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Published in Health Care
A rendering of Perrigo’s planned headquarters in downtown  Grand Rapids. A rendering of Perrigo’s planned headquarters in downtown Grand Rapids. COURTESY RENDERING

3-year CEO contract extension looks to bring continuity during Perrigo’s transformation

BY Sunday, March 14, 2021 06:10pm

Murray Kessler signed on for at least another three years as Perrigo Co. plc’s chief executive to “finish the job” he started to transform the company.

A former tobacco executive who joined Perrigo as president and CEO in October 2018, Kessler told investment analysts recently that initiatives to turn around the company restored sales growth and improved operations in the international consumer self-care division.

Given the progress that Perrigo (Nasdaq: PRGO) has made on a transformation plan Kessler launched in 2019, including the pending sale of its Rx generic pharmaceutical division for $1.55 billion, he agreed to extend his contract by three years.

“I’m excited by what we have accomplished to date and even more excited by all that remains to accomplish going forward,” Kessler said during a March 1 quarterly earnings call. “I intend to finish the job and create significant value for our shareholders, of which I am one.”

He specifically noted rebuilding a “robust new products pipeline,” developing an e-commerce platform, and changing more than half of the company’s leadership through internal promotions and external recruiting.

“I think Perrigo has a very, very bright future ahead of it,” Kessler said.

CEO turnover

Kessler became CEO two and a half years ago after a tumultuous period for Perrigo that saw declining sales and the need to fend off a hostile takeover bid from Mylan Inc. He was the corporation’s third CEO in a year, and the fourth in four years.

Perrigo directors hired Kessler when former President and CEO Uwe Roehrhoff abruptly stepped down in early 2018 after just 10 months on the job. Roehrhoff had succeeded John Hendrickson, a long time Perrigo executive who became CEO in April 2016 following the resignation of then-Chairman and CEO Joe Papa. Papa left the company to become CEO at Quebec-based Valeant Pharmaceuticals International Inc.

Hendrickson subsequently decided to retire in June 2017, citing personal reasons. He remained as CEO until Roehrhoff’s hiring.

The Perrigo board’s effort to keep Kessler as CEO provides needed continuity for executive leadership as the company’s transformation progresses, said Sel Hardy, an analyst with CFRA Research in New York City.

“It definitely provides confidence and erases the uncertainty about whether there’s going to be any near-term CEO change again,” Hardy said. “So, it’s another positive development.”

Kessler’s contract with Perrigo was to expire Oct. 8, 2021. Under the extension he signed March 1, his contract now runs through Oct. 8, 2024, at an annual base salary of $1.2 million with automatic one-year extensions, according to a filing to federal securities regulators. The contract includes an annual bonus target of $1.5 million in 2021 and “not less than” $1.7 million in 2022, plus long-term incentives, according to the filing to the U.S. Securities and Exchange Commission.

Based in Allegan but domiciled in Dublin, Ireland, Perrigo recorded 2020 sales of $5.06 billion with a net loss of $162.6 million, or $1.19 per diluted share. Minus charges during the year, Perrigo recorded adjusted net income of $552 million, or $4.02 per diluted share. 

The 2020 results compare to $4.83 billion in sales and net income of $146.1 million, or $1.07 per diluted share, in 2019.

Perrigo forecasts 3 percent organic sales growth in 2021 with a 5-percent increase in adjusted operating income.

Transformation continues

The company this month agreed to sell its Rx generic drug division to New York private investment firm Altaris Capital Partners LLC. The deal — which is expected to close in the third quarter — will complete a major product portfolio reconfiguration under Kessler’s strategy to transform Perrigo into a self-care company primarily producing over-the-counter medications.

“The sale of our Generic Rx business is the most impactful step in Perrigo’s transformation plan. This transaction establishes Perrigo as a pure-play global consumer self-care company with industry leading fundamentals,” Kessler said in a statement on the deal. “At this point all of the commercial pieces of our transformation are in place and Perrigo is poised to create significant value.”

Under terms of the sale, Perrigo would receive $1.5 billion in cash from Altaris Capital, which also assumes $50 million in potential research and development milestone payments and contingent purchase obligations.

Once the sale closes, Perrigo “will be solely focused on driving significant long-term shareholder value through our consumer self-care offerings,” Kessler said, noting that consumer self-care has been the company’s focus since its founding in 1887, though the generic prescription business was added within the past 15 years. 

“With this transaction, Perrigo is returning to what it has always been with a renewed energy, purpose and a strong desire to win,” he said.

The deal will give Perrigo more than $2 billion in cash for its consumer self-care business to put toward “prudent and revenue accretive M&A,” he said.

“We will continue, just as we have in the past, to be extremely disciplined in our purchases,” Kessler said. “I’m not just going to run out and buy anything. My idea is to continue to build scale in the company, find targets that accelerate growth and make for a bright and strong future going forward.”

Perrigo’s generic prescription drug division generated $975 million in sales in 2020, about $165 million of which came from new products, with an adjusted gross profit of $400.1 million. The Rx division largely produces topical medications that include generic creams, foams, mousses, gels, liquids and inhalable products.

The pending sale led CFRA Research to upgrade Perrigo shares from a hold to a buy. The upgrade came despite what Hardy in a research note to investors called disappointing fourth quarter results for Perrigo, which reported a 2.5-percent decline from a year earlier for the final three months of 2020, and 4.7 percent organically, to $1.3 billion.

The divestiture “is a game changer as it will enable (Perrigo) to be a more valuable play as a pure consumer self-care firm,” Hardy wrote.

The added cash provides capital for “small M&A” in the self-care consumer business, as well as an “extra cushion” to an ongoing tax legal case in Ireland that could cost Perrigo a reported $1.9 billion, Hardy told MiBiz in an interview.

“The timing is definitely right and Perrigo will benefit from the additional cash boost in its balance sheet and more flexibility to invest in different areas,” she said.

Kessler attributed the quarterly sales decline largely to “unprecedented low levels of cough, cold and flu” resulting from social distancing requirements, face mask measures, mandates and other restrictions in the COVID-19 pandemic. The “non-existent cough/cold season” in the fourth quarter dampened sales of over-the-counter medications by $63 million and is an example of how “the impact of COVID-19 is unpredictable and constantly changing,” he said. 

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