Teva, the world’s largest generic-drug maker, have plunged 42% since their 2010 peak. Now the man hired to turn the company around just 18 months ago is gone, and analysts say it may be tough to find a replacement

Teva Seen Struggling in CEO Search as Board Under Fire

The shares of Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest generic-drug maker, have plunged 42 percent since their 2010 peak. Now the man hired to turn the company around just 18 months ago is gone, and analysts say it may be tough to find a replacement. Jeremy Levin, a former Bristol-Myers Squibb Co. executive, joined Israel-based Teva as chief executive officer with a reputation as one of the industry’s top dealmakers. A rift over the company’s future with Phillip Frost, the U.S. billionaire who is board chairman and Teva’s biggest individual shareholder, led to Levin’s ouster, opening questions about the ability of a high-powered replacement to manage Teva going forward.The queries follow by weeks the company’s announcement it would fire 10 percent of its workers to prep for the loss of patent protection for its $4 billion multiple-sclerosis drug Copaxone in 2014. Teva is also struggling with pricing pressure as countries cut back drug funding.

“A candidate will now ask himself if he should be joining a company in which the last CEO couldn’t function,” said Ori Hershkovitz, a partner at Sphera Funds Management Ltd. in Tel Aviv. “When Levin took the job at Teva he was considered a pharma god. But at Teva there’s only one boss and that is Phillip Frost. And Jeremy made the mistake of thinking he would be able to manage the company.”

An executive like Levin with decades of global industry experience will be reluctant to step in, said Hershkovitz, who owned shares of the Petach Tikva-based company in the past and before today was betting they would decline.

Interim CEO

Chief Financial Officer Eyal Desheh will be interim CEO while the board seeks a permanent replacement, the company said yesterday in its statement.

Levin’s conflict with Frost, a cigar-smoking dermatologist who has three times built successful companies, came to light as Teva sought to fire 5,000 workers, a plan that would have included hundreds of cuts in Israel.

While Levin sought a conciliatory approach by coordinating job cuts with the labor union head, Frost supported a no-compromise tactic, Israel’s Channel 2 reported this week, citing a letter from the executive committee to the board.

“The differences were over nuances rather than disagreement about the strategy itself,” the 76-year-old Frost said in a conference call with analysts yesterday. “It just got to the point where the slight differences couldn’t be resolved and we thought it was better to part ways.”

Teva’s ADRs fell 8.1 percent to $37.70 at the close in New York, the biggest drop since Aug. 8, 2011. The company, which reports third-quarter earnings today, has a market value of about $31.9 billion.

Analyst Questions

Analysts on a 50-minute conference call yesterday peppered Frost with questions on whether Teva could attract a qualified replacement amid concern about interference from the board. Teva is “a very dysfunctional organization,” David Maris of BMO Capital Markets told Frost on the call.

“The issue is not so much that Levin has gone, although that in itself is bad,” said Ken Cacciatore, an analyst at Cowen & Co., who has the equivalent of a buy rating on Teva shares, in a report.

“The issue is that we are unsure of what kind of talent that Teva will be able to recruit,” Cacciatore wrote. “The answer will be in whether the new CEO is seen as strong enough to dictate the appropriate terms to create value.”

Company Location

Another challenge for attracting talent will be location. Teva is based near Tel Aviv, and much of its management team, including the new interim CEO Desheh, sit in Israel. As Frost and Levin, a South Africa-born citizen of the U.K. and the U.S., sought to fire Israeli employees, local politicians and the media attacked them for ignoring tax benefits that Teva had enjoyed for years.

Potential candidates would “be very hesitant to be jumping into a debate about the company in its relationship with the government and of the role it should play in the Israeli economy as a so-called national champion,” said Andre Spicer, professor of organizational behavior at Cass Business School in London. “Tel Aviv is probably not the hotbed for pharma executives.”

Frost promised on the conference call that Teva will attract “talented, ambitious” candidates for the job.

