Perrigo to split off pharma business

By Hank Schultz contact

- Last updated on GMT

Perrigo to split off pharma business
Perrigo has announced plans to split off its drug business into a separate entity.

The company, which has a tax address in Dublin, Ireland but still has a large footprint at its former headquarters in Allegan, MI, made the announcement during a recent second quarter earnings call with stock analysts. A transcript of the call was posted on the site seekingalpaha.com​.

Perrigo has been in the process of recalibrating the business for several years now. Under the leadership of CEO Uwe Röhrhoff, the company started to lay out a so-called “value creation roadmap.” The first fruit of that strategy is the plan to partition the company’s drug business. Whether that is as a standalone division, a new company with shares issued to current Perrigo shareholders or as an entity packaged for sale is yet to be announced, Röhrhoff said.

Splitting the drugs off from the other products, including animal health products and the infant nutrition portfolio, will better take into account the divergent nature of these businesses, Röhrhoff said. Drugs have long development times and serve limited markets through a small number of distributors. The company sold off its supplements portfolio earlier this summer.

More agility to respond to demands of consumer health care market

To succeed in consumer products, on the other hand, requires considerable agility, he said. 

“Importantly, today's announcement enables management to focus on expanding our leading consumer businesses, while unlocking potential value for shareholder. By committing all our energy and capital to meet the healthcare needs of consumers and customers, Perrigo is better positioned to execute on our growth initiatives,”​ he said.

As the company has developed its roadmap, it has focused on cutting costs and maintaining margins at the expense of aggressively expanding sales, pursuing acquisitions and launching new products.  Perrigo reported second quarter net sales of $1.2 billion, which was flat from the year previously. But it reported net income of $36 million compared to a net loss of $70 million for the same period in 2017 and reported diluted earnings per share ("EPS") of $0.26 compared to losses per share of $0.49 last year.

In the consumer health care segment in the Americas, the company reported net sales of $597 million; a decrease of 1.3%. Net sales were lower by 1.2% on a constant currency basis driven by a decline in the animal health business.

While Röhrhoff painted a rosy picture of the potential benefits of the RX spinoff, stock traders appeared to take a less sanguine view. The company’s stock price dropped more than 10% in the several days of trading after the announcement. The stock is now trading at about $70 a share, which is off from an all time high of almost $200 in May 2015.

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