Pharmaceuticals company Perrigo (NYSE; TASE: PRGO) has presented its new strategy, and making a $750 million acquisition and selling activity to the tune of $185 million.
In the first quarter, Perrigo beat analysts' estimates, but it provide tepid guidance for the rest of 2019. Its share price rose nearly 7% by yesterday's close, giving it a market cap of $7.15 billion. The stock price in Tel Aviv will respond to the latest development only on Sunday: the Tel Aviv Stock Exchange was closed yesterday for Israel's Independence Day and is also closed on Fridays.
Perrigo held an investor day yesterday to present the new strategy formulated by its leadership headed by CEO Murray Kessler, who took up the post a few months ago and who puts an emphasis on self-care. Alongside key points of its strategy, the company for the first time released guidance for 2019. It expects revenue of $4.6-4.7 billion and non-GAP earnings per share of $3.65-3.95, which is lower than the consensus analyst's estimate of $4.71 billion revenue and earnings per share of $4.20. The earnings guidance has an upside of $0.10-0.35 per share from an acquisition that Perrigo announced yesterday, from the possibility of the launch of a generic version of Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) ProAir inhaler, and from cost savings.
In the first quarter of 2019, Perrigo's revenue totaled $1.2 billion, 3.5% less than in the corresponding quarter of 2018 (1% less excluding the impact of exchange rate differences), but higher than the analysts' estimate. Earnings per share were $1.07, ahead of the $0.94 analysts' estimate. Non-GAAP profit totaled $146 million, 18.3% lower than in the corresponding quarter. On a GAAP basis, Perrigo posted a net profit of $64 million, 20.9% lower than in the corresponding quarter.
Perrgio's main division, its consumer health business, saw a 7.1% decline in revenue to $351 million and a 17.2% decline in operating profit to $54 million.
Perrigo has gone through a long period of uncertainty, and several changes of CEO in the past few years, and it has struggled to recover from its own financial weakness and from the weakness in the US generic drugs market. In presenting the company's new strategy yesterday, Kessler reaffirmed the commitment to separate its generic Rx (prescription drug) business. "The sale/spin process for the Rx Pharmaceuticals business is well underway and the company believes the timing to complete a transaction/spin is likely towards the end of 2019 or in 2020. Separation improves the focus of both the Consumer and Rx businesses, while enabling long-term value creation for shareholders," the company said. There are reportedly several entities that have expressed interest in buying the generics business for a price around $2.5 billion.
Perrigo is also divesting its Animal Health business. The company says that it has reached a definitive agreement with PetIQ to sell the business for $185 million in cash. Perrigo entered this business in 2012 when it paid $285 million for a company in the field, and it expanded the business with a further, $160 million, acquisition in 2013. The Animal Health business contributed $94 million revenue and non-GAAP earnings per share of $0.08 to Perrigo in 2018.
Meanwhile, Perrigo is buying Ranir Global Holdings for $750 million cash, or $685 million including a tax benefit. "Ranir adds a comprehensive portfolio of 300+ highly customized oral care solutions and private label know-how. This strategic combination enhances Perrigo's position as a global self-care leader and is immediately accretive to adjusted earnings and margins," Perrigo's announcement says. Ranir had revenue of $287 million in 2018, and is expected to contribute $0.10 to Perrigo's 2019 earnings per share assuming that the deal is completed in the third quarter.
Perrigo also plans to invest more than $250 million in incremental capital over the next four years to expand capacity within its infant nutrition and tablet manufacturing operations, and to implement cost-saving measures that will result in a $100 million reduction in annual costs within three years.
Another part of Perrigo's new strategy is strategic partnerships. "Perrigo has entered into a licensing agreement with a global leader in natural products, known across a broad range of categories," its announcement said. On innovative products, the company says, "Perrigo's global R&D functions have been centralized and an innovation group has been created to leverage our global scale and ramp up organic innovation. The revised product development process has identified 40 new initiatives with approximately $500 million in future pipeline potential."
"We have begun the process of transformation to recapture what we call 'The Perrigo Advantage'. The team has been hard at work during my first six months as CEO, analyzing our challenges and most importantly, building actionable plans to reinvent the company," Kessler said. "We believe that successfully transforming Perrigo to a consumer self-care company and relentlessly pursuing our new vision - To Make Lives Better by Bringing 'Quality, Affordable, Self-Care Products that Consumers Trust' Everywhere they are Sold - will unlock significant shareholder value."
Perrigo's share price is down 75% from its 2015 peak. In recent months, the declining share price was partly due to a tax assessment of $1.9 billion in Ireland, to which was added a further $843 million tax assessment in the US last week.
Published by Globes, Israel business news - en.globes.co.il - on May 10, 2019
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