Published in Manufacturing
Perrigo CEO John Hendrickson plans to retire from the company within 60 days after it finds his replacement. A 28-year veteran of the company, Hendrickson led Perrigo over the last 14 months.  Perrigo CEO John Hendrickson plans to retire from the company within 60 days after it finds his replacement. A 28-year veteran of the company, Hendrickson led Perrigo over the last 14 months. FILE PHOTO: KATY BATDORFF

For Hendrickson, retiring as Perrigo CEO comes down to ‘personal reasons’

BY Sunday, June 11, 2017 08:00pm

ALLEGAN — John Hendrickson says the decision to retire as CEO of Perrigo Co. plc was personal and his choice alone.

Just 14 months into his tenure as chief executive, Perrigo said last week that the 54-year-old Hendrickson plans to leave 60 days after the company brings aboard a new CEO. The announcement followed what Hendrickson called a “tough year,” in which he led Perrigo (NYSE: PRGO) through a review of assets and crafted a plan to improve the company’s operations and sagging financial performance.

After restating earnings from prior years and finally reporting delayed 2016 and first quarter 2017 results in late May, Hendrickson decided to go to directors to discuss his retirement. In an investor presentation last week, Hendrickson also cited “personal reasons” for his decision, an apparent reference to the November 2016 death of his 21-year-old son, Charles.

“It was the right time for me to talk to the board and talk about moving on and retiring,” he said at the 2017 Jefferies Global Healthcare Conference in New York City. “It was really my personal reasons from a family standpoint to move on and decide to retire at this time.”

Hendrickson joined Perrigo in 1989 and has held a number of executive management positions.

Directors at Perrigo — which is based in Dublin, Ireland, but managed from Allegan — have formed a search committee to seek a CEO to replace Hendrickson, who took over after Joe Papa abruptly left last April to lead Valeant Pharmaceuticals International Inc. Papa’s departure came soon after Perrigo successfully fended off a hostile takeover bid from Mylan Inc.

Since beating back Mylan’s bid, Perrigo has struggled financially, repeatedly missed its earnings expectations, and had to work through accounting problems that led the company to restate its past earnings. Additionally, former CFO Judy Brown left the company in February to join Amgen Inc. Perrigo also struck a deal with activist shareholder Starboard Value LP, which has five directors on the 11-member board and pushed for the strategic review of the company’s business.

“We had a lot of things we had to work through as a company and it was a tough year working through all of those,” Hendrickson told Wall Street analysts at the investor presentation. “We made a lot of changes that I think have enabled us and put us in a great position to grow and capitalize on the base core businesses.”

When the fight with Mylan began in April 2015, Perrigo’s stock was trading above $190 per share. As of last week, its stock had plummeted to a little more than $70 per share. 

Laurie Brlas, chair of Perrigo’s board of directors, credited Hendrickson with crafting a plan to improve the company’s operations and forecasting and for completing a portfolio review that included the divestiture of non-core assets.

“The Board is grateful to John for his 25-plus years of service to the company and we look forward to partnering with him to continue on the outstanding progress of the past year while we work to identify his successor. John has taken meaningful action across all areas of our business,” Brlas said in a statement. “The Board and I have no doubt about the strength of Perrigo’s business and that we will carry this momentum forward over the next few months of John’s leadership and beyond under a new executive.”

Perrigo in late May reported 2016 net sales of $5.28 billion, up 5 percent from 2015, with a net loss of $4 billion that stemmed from goodwill and intangible asset impairment charges of $5.4 billion. Excluding the charges, Perrigo had operating income of $728 million for 2016.

In a report for the first quarter released last week, Perrigo said it generated $1.19 billion in sales, a 9-percent increase from a year earlier, with net income of $72 million, or 50 cents per diluted share. The company expects 2017 sales of $4.6 billion to $4.8 billion with earnings of $1.82 to $2.17 per share.

Hendrickson cited two major impacts that caused Perrigo its share price problems: A pricing environment for its generic drug business that cost $300 million in operating income in the last 18 months to two years, and the March 2015 acquisition of Belgian-based Omega Pharma N.V. for $4.5 billion.

Although Hendrickson did not mention Omega by name, saying only that “we bought a business in Europe,” many of the reported issues with Perrigo’s European operations since then have been connected to the acquisition. 

A top five player in the European market for over-the-counter medications, Omega is “still a good business and was a good business, but clearly underperformed what we had expected from that,” Hendrickson said. “We had a number of resets from the business.”

In the last year, Perrigo also divested some of its holdings. Last summer, the company sold its vitamins, minerals and supplements business in the U.S. to New Jersey-based International Vitamin Corp. 

In March, Perrigo completed the sale of royalties for the multiple sclerosis drug Tysabri to Royalty Pharma for up to $2.2 billion in cash and $650 million in payments in 2018 and 2020 if the drug’s sales reach a certain threshold. Perrigo originally acquired the royalty stream in 2014 as part of the blockbuster $8.6 billion deal for Ireland-based Elan Corp. plc., which resulted in the company redomiciling to Dublin for tax advantages. 

Following release of the 2016 and first quarter reports, brokerage firm Stifel, Nicolaus & Co. noted in a research memo that it thought Perrigo was making progress.

“Despite macro consumer trends, price erosion, an uncertain political/regulatory climate for health care and generics, and internal operational activities underway, (Perrigo) appears to be weathering significant headwinds with a keen focus on return-to-growth in the coming quarters and years,” analysts wrote in the May 31 memo to investors. 

Analyst David Risinger of Morgan Stanley was quoted last week in Barron’s as saying that a change in CEO could bring about quick fixes for the company. Perrigo needs to “execute over time” on new product launches in its OTC and generics divisions, generating cost efficiencies and turning around the former Omega operation in Europe, Risinger said in the report.

In the presentation last week at the Jefferies investor conference, Hendrickson said new OTC product launches are coming, including a version of acid reflux medication Nexium, a $350 million brand, that launches in the latter half of 2017.

“Big picture-wise, I think there’s (market) share growth for the business,” Hendrickson said. “There’s always been competition, always pricing (pressure), but if we’re growing share, if we’re getting the new products out there, we can grow faster than the markets that we compete in.” 

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