Teva's outgoing CEO earned NIS 20m in 2016

Erez Vigodman Photo: Eyal Yizhar

Teva's five highest-paid executives earned an aggregate $25 million.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) published its full reports for 2016 yesterday, showing that its five highest-paid executives earned an aggregate $24.8 million for the year, including a stock-based element of $13.4 million. Of these five executives, generics division head Sigurdur (Siggi) Olafsson resigned several months ago, and chief legal officer Richard Egosi unexpectedly died during the year, while CEO Erez Vigodman, recently resigned.

The compensation received by the two who left the company kept CFO Eyal Desheh out of his usual spot in the top five. Teva managers' bonuses are usually linked mainly to the company's reported non-GAAP results, which were significantly better than its GAAP results this year, due to the Teva's many write-offs during the year.

Vigodman, who left his post last week following the unsuccessful and expensive acquisitions he led and the loss of market confidence in the company as a result of its failure to meet its forecasts, declined to take his cash bonus in 2016, thereby putting him in third place in salary in the company. Vigodman was paid $5.3 million ($2.3 million in base pay and the rest in capital). The cost of Vigodman's 2015 salary was $5.7 million ($2.2 million in base pay and the same amount in a bonus for the company's results that year). Vigodman is expected to receive $3 million more in severance pay.

The cost of President of Global R&D and Chief Scientific Officer Dr. Michael Hayden's salary was $5.5 million, including a $2.2 million stock-based element. Teva global operations president and CEO Dr. Carlo de Notaristefani earned $3.9 million, including a $2 million stock-based element.

The nearly 50% nosedive in Teva's share price last year led Teva employees (57,000, including 6,900 Israelis) to exercise only $5 million in company options, compared with $120 million in 2015. The drop in the share price, which is making it difficult for the company's employees to exercise their options, is liable to affect its staff.

Teva's report includes a description of the risks the company is likely to face in the coming years. The leading risk is the company's dependence on generics. Generics accounted for 55% of the company's revenue in 2016, projected to rise to two thirds in 2017, according to the report. Teva's forecasts also do not take generics competition with Copaxone in 2017 into account.

Profit margins in the generics market are substantially lower than for the company's branded business: 48% gross profit, compared with 87% in branded activity. The generics market is also currently subject to price pressure and growing competition.

Teva this week published its financial results for 2016, one of the most difficult years in its history. The company met its revised forecasts for 2016, which were published together with its third quarter results, and confirmed its forecasts for 2017. Confirmation of the 2017 forecasts came as a relief to the market, which feared that the company would take advantage of the change in CEOs to further lower its 2017 forecasts.

The Teva share price rose again on Nasdaq yesterday, and is already 13% higher than its low point reached just before the company first published its annual results on Monday. The rises in the share are probably due the company's reiteration of its 2017 forecasts and its prediction that there would be no generics competition for Copaxone in 2017 (most of the analysts include such competition in their models, but the company's opinion nevertheless leaves some room for hope).

Teva's reports also provide more certainty about the write-offs that the company has made. Teva wrote off $2.5 billion more than the market expected in its 2016 reports, including $900 million on the $2.3 billion acquisition of Mexican company Rimsa, which the company admitted to have been a failure. What about the rest of the $2.3 billion? Teva said that it had identified Rimsa's problems and was now aiming to resume the company's production activity and again obtain approval for its products. It appears that Teva believes that all of its investment is not lost.

Teva is now led by former chairman Yitzhak Peterburg, who was appointed temporary CEO after Vigodman left his job a week ago.

Published by Globes [online], Israel Business News - www.globes-online.com - on February 16, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Erez Vigodman Photo: Eyal Yizhar
Erez Vigodman Photo: Eyal Yizhar
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