Teva's CEO News Is Encouraging

We find the departure of Schultz concerning for Lundbeck, as the company’s turnaround success can largely be attributed to Schultz’s aggressive tactics after taking over as CEO in mid-2015. Shortly after his appointment, Schultz announced a bold plan for margin expansion, signifying a stronger alignment with shareholders' interests and a clear plan for Lundbeck’s return to profitability following patent losses on key drugs. Now that the threat of the firm’s patent cliff is nearly behind it and cost reduction strategies have largely played out, we don’t expect significant changes to Lundbeck’s upward growth trajectory with Schultz’s departure. However, coupled with the simultaneously announced departure of Chief Commercial Officer Staffan Schuberg and lack of executive replacement plan from Lundbeck’s board, we are less confident in the company’s ability to execute on additional margin expansion tactics. We think the recent sell-off feeds into our thesis that the market is over-rewarding Lundbeck for its turnaround story.

Schultz inherits difficult challenges at Teva, including a potential generic Copaxone launch, high financial leverage, and competitive pressures in the generics industry. In the near term, we don’t imagine Schultz’s leadership will lead to dramatic changes since the firm has already announced layoffs, closed manufacturing sites, and plans to sell certain assets. Longer term, however, Schultz’s familiarity in branded drug markets could cause the firm to take on more product development risk, with purchases of earlier-stage products and more dramatic asset sales.

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