Perrigo to separate prescription pharmaceuticals business

Perrigo announced Thursday that its board approved a plan to separate the prescription pharmaceuticals business following the company's previously announced strategic portfolio review. According to Perrigo, the board believes the move "will better enable this unique asset to capitalise on its platform of differentiated generic pharmaceutical products and allows [us] to focus on expanding [our] leading consumer business." 

Rolf Classon, chairman of the board of directors, said the company's "consumer and [pharmaceutical] platforms are both well positioned, but they are also navigating divergent industry dynamics with unique strategic, financial and operational opportunities and requirements." He added that "for these reasons, the board believes the differentiated and diversified [pharmaceutical] business has the potential to realise greater value outside of Perrigo." Classon also indicated that the company will be analysing various options for the unit, which sells extended topicals medications, including "a possible tax-efficient separation…a sale or merger."

Perrigo explained that although it has been subject to certain limitations that affected its ability to separate its businesses following its acquisition of Elan in 2013, those restrictions are set to expire in December. The company currently expects that separation of its prescription pharmaceuticals unit will be completed in the second half of 2019, but it cautioned "there can be no assurances as to the form or timing of a transaction or if a transaction will be consummated." The drugmaker added that it will provide an update on its consumer businesses next month. 

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Commenting on the news, analysts suggested the move to separate the prescription pharmaceuticals business was "long overdue." Patrick Trucchio of Berenberg noted that regulatory, supply chain and competitive headwinds have taken a toll on a differentiated business that is very niche and highly profitable. 

In 2016, activist investor Starboard Value, which currently has several representatives on Perrigo's board of directors, urged the company to unload certain assets, including its prescription drugs unit, in favour of focusing on the core consumer healthcare business. Since then Perrigo has sold off its royalty interest in the multiple sclerosis therapy Tysabri (natalizumab) to Royalty Pharma for up to $2.85 billion. Perrigo also divested its active pharmaceutical ingredient business last November for $110 million.

Separately on Thursday, Perrigo reported that its second-quarter net income was $36 million, versus a loss of $70 million in the year-ago quarter, while sales were down 4.2 percent to $1.2 billion, largely in line with consensus. CEO Uwe Roehrhoff said the prescription drug business, whose quarterly net sales were down 13.2 percent year-over-year at $209 million, performed below expectations "due primarily to a shortfall in new product launches coupled with challenging market dynamics, which is expected to carry forward into the second half of the year."

Looking ahead, Perrigo now expects full-year revenue of $4.8 billion to $4.9 billion, a decrease from previous guidance of $5 billion to $5.1 billion. The company also projects per-share earnings between $4.75 and $4.95, below its earlier forecast of $5.05 per share to $5.45 per share.

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