Little chance of Teva CEO seeing share price bonus

Kare Schultz Photo: Shlomi Yosef

Kare Schultz received millions of dollars of blocked shares, which he will receive if the share price reaches a certain level by November 2020.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) share price has regressed 18 months, and is nearing the $11.16 low point it reached in November 2017, one day after Kare Schultz became the company's president and CEO. In trading on the NYSE today, Teva's share price is down 5.50% at $11.44, giving a market cap of $12.465 billion. This follows a fall of 14.8% earlier in the week, after suits were filed in US courts charging Teva and other generic manufacturers with price fixing.

When Schultz assumed office back in late 2017, the company published poor financial statements that once again disappointed the market, and its share price plummeted in response. Six weeks later, Schultz presented Teva's major streamlining plan aimed at saving the company $3 billion a year, so that it would be able to repay its enormous debt. The progress in implementing this plan restored some of the confidence in Teva that investors had lost, and the company's share surged 130%, reaching $25.70 in August 2018. Since then, however, the trend in Teva's share has turned sour, especially since January.

The market is alarmed about Teva's exposure to lawsuits involving both the marketing of opioid pain relievers and price fixing in the generic drug market, and is also starting to worry again about Teva's ability to repay its debt.

Although Schultz took up his position in November 2017, his appointment was reported two months earlier. As part of its desire for a big-name CEO, Teva granted Schultz an especially generous remuneration package that included a $20 million signing bonus, $2 million in annual base pay, a $4 million annual bonus, and capital remuneration. Schultz received three packages of blocked shares from Teva: a $5 million package maturing after three, four, and five years, and two $7.5 million packages, which he will receive if the share price reaches a given price within three years of the beginning of his term. While it appeared last summer that Schultz was on the way to earning millions of dollars more with the vesting of the blocked shares, this now seems less likely.

Assessment: Large criminal fines unlikely

Citibank economists covering the pharmaceutical industry wrote in response that proving price fixing is not easy - it requires both shared movement of prices and an "additional factor" - evidence of conspiracy. According to the Citibank economists, Connecticut Attorney General William Tong claimed that he had important evidence proving the allegations, including e-mails, telephone calls, and text messages. Citibank believes that the likelihood of the case ending in an out-of-court settlement with the respondent companies is high, but is having trouble assessing how much this settlement will amount to. Its analysts believe that no criminal fines are likely, but that civil fines in the case could be higher. "This is a potential hazard for companies with leveraged balance sheets, including Teva," Citibank writes.

Among other things, Tong stated on the CBS "60 Minutes" program that the price-fixing conspiracy was the biggest in US history. Tong stated on the program that his office had been examining evidence of generic drug price fixing since 2006. When "60 Minutes" correspondent Bill Whitaker asked how many drugs were involved, Tong's answer was "hundreds of drugs." Tong dismissed the generic drug industry's argument that market forces had caused the price rises, saying "…we have evidence, hard evidence, in the form of text messages, emails, documents, witnesses that demonstrate clearly that it wasn't about product shortages. It was about profit. It was about cold, hard greed."

Two investigators who prepared the evidence for the allegations told "60 Minutes" that they had obtained nearly 19 million incoming and outgoing online messages and telephone records from the generic drug companies. The software that they acquired, which is used by investigators trying to crack drug cartels, helped them outline a pattern of friendly relations between companies that were supposed to be competing with each other. The recurring pattern that they found was a substantial increase in telephone and online communications between the companies shortly before increases in drug prices.

Published by Globes, Israel business news - en.globes.co.il - on May 15, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Kare Schultz Photo: Shlomi Yosef
Kare Schultz Photo: Shlomi Yosef
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