Teva in Turmoil

Back in January, Teva Pharmaceuticals had made our Best News of 2012 roster, based on its announced intention to revamp and refocus its R&D on CNS and respiratory disorders, and to invest $10 billion over the next five years to building their pipeline
via licensing and acquisitions. We concluded that “Teva will be a very interesting story to watch going forward.”

And so it is, but not at all in the way that we’d expected, or hoped for. CEO Jeremy Levin abruptly departed shortly before we went to press with this issue; there is some dispute over the process by which this occurred, whether he resigned or was pushed. Our guess is that the latter is more-to-the-point: There had apparently been heightened conflict between Levin and Teva’s BOD over Teva’s future course, which was going to include some combination of dramatic cost-cutting (it had recently been announced that a 10% workforce-reduction would be initiated) and investment in new products-in-development as Copaxone’s demise approaches.

NIR had not greeted all of Levin’s initiatives with untrammeled enthusiasm: His projection of major revenue streams from new reformulated drugs (“New Therapeutic Entities”) seemed overly optimistic, and his style could veer into the abrasive. But his plan to also license and fully develop genuine New Chemical Entities, with CNS as one of the two therapeutic areas of choice, was in our view a welcome and savvy contrarian play, in contrast to the shift of some Big Pharmas away from CNS.

Now, this appears to be at risk, and comments from one Teva BOD member that the issue was leadership rather than direction are not reassuring, the latter seemed to be integrally intertwined with the former. The other issue here is systemic: BMS veteran Levin had taken the CEO position at the very beginning of 2012, and for intractable conflict to have developed vis-a-vis Teva’s BOD in less than two years suggests significant unresolved issues as to power and control within Teva’s organizational structure.

We had also seen the arrival of CSO Michael Hayden, given his strong and longterm interest in neurodegenerative disease, as a harbinger of a new era at Teva. Now, we will be watching to see if he stays or leaves. If he leaves, that would raise the odds that Teva may opt to deal with the Copaxone crisis primarily via draconian cost-cutting rather than simultaneously pursuing a R&D investment strategy. On the other hand, if Hayden stays at Teva, that probably can be interpreted as indicating that the drug development strategy remains intact. Teva has enormous resources and its new strategy was promising: Our hope is that they do not delude themselves into thinking that they can subtract their way to growth.

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