficient. It's very surprising, because it was the company's Israeli managers who made the decisions in this area, and they were known for having a good understanding of the generics market."
Should your plan for generics still be applied?
"I'm not sure whether it can still be applied."
Teva was always called "the world's largest generics company," and it seemed like this phrase was sometimes substituted for a vision for the company. Might this positioning have been too prominent in Vigodman's consciousness when he decided to acquire Actavis?
"I really don't know what Vigodman thought. Bigger, of course, is not always better. Eli Hurvitz's vision was a profitable and international company."
Do you support splitting the company into two: an innovative company and a generics company?
"That's an interesting idea, but since they're so deep into generics right now, they have to do their best in this sector."
What about the innovative sector?
"Success in the innovative sector is based on acquisition of a lot of small companies, each of which usually has a single product. The innovative division, which was managed by Dr. Michael Hayden (Levin's appointment, G.W.), acquired several good products. The product for migraines looks especially successful. No company looking for an innovative future, however, can rely on just two or three products.
"The markets at which the innovative products that Teva is about to launch are aimed, especially the migraine market, are very competitive. Fortunately, it appears that these products will be marketed by the Copaxone marketing team, which is one of Teva's treasures. They are the company's unacknowledged heroes."
One of the interesting innovations in Levin's plan was the focus on NTEs - products based on known molecules, but with some improvement that differentiates the product from others. Since Levin left, no one has talked about NTEs, but it is now clear that the plan was not abandoned. A source informed about Teva told "Globes," "Levin's NTEs plan did not go exactly according to plan. It turned out that the NTE production process was longer than initially thought, and the patents weren't always so strong. Nevertheless, the advantages of this plan are greater than its costs.
"The Austedo product for movement disorders, one of Teva's leading products, is actually an NTE, because it's based on a new release method for the already known molecule. This product was acquired from outside, but the company's original NTEs were also developed - for example, an opiate-based pain reliever with protection against misuse. The product was approved this year for marketing, and there are more products from this family in the pipeline. Teva decided to sell these products instead of marketing them, because of its debt, of course.
"Today, when Teva lacks resources, it can no longer develop these products, because they require more investment than a generic product, and their marketing is also not profitable from the very beginning, and Teva has no time. When Actavis was acquired, the official statement was that it would generate the revenue that would flow precisely for the development of products of this type, but the actual revenue was too small."
Teva has a new CEO now. Like Levin, he is not an Israeli, and comes from the innovative sector. The two men know each other well, because when Levin was a director in Lundbeck when Schultz was CEO of the company.
"Kare is an amazing leader, but he has to deal now with the results of those bad decisions, and with problems that he did not create," Levin says
"Together with Sol Barer, however, who has a good understanding of the field and is an excellent manager, they can rebuild the company. Initial measures have already been taken with the layoffs plan and the new organizational structure, but there's a long way ahead. At the end, it will be a different company."
The new organizational structure has no innovative arm
"Kare is known as a very successful manager, above all in stabilizing companies in cash flow and financially. Certainly, the first thing he has to contend with is cash flow and debt. Once he stabilizes this and makes sure that he's got a profitable business that is based on neither Copaxone nor Paragraph IV, he can think about strategy for the longer term.
"I wish Teva a lot of success, because it's an important company for Israel. It's an iconic company that inspires a lot of people. It's still a great example of how to build a company in Israel."
"The next thing is neurology"
Levin was pushed out of Teva in 2013 by then chairperson Frost, with the support of the board of directors. After he left, the company was without a CEO for several months, until the selection committee eventually chose Erez Vigodman as the next CEO, and the rest is history.
Levin has recovered from the crisis, but anyone who expected him to become CEO of a company on the same scale was disabused. Fairly soon after he left, he became a director in companies like Biocon, an Indian company that, like Teva, expanded from the generics field into directions of innovative drugs and improved generics, and ZappRX, a digital health startup. It appeared that Ovid Therapeutics, which Levin joined as chairperson, would be just another activity for him, but Levin chose it as the main focus of his activity, and as a suitable tool for him to realize his vision of a revolution in neurological medicine.
