Teva May Need to Pay Up to Lure a CEO Able to Reverse its Fortunes

By Rory Jones in Tel Aviv and Denise Roland in London Features Dow Jones Newswires

Troubled Israeli drugmaker Teva Pharmaceutical Industries Ltd., which for months has been unsuccessfully searching for a new chief executive, may be forced to open its wallet wide to lure a candidate to help reverse its fortunes.

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The world's biggest seller of generic medicines lost a quarter of its market value Thursday as concerns mounted about its future. Teva is laden with $35 billion in debt and is wrestling with a sustained decline in U.S. generic drug prices. The company's second-quarter earnings fell short, it cut its full-year earnings outlook and dividend and warned it may breach debt covenants.

Chairman Sol Barer has said he is searching for a chief with global pharma experience and that finding a new CEO is a priority. "I live, eat and sleep this," he told analysts Thursday. So far, nobody has signed on. Teva Friday declined to comment beyond the chairman's previous statements.

Investors and analysts said Teva will have to significantly increase its compensation package to snatch an executive from a competitor that could help reassure investors.

"They have to pay more than market" now that the scale of the company's problems has become clear, said Eldad Tamir, Tel Aviv-based head of investment house Tamir Fishman, who doesn't hold Teva stock. "If you want a great CEO to save this sinking ship, you need to pay extra."

Erez Vigodman, the prior CEO who abruptly departed in February amid a steady decline in its share price, received $5.3 million in salary and equity shares last year, company filings show.

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Heather Bresch, CEO of Teva-rival Mylan, received $13.8 million in total compensation last year, according to company filings. On average, CEOs of S&P 500-listed health care companies received $12.9 million in total pay in 2016, according to analysis by executive compensation and recruitment consultancy Equilar.

Teva is reportedly in talks to hire as CEO Pascal Soriot, head of the U.K.-based pharma giant AstraZeneca PLC. He earned GBP13.4 million ($17.5 million) in compensation last year, more than three times Mr. Vigodman's pay.

AstraZeneca and Teva have refused to confirm or deny reports Dr. Soriot will move.

Teva hasn't commented specifically on whether it will pay more than previous years for a chief executive. Mr. Barer said he was "pleased" with the candidates he is interviewing, but wouldn't say when one would be hired.

The new CEO faces a long list of challenges. At the top is reducing Teva's debt pile that grew after last year's $40.5 billion acquisition of Allergan PLC's generics business in 2016. Investors have since said Teva overpaid for the business. The company Thursday warned that if proceeds from divestments or cash flow fall short, the company could breach debt covenants with lenders.

Teva also faces the loss of patent protection for its biggest branded drug, Copaxone, with no clear replacement in sight. Copaxone, which treats multiple sclerosis, generated about $4 billion in annual sales. Investors say the company failed to invest sufficiently in research and development to line up new products to replace Copaxone sales.

"Whoever is appointed will be heavily incentivized to drive that turnaround," said Nathaniel Hook, health care specialist at executive search firm Korn Ferry, which isn't involved in the Teva search.

Teva's status as Israel's largest company by market capitalization, even after losing 64% of its value since the end of 2015, brings with it its own management challenges. The last foreigner to run the company, Jeremy Levin, was hired from Bristol-Myers Squibb Co. in 2012 but was ousted a year later during a dispute with the board over strategy.

Investors have long debated about whether the chief should be an Israeli, or at least based in Israel. The company hasn't said where the new CEO would be a resident.

Dr. Barer has said the firm will do "whatever it takes" to hire the best candidate but hasn't commented explicitly on whether the chief will be allowed to live outside Israel. He nominated four new directors, three from outside Israel, in June in an effort to address investor concerns that its board lacked international pharmaceutical experience.

"There will be a smaller number of CEO leaders who will be prepared to relocate to Israel," said Korn Ferry's Mr. Hook. "In order to get the very best talent to move, you often do see some compensation or premium."

Write to Rory Jones at rory.jones@wsj.com and Denise Roland at Denise.Roland@wsj.com

(END) Dow Jones Newswires

August 04, 2017 10:46 ET (14:46 GMT)