Teva CEO Departs, Perrigo Strikes Activist Deal As Generics Face Headwinds

Shares of Teva Pharmaceutical (TEVA) are sliding after the company announced that CEO Erez Vigodman will be stepping down, with its current chairman Yitzhak Peterburg taking over as interim chief executive. Commenting on the news, Oppenheimer analyst Derek Archila said the CEO exit will likely create near-term uncertainty, while his peer at Credit Suisse told investors the change may allow for a "fresh start." Meanwhile, generic drug industry peer Perrigo (PRGO) conceded to pressure from an activist investor and added him, and some other directors, to the company's board.

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NEAR-TERM UNCERTAINTY: In a research note to investors, Oppenheimer's Archila said he believes the CEO change comes at a "critical juncture" for Teva and creates another degree of uncertainty as to whether the company can execute in the near-term. Vigodman's tenure saw Teva expand the company's global generics business through the acquisition of Actavis, making it the largest generic company in the world, the analyst noted. However, Archila pointed out that the deal was expensive, leaving it saddled with about $37B in debt. The recent headwinds to its generic business that required Teva to lower previous 2017 guidance and recent invalidation of the Copaxone 40mg patents have left some investors questioning management's execution, the analyst said. Still, he continues to see Teva as well positioned longer-term given the company's deep pipeline, diversified generic portfolio and integrated generics business. He reiterated an Outperform rating and $43 price target on the shares. Citi analyst Liav Abraham voiced a similar opinion, saying he believes the departure of the CEO exacerbates the near-term uncertainty at Teva. While the analyst acknowledged that the reasons for Vigodman's abrupt departure remain unclear, the timing of the announcement, one week prior to fourth quarter earnings release, will likely increase concern that yet another guidance downgrade is imminent, either due to the inclusion of generic Copaxone 40mg competition in the company's base case guidance, and/or due to the changing dynamics in the generics business. He reiterated a Buy rating and $47 price target on Teva shares.

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