We have maintained our Outperform recommendation on Perrigo Company (PRGO) with a target price of $100.00 on the back of impressive third quarter fiscal 2011 financial results.
Perrigo 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.
Perrigo Company is one of the largest store brand manufacturer of over-the-counter (OTC) pharmaceutical products and infant formulas. Perrigo’s broad line of store brand pharmaceutical products has the same active ingredients and comparable quality and efficacy as the higher priced national brands. This has helped the company become the dominant player in the store brand OTC drug market.
Some products in the OTC pharmaceutical market are sold due to changes in product status from prescription only (Rx) to non-prescription (OTC) category. This process is called Rx-to-OTC switch and it requires approval from the US Food and Drug Administration (FDA). Management estimates that $10 billion in branded prescription sales will move to OTC status in the next five years, thus resulting in significant switch opportunities for Perrigo in the years to come. Perrigo's partner Teva Pharmaceuticals (TEVA) received approval to sell its OTC version of generic of Sanofi Aventis’ (SNY) drugs Allegra and Allegra D in April 2011, which it launched immediately. Sanofi received FDA approval to move Allegra from prescription to OTC status in January 2011 and launched soon after. The branded product is off to a strong start and management believes that it could reach annual sales of $500 million to $600 million. This is an important product launch for Perrigo and will benefit sales, going forward.
Further, 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, scheduled 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.
Moreover, management’s policy of pursuing smart strategic deals should help drive growth for the company. Perrigo also has a very strong and impressive pipeline, which could drive growth in fiscal 2012 and beyond.
PERRIGO COMPANY (PRGO): Free Stock Analysis Report
SANOFI-AVENTIS (SNY): Free Stock Analysis Report
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