Asked by Liav Abraham of Citigroup Inc. if he would consider taking the job himself, Frost said he wasn’t willing to live in Israel, as the new CEO will have to do, and the job requires someone younger. The chairman didn’t return phone and e-mail messages seeking comment.

Speaking Up

At the same time, a new CEO will have to deal with board members who don’t mind speaking up in public about the company’s actions, a role typically left to management at other companies.

Director Chaim Hurvitz, a former Teva executive whose father Eli Hurvitz led Teva as CEO for more than two decades, said Oct. 16 in an interview that the company would be ready to look for significant acquisitions in 2014. Yesterday, the board dispatched director Amir Elstein, along with Desheh, to talk to Israeli reporters on a conference call.

The Teva board’s involvement is “no more, and not different than, within other companies,” said Elstein, who is also a former Teva executive, in an e-mail yesterday. “We believe we will not have trouble finding an excellent CEO.”

Frost was elected chairman in 2010 to replace Eli Hurvitz, who was ill and died in 2011. Israeli politicians lauded the elder Hurvitz as a patriot in Israel who built the country’s largest publicly traded company.

In-House Candidates

At least two possible successors are within the company. Desheh, the CFO, is a candidate, Elstein said. And Hershkovitz, the hedge fund manager, said he expects the company to hire Erez Vigodman, a Teva board member with an accounting background.

Vigodman helped Makhteshim-Agan Industries Ltd., where he’s CEO, prepare for its eventual sale to a Chinese company in 2010. Makhteshim struggled to revive growth just as Teva is now struggling, said Hershkovitz. Vigodman or whoever comes next will be charged with selling Teva assets, he said. A spokeswoman for Makhteshim-Agan said the matter hasn’t been addressed at the company, and Vigodman is still CEO.

At Bristol-Myers, Levin was an architect of an aggressive acquisition strategy overseeing the so-called “string of pearls” policy of small deals to replace revenue lost as blood thinner Plavix faced generic competition. He was restructuring Teva before patents protecting bestselling multiple-sclerosis drug Copaxone expire next year and as the generic-drug unit struggles with pricing pressure and competition.

Past Acquisitions

Levin took over after his predecessors spent more than $30 billion in the past decade on acquisitions while failing to wean Teva off its dependence on the Copaxone drug. He was global head of business development and strategic alliances at Novartis AG from 2003 to 2007 before joining Bristol-Myers.

He has worked as a practicing physician and has a medical degree from Cambridge University and a doctorate from Oxford University in molecular biology.

Saddled with one of the industry’s highest debt loads, Levin opted to boost profitability by trimming costs and building the company’s branded-drug pipeline through small deals and partnerships in areas such as respiratory and neurology.

Frost joined Teva’s board after his company, Ivax Corp., was acquired by Teva in 2006 for $7.4 billion. In 1972, he parlayed a $50,000 investment in struggling Key Pharmaceuticals Inc. into an $825 million sale to Schering-Plough 14 years later. Now he is chairman and CEO at Opko Health Inc., a U.S.- based biotechnology company that doubled its market value this year to about $4 billion.

A Philadelphia native, Frost lives in a $53 million mansion on Star Island near Miami and also has investments ranging from gold mines to cigarette seller Vector Group Ltd.

Bond Value

The departure of Levin may hurt the value of Teva’s bonds because it “creates the potential for diversion from the clearly articulated business strategy” created by Levin and the board, Moody’s Investors Service said in a statement.

While it may not be simple, Teva will eventually find the right candidate, said Timothy Chiang, an analyst at CRT Capital Group LLC.

“Teva will have a tough time finding that guy near term but Teva is the largest generic-drug company in the world,” Chiang said by telephone. “They have a long history of success as a generic drug company and as a specialty pharmaceutical company.”

To contact the reporter on this story: David Wainer in Tel Aviv at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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