Teva's ex-CEO reportedly forced polygraph tests on board to plug media leaks

Jeremy Levin

The dust hasn't settled after ex-CEO Jeremy Levin's quick-and-dirty departure from Teva Pharmaceutical Industries ($TEVA). In fact, the dust just keeps getting stirred up as more details emerge about the company's inner workings. Meanwhile, the company is trying to get the wagon train moving again by asking the U.S. Supreme Court to block generic versions of its top-selling multiple sclerosis drug, Copaxone.

The latest behind-the-scenes report, from Israel's Channel 2 (as reported by Globes): One cause of the rift between Levin and the board was an internal investigation into directors' leaking information to the media. Some 6 months ago, fed up with breaking news about his turnaround plans, Levin hired Wizman Yaar Investigations to probe the potential leaks. Teva directors were grilled about telephone conversations and required to take polygraph tests.

The board had acceded to Levin's demands for an investigation. Teva's soon-to-retire chairman, Phillip Frost, and every board candidate to replace him were compelled to participate in the probe. And as the questioning progressed, resentment grew, Channel 2 said. Directors told the news broadcast that they felt they had no choice but to participate; otherwise, they'd be considered suspect. Eventually, Globes reports, the source of the leaks was exposed.

High drama, then, at Teva, which looks more and more troubled as time goes on. The news of the polygraph tests and interrogations comes after a series of conflicts at the company. Teva announced a 5,000-job layoff program, including cuts in Israel. An outcry there ensued. Teva directors publicly questioned Levin's handling of the company's cost-cutting plans. Levin and other top managers wrote to the board demanding that directors stop meddling in Teva's day-to-day business. Levin reportedly threatened to resign. Then, two days later, he was gone--and soon after that, made clear that he a. would have preferred to stay on, and b. didn't consider his departure a resignation.

Asked by Globes about the Channel 2 report, Teva said Levin's exit from the company "was carried out with the agreement of the parties. Any other speculation is untrue." That jibes with Levin's latest account: "Teva's board of directors and I agreed that I will leave my post," as told to the news service Calcalist.

Now, analysts are wondering what sort of CEO candidate would want to step into the dust-up at Teva. The company says it's not worried about finding a replacement. And meanwhile, the patent life on Copaxone drains away, day by day, with generics now expected to hit as soon as next May.

Unless, that is, Teva can persuade the Supreme Court to intervene. Last week, a U.S. Appeals Court refused to re-hear Teva's patent-infringement case; that same court in July invalidated a key patent that would have protected Copaxone through November 2015. Yesterday, the company asked the Supreme Court to grant a stay while it prepares an appeal of that ruling, Reuters reports. The company's request cited "irreparable harm" if the appeals court ruling goes into effect.

Copaxone brought in $4 billion for Teva last year. It's facing competition from new brands now, but it still was expected to haul in the cash through the end of its patent life. That would give Teva time to develop its new longer-acting version and carve out a place in the market. And, per Levin's plans, cut costs, impose greater efficiency in manufacturing and operations, buy in some new products and product candidates, and get going on a new drug-delivery development strategy.

After Teva reported third-quarter results last week, Barclays Capital said the reasonable numbers didn't trigger a stock sell-off--but investor disappointment at Levin's departure did. In Barclays' analysts' view, morale among investors and at Teva would suffer, and its attempts at dealmaking likely would be met with skepticism now that Levin is gone. That remains to be seen. But there's no question Teva is in disarray at the moment, with top managers and employees uncertain about the company's future. Gossip at the water cooler--and with the local media--will likely continue.

- check out the Globes piece
- see the Reuters story

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