Perrigo Company (PRGO) reported earnings per share of $1.07 for the third quarter of fiscal 2011, easily beating the Zacks Consensus Estimate of 96 cents and the year-earlier earnings of 81 cents per share. Results were driven by a solid top-line performance.
Third quarter revenues increased 29% over the prior year to $692 million. Total revenues were also above the Zacks Consensus Estimate of $686 million. The year-over-year revenue growth was boosted by strong performances by the company’s generic prescription and active pharmaceutical ingredient (API) businesses. New products added $44 million to revenues.
The Quarter in Detail
The revenue performance in the quarter from four of the company’s businesses is detailed below.
Consumer Healthcare (CHC): Perrigo reported CHC revenue of $425 million in the third quarter, up 13% over the prior year driven by solid demand. Revenue upside was driven by growth of analgesic and cough/cold products as well as new product sales. Feminine hygiene and contract manufacturing were however weak in the quarter.
Nutritional: Perrigo reported Nutritional quarterly revenue of $124 million, up 111% over the prior year. The growth rate was boosted by revenues worth $81 million from PBM Holdings Inc., acquired in April last year. However, sale of existing products decreased approximately $14 million in the quarter. Revenues were, however, down sequentially (7%) in the reported quarter.
Rx Pharmaceuticals: Perrigo reported Rx Pharmaceuticals revenue of $84 million in third quarter of fiscal 2011, up 66% over the prior year driven by increased sales volume and higher sales of new products like Imiquimod cream (generic version of Aldara) and levocetirizine tablets, a generic version of Xyzal, for allergies.
Active Pharmaceutical Ingredients (API): The company reported API sales of $41 million in the reported quarter, up 26% over the prior year. Improved sales of API of generic version of Merck’s (MRK) Temodar in Europe and increased sales of existing products led the revenue growth. Perrigo has an agreement to supply Teva Pharmaceuticals (TEVA) with the API of its generic version of Temodar in the US market. Perrigo is already selling the API in Europe and will provide the API in the US when Teva will launch the generic in August 2013.
2011 Guidance Increased
Perrigo raised its fiscal 2011 cash earnings per share outlook to $3.90–$4.00 from $3.75–$3.90, which implies a year-over-year growth of 29–32%. The Zacks Consensus Earnings Estimate for 2011 of $3.98 is within the guidance range.
The company upped its outlook gaining confidence from the third-quarter results backed by an increasing demand for its products.
Product and Pipeline Update
Perrigo acquired exclusive sales and distribution rights to its OTC store brand version of generic of Sanofi Aventis’ (SNY) Allegra (for seasonal allergies) and Allegra D from Tevain June 2010. Sanofi received approval from the US Food and Drug Administration (FDA) to move Allegra from prescription to OTC status in January 2011 and launched thereafter. Perrigo's partner Teva received approval to sell its OTC version of generic Allegra and Allegra D in April 2011. This will be an important product launch for Perrigo and will benefit sales, going forward.
In February 2011, Perrigo filed an abbreviated new drug application (ANDA) for the generic version of Leo Pharma’s Taclonex Ointment indicated for the topical treatment of psoriasis vulgaris in adults. Leo Pharma has filed a patent infringement lawsuit against Perrigo.
Another important generic launch would be Rogaine foam in March 2012, following Perrigo’s settlement with the branded company in February 2011.
Resolution of Manufacturing Issues
In April 2011, Perrigo announced the resolution of manufacturing issues at its Allegan, Michigan, facility with the FDA following conclusion of re-inspection of the facility by the agency. The FDA concluded that the Allegan facility now meets the regulatory standards, thus removing a major overhang on Perrigo. Perrigo can now look for approval of any export license or generic drug applications for products manufactured from the facility. Approval of products, due to be manufactured at the Allegan facility, like the generic version of Mucinex was being held up due to the FDA warning letter. Following the resolution of the letter, we believe that approval of such generics will be expedited.
Our Recommendation
Currently, we have an Outperform recommendation on Perrigo, which is supported by a Zacks #2 Rank (short-term “Buy” rating). We believe that Perrigo’s strong position in the brand OTC pharmaceutical market and growing generics and active pharmaceutical ingredients (API) businesses will help it deliver solid top- and bottom-line growth in the coming years. Moreover, management’s policy of pursuing smart strategic deals will complement its growth trajectory. Perrigo also has a very strong and impressive pipeline. The FDA resolution of quality issues at Allegan is also a major relief for the company.
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