Perrigo To Separate Prescription Drug Business

Perrigo has announced plans to separate the company’s prescription pharmaceuticals (Rx) business following a strategic portfolio review. The move follows continuing weak performance in the company’s Rx business, which accounted for approximately 20% of the company’s net sales in 2017. A separation of its Rx business would leave the company’s primary focus on consumer healthcare or over-the-counter (OTC) products.

“…the Board believes a separation of the Rx business will better enable this unique asset to capitalize on its platform of differentiated generic pharmaceutical products and allows Perrigo to focus on expanding its leading consumer business,” Perrigo said in an August 9, 2018 company statement. “The Board will consider all value-enhancing options, including a possible tax-efficient separation to shareholders, a sale or merger.” 

Perrigo’s prescription pharmaceutical business develops, manufactures, and markets a portfolio of generic prescription drugs primarily in the US. The portfolio is defined by the company as predominantly “extended” topical as it encompasses a broad array of topical dosage forms such as creams, ointments, lotions, gels, shampoos, foams, suppositories, sprays, liquids, suspensions, solutions, and powders. The portfolio also includes select controlled substances, injectables, hormones, oral solid dosage forms, and oral liquid formulations. In 2017, the Rx segment represented approximately 20% of the company’s 2017 net sales of $5.28 billion. Its consumer healthcare business comprised 79% of sales: 49% in the US, Canada, and Mexico and 30% in international markets.

In its second-quarters earnings release, Perrigo President and CEO, Uwe Roehrhoff commented on the company’s financial performance, including the performance of the Rx business, “For the first half of calendar year 2018, adjusted EPS [earnings-per-share] performance met our operating goals, driven by the strength of our durable consumer businesses.  During the same period, the Rx business performed below our expectations and experienced weakness due primarily to a shortfall in new product launches coupled with challenging market dynamics, which is expected to carry forward into the second half of the year. This has resulted in changes to our 2018 operating plan, which are reflected in our updated guidance. I am extremely disappointed in this development and want to reinforce that my primary focus is to create value for shareholders.”

Perrigo reported net sales in its Rx business in second quarter of $209 million, down 13.2% compared to $240 million in the year-ago period. New product sales of $8 million were offset by lower net sales of existing products of $35 million, due primarily to price erosion, according to the company. In 2017, net sales in the company’s Rx business declined $73.1 million, or 7%, to $969.7 million from $1,042.8 billion in 2016.

With regard to the sale of Rx business, Perrigo has been subject to certain limitations to efficiently separate its businesses to shareholders since its $8.6-billion acquisition of Elan Corporation, a biopharmaceutical company, but those limitations are set to expire in December 2018 to enable a move with its Rx business. With the acquisition of Elan, Perrigo acquired a business portfolio that included royalties from multiple sclerosis drug, Tysabri (natalizumab), marketed and distributed by Biogen, along with a neuropsychiatric pipeline.

A separation of the company’s Rx pharmaceutical business is currently expected to be completed during the second half of 2019, which may include a tax-efficient separation to shareholders, a sale or merger, but the company says there can be no assurances as to the form or timing of a transaction or if a transaction will be consummated. Perrigo says it does not intend to disclose further developments on this process until it has determined that further disclosure is required or appropriate based on the current facts and circumstances.

A move to separate its Rx business follows other recent divestments by the company. In 2017, Perrigo completed the sale of its Tysabri financial asset, to Royalty Pharma for up to $2.85 billion. Also, in 2017, Perrigo completed the divestiture of its active pharmaceutical ingredient (API) business based in Israel to SK Capital, a New York, New York-based private investment firm focused on the specialty materials, chemicals and pharmaceuticals sectors, for $110 million. Earlier in April 2017, Perrigo completed the sale of its India API business to Strides Shasun, a Bangalore, India-headquartered pharmaceutical company.

With a separation of its Rx business, consumer healthcare would be the focus of the company. It has two segments in this area: Consumer Healthcare Americas (CHCA) and Consumer Healthcare International (CHCI). CHCA, which had 2017 sales of $2.429 billion, includes OTC brand products, including cough, cold, allergy and sinus, analgesic, gastrointestinal, smoking cessation, infant formula and food, animal health, and diagnostic products in the US, Mexico and Canada. CHCI, which had 2017 net sales of $1.491 billion, includes branded OTC sales primarily in Europe and its consumer-focused businesses in the UK, Australia, and Israel. The CHCI segment develops, manufactures, markets and distributes European OTC brands in the cough, cold and allergy, lifestyle, personal care and derma-therapeutics, natural health and vitamins, and anti-parasite categories. In addition, the segment leverages its regulatory, sales, and distribution infrastructure to in-license and sell third-party brands and generic pharmaceutical products.

Source: Perrigo


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