* Vigodman to become CEO on Feb. 11
* First priority is likely to be cost cuts
* Investor calls for sweeping change in management
* Vigodman pushed chemicals maker MA into new markets
* Teva shares down 0.4 percent in Tel Aviv
By Tova Cohen
TEL AVIV, Jan 9 Teva Pharmaceutical Industries
named industry outsider Erez Vigodman to lead a
revival of the world's biggest generic drugmaker with a push
beyond its ailing core business into branded drugs.
Vigodman must first steady the ship with cost cuts and heal
divisions in the board before moving to reduce Teva's reliance
on copycat medicines, whose profits are waning as competition
grows and business opportunities dwindle.
Investors are not yet convinced that Teva, Israel's biggest
company by market value, can find new income sources to offset
the impending patent expiry on multiple sclerosis treatment
Copaxone, its most profitable product by far.
Its shares have underperformed the MSCI World Health Care
Index by nearly 40 percent in the past two years
and the stock trades at eight times forecast 2014 earnings -
just over half the sector average.
The stock rose 3.4 percent in the past three trading
sessions as Vigodman emerged as the clear candidate for CEO. The
shares were down 0.4 percent at 143.6 shekels in afternoon
trading in Tel Aviv.
Vigodman, 54, has led MA Industries, the world's biggest
generic agrochemicals company, since 2010, returning it to
profitability by improving day-to-day operations and investing
in areas that drove organic growth.
He has been a Teva board member since 2009 and was the clear
front-runner to lead the company.
But analysts pointed to stark differences between the
pesticide and drug businesses and said he must quickly master
his brief to steady the nerves of investors.
"The timeline to bring out new pharmaceutical products is a
different ball game. It's not the same regulatory issues and
it's more complicated," said an analyst who asked not to be
Generic drugmakers benefited in recent years from increased
uptake of their products by cost-conscious governments and
health insurers. The big profits often come from being first to
launch a generic drug when a patent expires.
But the number of those expiries has fallen and impending
regulatory changes will reduce the advantage of being first to
launch a copycat product.
Vigodman is likely to prioritize cost cuts to cope with the
reduced revenue from Copaxone, possibly as soon as this year.
The company already plans to lay off 10 percent of its workforce
and save $2 billion over five years.
"The chances that Vigodman will make big changes in strategy
in the short term are not high," said Sabina Levy, an analyst at
Israel's Leader Capital Markets.
Ori Hershkovitz, managing partner at the $350 million Sphera
Global Healthcare Fund, said Vigodman must first reassure the
market that he understands Teva's problem and can solve it.
Hershkovitz said Teva needed to replace more than half of its
top management with executives who have experience in turning
around drug companies.
In the mid- to-longer term, he said, the new CEO will have
to boost Teva's branded business through acquisitions and
partnerships, particularly in the specialty drug sector.
"The market is going to be very positive if Teva starts
buying specialty companies," Hershkovitz said, pointing to a
jump in shares of Forest Laboratories after it said on
Wednesday it would buy specialty drugmaker Aptalis for $2.9
EMERGING MARKET GROWTH
Teva's Vice Chairman Amir Elstein said Vigodman was a proven
restructuring specialist with experience growing business in
emerging economies and working with the capital markets.
Vigodman led MA's expansion in developing countries and
engineered a reverse merger with China National Chemical Corp
, giving it access to China. Previously, he was CEO of
Strauss Group, Israel's second-largest food and
beverage company. During his tenure, Strauss more than doubled
From 2009 to 2012, MA saw sales grow by a compound annual
rate of 9 percent, operating income by 33 percent and net income
by 55 percent. The improvement continued in the first three
quarters of 2013.
Teva has had difficulties making inroads in emerging
markets, adding to the uncertainty over its prospects.
A clash between its Florida-based Chairman Phillip Frost and
other board members led to the abrupt departure of CEO Jeremy
Levin in October.
Hershkovitz said those divisions had helped make Teva "by
far the worst positioned company in the pharmaceutical sector".
MA's board has begun looking for a replacement for Vigodman,
who will take charge at Teva on Feb. 11. Teva's acting CEO Eyal
Desheh will return to his previous position as chief financial
Teva plans to decide whether Vigodman will remain on the
board after he takes over as CEO.