Perrigo Haunted By Mylan Rejection As Securities Fraud Complaints Mount

Securities fraud complaint filed by Nationwide Mutual Funds alleges firm misled investors to fend off Mylan hostile takeover in 2015 before its share price began plummeting. It is latest of similar complaints filed against Perrigo in New Jersey federal court.

Perrigo Co. PLC's decision to reject a hostile takeover in 2015 continues to haunt the OTC private label giant with another investor group filing securities fraud litigation alleging it misled shareholders about multiple aspects of its business to stave off the bid.

Perrigo management fended off Mylan NV's tender by concealing problems connected to the acquisition the same year of European consumer health firm Omega Pharma NV, a move intended to bolster its position as an international business that also marketed branded products, claims the complaint Nationwide Mutual Funds (NMF) filed Oct. 29 in the US District Court for New Jersey.

The Dublin-based firm also misled investors about its outlook by understating the impact on its earnings from market pressure forcing Rx generics prices down, alleges Nationwide Mutual Funds (NMF), a Delaware statutory trust and an open-end investment company with several separate series of shares.

Executives made statements that "had the effect of causing Perrigo’s shares to trade at prices in excess of their true value." – Nationwide Mutual Funds complaint

“At each turn, defendants focused investors’ attention on Omega as the primary driver of the company’s immediate and long-term growth prospects,” says NMF, which represents Nationwide Geneva Mid-Cap Growth Fund, Nationwide S&P 500 Index Fund and Nationwide Variable Insurance Trust and its funds, all of which held Perrigo common stock on domestic exchanges in the US during the relevant period, including during Mylan's tender.

The firm's executives "continued to mislead the market for months" following the end of Mylan's tender and "had the effect of causing Perrigo’s shares to trade at prices in excess of their true value," the complaint alleges.

The firm’s stock price climbed to around $200 in 2015 during Mylan's tender but was at $145.17 in February 2016 as bumps in its earnings path began to emerge and was down to $89.04 in May that year, after longtime CEO Joseph Papa left. With the exception of brief upticks, the price has continued to slip; it closed at $70.30 on Oct. 31.

Mylan’s bid failed in 2015 when Perrigo shareholders refused a tender of $75 cash and 2.3 Mylan shares, which combined at that time to equal $200, for each Perrigo share. Mylan reported 40% of Perrigo shares were tendered, short of the 50% it needed. (Also see "Perrigo Stands Alone At Top OF OTC Private Label Market, In Hunt For More Deals" - Pink Sheet, 16 Nov, 2015.)S108008

NMF is requesting a jury trial. It asks for relief and judgment, including awarding compensatory damages against Perrigo and its officers, both jointly and severally, for “all damages sustained as a result of defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon, as allowed by law.”

The securities fraud complaint is one of several filed in New Jersey federal court against Perrigo following the failed tender. None of the complaints have gone to trial.

The separate securities complaints could be consolidated for pre-trial motions and other procedures, but each likely would go to trial independently, says a legal expert.

NMF’s attorneys include Kessler Topaz Meltzer & Check LLP, of Radnor, Pa., the same firm used by Carmignac Gestion SA, an investment management firm working with independent and network financial advisors that filed a complaint against Perrigo in late 2017 also alleging the firm overstated its strengths and downplayed its weaknesses with investors to sway shareholders against the Mylan offer. (Also see "Shareholders Challenge Perrigo's Defense Against Mylan Offer Two Years Earlier" - Pink Sheet, 7 Nov, 2017.)

NMF’s counsel also includes law firm Stradley Ronon Stevens & Young LLP of Cherry Hill, Pa.

A separate complaint was filed in the NJ court earlier in 2018 by another investment group, Pentwater Equity Opportunities Master Fund Ltd., represented by attorney John Azzarello of Morristown, N.J. In 2016, two complaints seeking compensation for Perrigo shareholders were filed in New Jersey: one by institutional investing funds representing all owners of Perrigo common stock and the other complaint for an individual shareholder representing former owners of put options for the firm’s shares. (Also see "Perrigo Shareholder Lawsuits Claim Joining Mylan Was A Better Idea" - Pink Sheet, 25 Jul, 2016.)

Three Securities Violations Alleged

NMF alleges three violations of US securities laws stemming from making materially false or misleading statements or omissions of material fact to deceive investors.

In public filings and statements, Perrigo highlighted Omega’s “established European infrastructure and product line and raved about Perrigo’s unique ability to capitalize on the combination of entities,” NMF's complaint says.

A Perrigo statement, made after Mylan’s initial tender offer in September 2015, that Omega had “done outstanding” was “false,” according to says the complaint.

Numerous former Perrigo and Omega employees who had “key” roles in the integration process have said the acquisition was “problematic from the start because Perrigo had rushed into the Omega acquisition with no understanding of the regulatory, commercial and data challenges to achieving the synergies it claimed it would accomplish," NMF alleges.

“Despite these roadblocks to growing the Omega business with Perrigo products, Perrigo pushed Omega to achieve unattainable financial goals in order to maintain the façade that Perrigo’s then-existing business prospects were strong and improving and to manufacture artificial support for the company’s publicly disclosed financial guidance so as to defeat Mylan’s tender offer,” the complaint states.

NMF also claims that three weeks before the Mylan tender offer deadline, a Perrigo executive in October 2015 said “nearly all” of the firm's revenues were insulated from emerging pressure to lower Rx generics prices. The assertion was false and Perrigo knew it was not immune to pricing pressures, the complaint says.

An acceleration of drug approvals by US FDA and other countries' regulators “led to a tsunami of new competitors and approved products in the generic drug markets” including products in direct competition to Perrigo, resulting in “significant downward pricing and never-before-seen levels of newly appointed generic drugs,” NMF claims.

After Mylan's tender failed, Perrigo gradually revealed problems with its Omega business and its generic pricing pressure vulnerability, the complaint says. Omega problems were so “impactful” that Perrigo had to take about $3.4bn in impairment charges in 2016, amounting to more than 50% of the approximately $4.5bn it paid for Omega.

Perrigo Moves To Stem Losses

The decline in Perrigo’s share price was accompanied by changes in leadership. John Hendrickson succeeded Papa at the helm in April 2016 but in June 2017 announced he would step down after Perrigo appointed his replacement. The next CEO, Uwe Rohrhoff, took the helm in January 2018 but was out in October when the firm replaced him with tobacco industry executive Murray Kessler. (Also see "Another Change At Perrigo Helm As Results Remain Turbulent" - Pink Sheet, 9 Oct, 2018.)

Perrigo, like other Rx generics manufacturers, in 2017 acknowledged that pressure from payers was forcing down prices and cutting into their earnings. However, Perrigo plans to divest its Rx generic ingredient business to focus on consumer health. (Also see "Perrigo Looks To Spin Out Or Sell Off Rx Business, But Will Separating Generics Add Value?" - Scrip, 9 Aug, 2018.)

Most revenues for the firm, which maintains its primary operations base in Allegan, Mich., come from sales of OTC private label and store brand drugs in the US, though it recently said it would consider adding national brands to its domestic portfolio. It's consumer health business also includes domestic and international infant formula sales and its European branded OTC drug and nutritional product division. (Also see "Perrigo's OTC Core Could Expand To Include National Brands" - Pink Sheet, 9 Aug, 2018.)

Perrigo, which has scheduled its 2018 third-quarter earnings release for Nov. 8, already has sold its active pharmaceutical ingredient business based in Israel and exited manufacturing of adult nutritionals and vitamins, minerals and supplements.

From the editors of the Tan Sheet.