Teva rallies after finding experienced CEO

Shares of Teva Pharmaceutical (TEVA) surged in morning trading after naming a permanent chief executive officer, ending a months long search for a new chief. The new CEO brings 30 years of global pharmaceutical and healthcare experience.

CEO APPOINTMENT

Teva this morning said that it has named named Kare Schultz to be its new president and CEO. Schultz will relocate to Israel and will be based out of the company’s headquarters in Petach Tikva, the company stated.

He will succeed Yitzhak Peterburg, who has been serving as interim CEO since Erez Vigodman stepped down in February.

Schultz joins Teva from H. Lundbeck (HLUYY), where he has served as president and CEO since 2015. Prior to joining Lundbeck, Schultz worked for nearly three decades at Novo Nordisk (NVO), where he once served as the company’s chief operations officer.

Sol Barer, Teva’s chairman, told the Wall Street Journal that the company searched for months for a CEO to “make sure we got the right person,” adding that “this is a critical time in Teva’s history.”

WHAT’S NOTABLE

In July, rumors had swirled that Teva would name AstraZeneca (AZN) CEO Pascal Soriot as its new CEO.

According to a Calcalist report at the time, Soriot met with Teva’s chairman and search committee and “expressed his agreement” to serve as the next CEO. Soriot later told Bloomberg that he plans on staying at AstraZeneca “for the foreseeable future.”

In addition to Vigodman’s departure in February, Teva CFO Eyal Desheh left the company at the end of June, being replaced on an interim basis by Michael McClellan.

In August, shares of Teva dropped after the company cut its full year outlook and its dividend, citing the impact of increased price erosion in its U.S. Generics business.

DEBT BURDEN

Teva, which is looking to pay down more than $5B of debt this year, is looking for “a series of partners,” a spokeswoman confirmed to Reuters last month, adding that its intent is “not to fund the whole pipeline, just some projects in it. A small part of it.

” The drugmaker is also pursuing the sale of certain non-core assets to extract synergies related to the Actavis Generics transaction, Peterburg has said.

Looking ahead, new CEO Schultz is likely to face pressure from investors to split the company into two businesses.

NEW CEO A “POSITIVE CATALYST”

This morning, BTIG analyst Timothy Chiang upgraded Teva to Buy from Neutral, calling the CEO appointment a “positive catalyst that should help create a floor for the shares and provide a boost to near-term investor sentiment.” #Chiang is upbeat on Teva’s decision to hire “an experienced pharmaceutical executive” as its new chief and is bullish on fremanezumab, Teva’s migraine treatment.

Raymond James analyst Elliot Wilbur said Teva strength today likely reflects the company landing a name brand CEO in Kare Schultz. The analyst said Schultz’s arrival likely marks a short-term bottom in shares, but does not change the need for bold strategic action and heavy investment spend in order to resurrect top line growth in the face of generic headwinds. #Wilbur said financial flexibility remains limited and much remains to be seen in terms of how the company will be reshaped, and doesn’t see favorable risk/reward scenarios even at current depressed levels. Wilbur rates Teva a Market Perform.

SHORT RATIO

The short ratio, short interest ratio (SIR) or float short for a public company is the ratio of tradable shares being shorted to shares in the market, or the float. It is an indirect metric of investor sentiment. When short interest is high, above 40%, it implies company investors hope shares will decline in value.

According to the latest data, 41.9 million shares of TEVA have been shorted as of August 15th. The stock has a 26 million daily average trading volume of 26 million,giving it a short ratio of 1.62.

A short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock. Short squeezes result when short sellers cover their positions on a stock, resulting in buying volume that drives the stock price up.

PRICE ACTION

Teva is up nearly 16% in Monday’s trading to $17.89. Year-to-date, however, shares are down about 52%.

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