Teva faces skepticism over CEO hunt, transition plans
- Embattled generics drugmaker Teva, trying to restore investor confidence a week after ousting CEO Erez Vigodman, stressed in a Feb. 13 earnings call that its board is conducting a global search to identify a permanent CEO "with deep and broad pharmaceutical experience."
- The Israel-based company is also facing a looming threat from generic rivals to its top-selling multiple sclerosis drug Copaxone (glatiramer). Competition could come as early as this month after a court ruled against Teva in a legal dispute over key patents on the 40 mg/mL version.
- Teva said entry of generic Copaxone copies could cut as much as $1.3 billion off of 2017 revenues if the generics do, in fact, launch this month. Surprisingly, however, Teva did not cut its guidance further despite the legal setback.
After describing 2016 as "an extremely challenging year," company officials said Teva’s main focus now is to find a new CEO after Vigodman’s Feb. 6 departure.
But they offered few answers on the company's transition plans, sidestepping investment analysts’ questions about the board’s comprehensive search for a permanent CEO and whether to expect additional departures from the senior management team.
Teva interim president and CEO Yitzhak Peterburg said the company would launch a review of the business, brushing off concerns about conducting a strategic review before a new CEO is in place.
"[W]e are committed to a thorough review of the business. This is a critical time for Teva, and we are here to fix what is not working. And as I have said, we will leave no stone unturned," Peterburg said.
A successful search will bring in Teva’s fifth CEO in five years. "[W]ith the pending hire of yet another CEO, many investors have heard this story before and will arguably be skeptical," Jefferies analysts bluntly wrote in a Feb. 13 note. "The company is looking for a CEO ‘with significant pharmaceutical experience.’ We note the previous CEO did not come from industry."
During the earnings call, Peterburg said Teva’s 2017 priorities would be threefold: "extracting all synergies" related to the acquisition of Actavis Generics, launching key generic and specialty products, and "generating significant cash flow to rapidly pay down our existing debt to maintain a strong balance sheet."
Teva, which reported debt of $35.8 billion as of Dec. 31, is reportedly in the early stages of weighing options to sell some of its branded generic drug business, according to Bloomberg. That debt overhang could limit the companies options for pursuing growth opportunities if Copaxone sales fall as dramatically as estimated.
Copaxone sales in the fourth quarter did grow over the same period a year ago, climbing to $1.015 billion for the quarter. The drug recently launched in France and is developing well in Europe, Teva said.
But the generic threat to Copaxone makes forecasting tricky.
If one to two generics rivals for Copaxone (40 mg/mL) were to launch this month in the U.S., it could reduce Teva’s revenues by $1 billion to $1.3 billion, CFO Eyal Desheh said.
"We are maintaining a higher level of expenses to support sales compared to what we had in the January guidance, and we estimate earnings per share decrease of $0.75 to $0.95 if this happens immediately."
Teva had previously forecast an EPS drop of 65 cents to 80 cents.