Teva Names a New CEO: Can He Deliver?(4)

More than seven months after its last CEO quit, Teva Pharmaceuticals named Kaare Schultz, president of the Danish company H. Lundbeck and formerly for many years in Novo nordisk, to lead Israel’s biggest company at a time when it is struggling on multiple fronts.

Schultz had added more than $3 billion to Teva’s market capitalization since the announcement even before entering company headquarters. Teva, powered its shares 16.6% higher on the Tel Aviv Stock Exchange and in New York, Schultz got an even more enthusiastic welcome, with Teva shares up 19.6% at $18.54 in early afternoon local time. Until Monday’s rally, Teva shares were down 80% from their peak in summer 2015.

Most analysts like this nomination. They have emphasized that new CEO has rich and proven experience in building revolutionary strategies side by side with implementing reorganization and efficiency measures. His strategic and operation experience brought them to believe that can be successful not only in proprietary drugs but in improving its generics operations.

A few question- marks regarding this nomination:

1. Schultz, 56, will be compensated generously, with $40 million plus shares for signing on. His predecessor, Erez Vigodman, didn’t get a signing bonus and was offered just $4.5 million for his first year on the job in 2014. This is creating high expectation especially as this compensation is considered very high even for U.S. pharma. Will Schultz able to restore the trust of the capital market in the company, which was very hurt.

2. Schultz has almost no experience with the generic drugs industry which is the major part of Teva's business, although he has a successful experience in turnaround and restructuring program in Lundbeck since May 2015, leading a corporate share prices climbed 300%. He will have to cope with a major challenge: the trend of deterioration in the US generic industry which is the "bread and butter" of Teva which already affects strongly on its results.

3. The former CEO of Teva, Vigodman, led Teva into a badly mistimed $41 billion acquisition of U.K. drug company Allergan’s generics unit last year. The deal failed to deliver the sales boost he promised and saddled Teva with a $35 billion debt burden, which today is almost twice its market value. Such a high debt will severely constrain Teva's ability to maneuver in the coming years, particularly with respect to purchasing moves and the like. Will the new CEO Schultz will be able to deal with such a heavy burden which he never came across with in his career?

4. The multiple sclerosis treatment Copaxone, which is responsible for almost half of Teva revenues, is expiring. For the second quarter, Teva posted a huge $6 billion loss, slashed its dividend and announced big job cuts. Is it possible to find fast a new alternative?!

 5. Schultz is not familiar with the Israeli organizational culture of Teva that is much different then what he knows in Scandinavia. Especially when he does have a broad experience of running global business outside Scandinavia.

6. It looks as if Schultz will have to decide whether to split Teva’s generics and specialty drug lines into two different businesses and needs to drum up enough cash from asset sales and job cuts to avoid breaching debt covenants in the coming months. It is doubtful to be possible.

Teva will have is to release itself from dependency on genetics and concentrate even more on original medicines the worries are these: is the new CEO the right man? Does Teva have the right people and the right products in the pipeline? CEO Schultz will have to make decisions where to focus while he under a strong pressure by the time line.

And a final note: Teva has to keep better track of its competitors in the market and to make necessary organizational changes based on market needs. Additionally, it has to improve anticipatation of competitors’ offerings and analyze their abilities to grow, and capture market shares.

Key words: competition, Teva, competitive strategy, turnaround, generic drugs.

Avner Barnea, Ph.D. is a senior competitive intelligence strategic consultant and also teaching strategic CI in various MBA programs in the academia in Israel. He is the head of special program on competitive intelligence, corporate security, cyber security and crisis management in the MBA program at Netanya Academic College, in Netanya, Israel. He is also a former senior officer with the Israeli Intelligence Community and currently chairman of the Israel CI Forum (FIMAT) and he is also member of SCIP Board of Directors. He is a research fellow, National Security Studies Center, University of Haifa, Israel. [email protected]