Troubled Teva appoints new CEO in bid for direction

Teva Pharmaceutical Industries, Ltd. on Monday appointed Kåre Schultz to become the company’s president and chief executive officer, tasked with setting up the Israeli firm’s strategy, divesting assets, cutting its debt and restoring investor confidence.

Teva’s shares were trading seven percent higher at 11.01 a.m. in Tel Aviv after the news was released.

Schultz, 56, has a nearly 30-year career in global pharmaceutical and healthcare companies and most recently served as the president and CEO of Denmark’s H. Lundbeck A/S, where he led restructuring initiatives and launched a turnaround strategy.

Prior to his role at H. Lundbeck, Shultz served as Chief Operating Officer of Novo Nordisk, where he had a role in building the company into one of the world’s best-performing drugmakers and implementing a metrics-focused approach to the company’s operations, Teva said in a statement.

Schultz will be relocating to Israel, where he will work out of the Company’s Petah Tikva headquarters. He will succeed Yizhak Peterburg, who will continue to serve as interim chief executive officer until Schultz joins the firm. Separately, Teva said Schultz will take the helm of the company as soon as practically feasible.

Kåre Schultz of Teva. (Courtesy)

“With global pharmaceutical experience, a strong track record executing corporate turnaround strategies, driving growth and international expansion at low incremental cost and delivering on promises to shareholders, as well as a commitment to a culture of compliance, Kåre is the right leader to take Teva to the next level,” said Sol Barer, chairman of Teva’s board of directors.

“Kåre has deep insight into the global pharmaceutical industry and a keen knowledge of the generic and specialty drug markets,” he said. “His proven strategic, financial and operational capabilities and his strong commitment to growth will enhance value for all stakeholders and position Teva for long-term success.”

His disciplined commitment to excellence “makes him a clear professional and cultural fit with our company,” Barer said.

Teva has been on the hunt for a new CEO ever since Erez Vigodman said in February he would step down, three years after he took the post in an effort to turn around the fortunes of the drugmaker. Peterburg was appointed interim president and CEO and has been at the helm of the firm since.

Vigodman’s departure came as the Israeli company, until recently a source of national pride and a fixture of local investment plans, has been dogged by a series of purported missteps, including the $40 billion acquisition of drug company Actavis Generics, a failure to fend off competition for its blockbuster proprietary medication for multiple sclerosis, and inability to find an alternative revenue-maker to Copaxone, as its patents expire.

Teva’s first, and until now only, non-Israeli CEO, South-African born Jeremy Levine, lasted less than two years in the job before leaving, reportedly amid disagreements with the board regarding cost cutting measures.

One of the new CEO’s first and key mission will be to oversee and implement Teva’s merger with Actavis, a deal that is expected to generate some $1.4 billion in synergies and tax savings by the end of 2019, Teva has said.

While the longer-term implications of Schultz’s appointment on the strategic direction of Teva remain unclear, his near-term priorities are likely to focus on addressing Teva’s bloated cost base, where there is significant opportunity for rationalization following the Actavis acquisition,” wrote Citi analyst Liav Abraham in a note on Monday. “We are hopeful that Teva’s Board of Directors has provided Mr. Schultz with the mandate to make the operational changes necessary for longer term value creation at the company.”

Since Schultz took his position at H. Lundbeck in 2015, the shares of the firm have jumped 218%. H. Lundbeck shares plunged some 13%, the most in almost a year, at 9:45 am in Copenhagen on Monday, according to Bloomberg data. The company’s shares have advanced 42% in the past 12 months.

“I look forward to working closely with the entire team at Teva to build a future of success for the Company and its stakeholders,” Schultz in a statement.

The Israeli’s drugmaker’s debt is more than $30 billion, twice the current value of the company. Peterburg has put assets up for sale and announced the closing down of factories and some 7,000 layoffs, to bring down costs.

“We are delivering on the commitments we have made over the last several months,” Peterburg said in a statement Monday. “We are optimizing our operations and geographical footprint while focusing our resources on the specialty and generics pipeline assets that offer the most attractive return on investment. In addition, we are on course to hit our target of generating at least $2 billion from the sale of non-core assets, which we will use to strengthen Teva’s balance sheet. It is a privilege to lead Teva and I look forward to continuing to do so during this time, and will work with Kåre to ensure a seamless transition once he joins.”

Teva Tel Aviv-traded shares have dropped 68% in the past 12 months.

In a statement to the Tel Aviv Stock Exchange, Teva said that the employment agreement with Schultz is for an initial term of five years, subject to automatic renewal for subsequent one-year periods. Under the employment agreement Schultz will receive an annual base salary of $2 million, a performance-based target annual bonus opportunity equal to 140% of his annual base salary and equity incentives and benefits. He will also receive and a sign-on cash award of $20 million and shares and options.

This makes the hire not cheap for Teva, wrote Citi’s Abraham.

“The news will be a short-term positive for the stock as most Israeli institutions are underweight, so they will be buying the shares,” said Saar Golan, a sales trader at the Bank of Jerusalem. The new CEO “faces many challenges in the medium and long term, including dealing with massive debt, divestments and laying out a new strategy for the company.”