Perrigo Growth Trajectory Traverses Manufacturing, Licensing Headwinds

Perrigo omitted from its fiscal 2015 guidance revenues from generic guaifenesin expectorants because raw material sourcing has not met manufacturing specifications and continues to hold up production. The firm’s plans for launching store brand OTC nasal corticosteroids also are in limbo.

Perrigo Co. PLC’s outlook for continuing record-level sales depends not only resolving its guaifenesin supply problems but also on a competitor correcting its own smoking cessation product problems.

Perrigo also has to settle OTC private label nasal corticosteroid licensing agreements for revenues to align with its guidance for its fiscal 2015, which began June 29.

In its Aug. 14 earnings report, the Dublin-based firm omitted from its fiscal 2015 guidance generic versions of the Mucinex line of guaifenesin-containing expectorants because raw material sourcing has not met manufacturing specifications and continues to hold up production.

“I’m not going to give you a specific date until I have product headed to the retailer shelves,” CEO Joseph Papa said in the firm’s same-day earnings briefing for analysts. “It is a critical R&D imperative for us to bring this product back to the market in our fiscal 2015.”

The problem initially stopped production of a generic of the basic Mucinex product, 600-mg extended release guaifenesin, after a limited launch in 2012, and now is delaying manufacturing of other products in the line (Also see "With Generic Mucinex Delayed, Perrigo Will Need Alternatives To Drive Sales Growth" - Pink Sheet, 5 Jun, 2014.).

On the other hand, Perrigo’s fiscal 2015 guidance reflects stronger sales of store-brand smoking cessation products as manufacturing problems curtail GlaxoSmithKline PLC’s distribution of nicotine replacement therapy lozenge products worldwide.

Papa declined to quantify the smoking cessation category’s impact on the firm’s guidance, but said “we have found some opportunities in the lozenge category as retailers come to us for additional products for their shelves.”

“I can’t say whether that’s a one-month opportunity or another six months. So we’ve tried to be conservative in our guidance as to what we expect relative to when they will return to the market,” he added.

According to FDA’s recalls database, GlaxoSmithKline in February recalled 2- and 4-mg lozenges and mini lozenges that the firm markets under the Nicorette brand and that it manufactures for retailers Kroger Co. and Walgreen Co. to sell as their store brand products (Also see "FDA Recalls For April 30, 2014" - Pink Sheet, 5 May, 2014.).

In a May post to the Nicorette website, GSK said it voluntarily recalled from warehouses and distributors globally all nicotine lozenges manufactured at its Aiken, S.C., plant after the products were found to be larger or smaller than the firm’s standards. It said the affected batches are not a safety risk and could be used.

Perrigo Chief Financial Officer & Executive VP Judy Brown said the smoking cessation category “performed above our expectations” partly due to the firm’s “ability to efficiently supply our customers needed product as national branded competitor is not shipping specific SKUs at this time.”

Brown also pointed out Perrigo’s fourth-quarter sales of private label omeprazole 20mg proton pump inhibitors increased partly due to “manufacturing issues at a competitive store brand supplier.”

The other provider of store brand omeprazole 20mg, a generic of Prilosec OTC, is Indian firm Dr. Reddy's Laboratories Ltd.

Nasal Corticosteroids Lead Launch List

Launching generics of the first OTC nasal corticosteroids FDA approved figures in Perrigo’s guidance for $235 million in sales from 100 new products across its businesses in its fiscal 2015.

Sanofi, through itsChattem Inc. subsidiary, launched Nasacort Allergy 24HR (triamcinolone acetonide metered spray) in the U.S. in February 2014 as a first-in-class nasal allergy Rx-to-OTC switch; Glaxo received FDA approval in July for a switch of Flonase (fluticasone propionate 50 mcg spray), which the firm plans to launch in 2015 (Also see "Flonase Switch Approved, Branded Nasal Allergy Spray Market Will Grow In 2015" - Pink Sheet, 24 Jul, 2014.).

“We do have an opportunity for those products,” Papa said.

However, turning the opportunity into sales partly depends on reaching an agreement with Teva Pharmaceutical Industries Ltd. for supply of generic Nasacort 24HR.

While Perrigo acquired a global license to market OTC triamcinolone from Teva, Papa said “we do not have a final agreement with our partner, but we continue to work very closely with our partner. We believe it’s in the best interests of Perrigo and the best interests of our partner to come to a resolution to” launch a store brand Nasacort 24HR.

Generic OTC Flonase also is on the firm’s radar. Brown noted that “launches of the store brand versions of specific nasal corticosteroid products in time for the spring 2015 allergy season” figure in Perrigo’s guidance.

Nasacort 24HR was not launched with market exclusivity, although Sanofi essentially forced some exclusivity through litigation that delayed FDA’s posting of the product’s labeling (Also see "Martek/Mead Agreement" - Pink Sheet, 22 May, 2006.).

While GSK says exclusivity for Flonase has not been determined, FDA’s Orange Book says no unexpired patents or unexpired exclusivity are connected to the product.

Q4 Grows 18%, Full Year 15%

Perrigo reported company-record net sales of $1.14 billion, up 18%, for its fiscal 2014 fourth quarter and $4.06 billion, up 15%, for its full year, ended June 28. Net income for the quarter increased 11% to $132 million, though the firm’s diluted earnings per share dropped 22% to 99 cents, while its full-year net income jumped 40% to $740 million, including acquisitions, and its diluted EPS grew 14% to $6.39.

Sales of consumer health care products, which include animal care products, were up 8% to $607 million for the quarter, led by $52 million sales of existing products, primarily in the antacids and smoking cessation categories. Perrigo reported all major OTC categories were up year-over-year while its new product sales generated sales of approximately $15 million and $6 million was attributable to adding OTC products in its acquisition of Aspen.

Nutritional product sales were down 3% to $145 million with $6 million in new product offset by lower sales in infant and toddler foods and $4 million in discontinued products. However, the firm reported strong growth for its organic infant formula and continued growth in formula sales in China after re-launching its products there during the previous quarter.

The firm forecasts consumer product sales growth of 3% to 7% for its fiscal 2015, and nutritionals business growth of 7% to 11%. Guidance for overall sales growth is 7% to 11%, and for ESP is in the $7.20 to $7.50 range.

The results encouraged investors. Perrigo’s share price closed up 7.3% at $149.29 in same-day trading.