Levin, who is also CEO of Ovid and holds shares in the company, says, "When I left Teva, I was offered a position as manager of a bigger company, but they wouldn't allow me to develop this field. I therefore decided to build a company in this field by myself. Ovid is one of the first companies in the world built with the very specific vision of healing neurological diseases."
Not everyone remembers it, but Levin came to Teva as head of strategy and acquisitions at Bristol-Mayers Squib (BMS), where he developed the company's immunooncology business, which revolutionized cancer treatment. BMS brought the world's first immunooncological solid-cancer drug, Yervoy, for the treatment of melanoma, to market in 2011, and brought Opdivo to market in 2014. Both of these drugs came from a company whose acquisition was led by Levin. Opdivo accounted for revenue of $3.8 billion in 2016, two years after reaching the market. When Levin says that the next field will bring about a revolution, it is worth paying attention.
"Already in 2006-2007, I was convinced that the next thing was neurology," he says. "When I got to Teva, I wanted to focus on this area. That's why I selected Michael Hayden (who left the company this week) as chief scientist. My confidence in the field only grew over the years. I saw, and I still see, that the entire field is prospering - there's a better understanding of the drug's mechanisms, new types of brain scans, and new and better models in animals.
"We're beginning from a very great opportunity of 100 hereditary generic diseases leading to various types of autism, epilepsy, and developmental disability. We're coming to the neuro-developmental field with a new understanding of a specific brain mechanism called tonic inhibition, which affects the choice between a signal and noise. If you have a prolonged disability in a movement area, you will have movement problems. If the disability is in the sleeping area, you will have a sleeping disorder, and so forth. We have found the receptor that controls disability. We have the world's first drug that acts on this receptor.
"We began our trials with a disease called Angelman syndrome," Levin explains. This syndrome features movement and cognitive disturbances. "We're now in Phase II trials on adults, which will probably finish in 2018, and we're assessing the product for teenagers. Our goal is to get to babies, because the earliest treatment is likely to be the most effective. We're conducting a clinical trial in Israel, and we chose to do this because of my great commitment to Israel, and also because treatment of this disease is rare in its quality in Israel."
Angelman syndrome sufferers number several thousand children and adults in the US. In the case of the second syndrome the company is expected to attack, however, Fragile X syndrome, there are tens of thousands of patients. Trials of a treatment for this disease will begin soon. A drug for treatment of genetic epilepsy is also in Ovid's pipeline.
"We started an initial trial in June, and we'll get results in 2018. Our partner for development of the product is Takeda Pharmaceutical Company, which comes from Japan. In a very unique agreement, Takeda, which discovered the drug, transferred its development to us. We'll be responsible for both development and marketing, and both the revenue and the costs will be split 50-50. Development is being done with cooperation between researchers from both companies working as a single team. There's no other such example in the industry."
As of now, you are developing these drugs for genetic developmental diseases. Is it possible that they will be suitable for common diseases at a more advanced age, such as Alzheimer's disease and Parkinson's disease?
"We think that it's a definite possibility."
Ovid's current market cap on Nasdaq is $263 million. The company's share price soared immediately after its IPO, but then fell to 29% below the price in the IPO, without any negative announcements.
How did it feel to raise capital on Nasdaq as a young company, not a big one?
"It's very different than as a big company," Levin laughs. "We're very grateful to those who invested in us, but we're deliberately avoiding playing games on the stock exchange. We'll focus on doing our job."
Lundbeck, too, where Schultz came from, and in which you are a director, is also focused on the neurological sector. By the way, they are now looking for a CEO.
"I'm confident that they'll find an excellent CEO."
"I'm concentrating 100% on Ovid, because it constitutes an opportunity to change the industry. My experience in this company is unusual. We reach every patient and every family."
Published by Globes [online], Israel Business News - www.globes-online.com - on November 30, 2017
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