Published in Health Care
A $2 billion share repurchase and restructuring plan implemented by Perrigo Co. plc as it sought to fend off a hostile takeover bid from Mylan N.V. last year has helped boost the company’s earnings forecast for 2016. A $2 billion share repurchase and restructuring plan implemented by Perrigo Co. plc as it sought to fend off a hostile takeover bid from Mylan N.V. last year has helped boost the company’s earnings forecast for 2016. COURTESY PHOTO

Perrigo’s cost-cutting plans, product pipeline boost forecast for 2016

BY Sunday, January 24, 2016 10:09pm

ALLEGAN — Two months after fending off a hostile takeover bid, Perrigo Co. plc raised its earnings expectations for 2016, a byproduct of projected growth and a cost-cutting plan the company launched last fall.

Perrigo now expects full-year earnings of $9.50 to $10.10 per diluted share, up from the guidance issued in October 2015 of $9.30 per diluted share.

In issuing the higher guidance, Perrigo cited its recent acquisitions, the $500 million repurchase of 3.3 million shares that was completed in the fourth quarter, and the additional $1.5 billion in share repurchases it expects to complete over the next 24 to 36 months — all of which will boost earnings per share.

The stock buyback was part of a broader initiative Perrigo launched in October amid the hostile takeover bid by Mylan N.V. At the time, Mylan billed the acquisition as a way to create a global drug company that generates greater returns and value for shareholders.

As part of the cost-cutting plan, the Dublin, Ireland-based Perrigo, which is run from Allegan, also plans to sell its nutritionals, vitamins and supplements business; set up a global procurement operation in Ireland; and streamline its operations.

Chairman and CEO Joe Papa told investors that the higher guidance, if achieved, represents a “very significant increase in our earnings profile for 2016.”

“We think the streamlining of our organization and the global supply chain will allow us to deliver even greater earnings per share for the future,” Papa said during the recent JP Morgan Healthcare Conference in San Francisco.

Brokerage analysts expect Perrigo to report 2015 net income of $7.74 per share on sales of $5.39 billion, according a consensus estimate from Yahoo Finance. Analysts expect Perrigo to record 2016 net income of $9.60 per share based on global sales of $6.24 billion.

Perrigo, which generated a 19 percent compounded annual growth rate in earnings per share over the last five years, raised earnings expectations for 2016 as Papa outlined the company’s growth plans for the new year and beyond in presentations at the JP Morgan conference and during a similar event hosted by Goldman Sachs days earlier.

Perrigo can increase sales 5 to 10 percent annually just through organic growth driven by an aging population that uses more health care and medications, a growing consumer preference for lower-cost store-brand medicines, and the transition of brand-name drugs to generics. The company will also benefit as some drugs move from being available only by prescription to over-the-counter status.

“Anytime we can do 5 to 10 percent on the top line, we think we can do much better on the bottom line based on our efficiency of delivering product to large retailers,” Papa said.

Further growth will come from additional M&A activity, particularly in Europe “that will continue to be an important part of our future,” Papa said. Also contributing to growth will be new product development for Perrigo as medications switch from prescription to generic status or become available over the counter, he added.

Perrigo expects to generate $1.2 billion in sales through new product introductions from 2016 to 2018. The new product launches won’t include any “blockbusters, but there clearly is a large number of products that will launch over the next several years,” Papa said.

“It will be the magnitude of the products that will launch,” he said. “We’re just trying to go after a volume of products that we launch into the marketplace.”

Perrigo presently has 25 applications pending to the U.S. Food and Drug Administration to produce a generic form of an existing or approved product. The generic medications that Perrigo intends to pursue and produce will come primarily in topical form, a market segment where the company can build a strong presence with limited competition, Papa said.

“We’re not trying to be the largest generic player,” he said. “We’re just going after these products we think are very difficult to follow, and don’t have large numbers of competitors. We believe that’s the best way to get the best return on invested capital.”

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