Perrigo sees growth, but its sales are trimmed by a hit to contract manufacturing

Over-the-counter drug specialist Perrigo ($PRGO) has been on an expansion roll in the last two years, culminating with its $8.6 billion buyout last summer of Ireland-based drug company Elan. Its latest earnings reflect that growth, with sales up 11% and adjusted net income jumping 45%. In fact, the only areas where it suffered a bit, were contract manufacturing and API production.

In its API category, Perrigo saw sales drop from $40.9 million to $30 million, a 27% decline. It pegged the reduction to a $17 million falloff of sales of existing products due to increased competition. 

The company--which took on Elan's low-tax Irish domicile--reported that in its consumer healthcare segment, growth in new products and other categories was offset by a $46 million hit to existing products. The change was primarily due to a dropoff in contract manufacturing and a reduction in analgesic sales, which left it with a 1% reduction for the quarter.

According to a transcript of Perrigo's earnings call from Seeking Alpha, CFO Judy Brown attributed the 40% decline in contract manufacturing to a loss of business from a key customer, who "resumed production at one of their own facilities, reducing the need for products sourced from Perrigo." She said Perrigo still does work for the client, just not as much. "Such is the nature of the contract manufacturing business."

The store-brand drug specialist in November also recalled 18 batches of its acetaminophen drops for infants on potential defects in the oral syringe used to administer them. At the time, CEO Joseph C. Papa said, "While we cannot be certain that any of these unmarked dosing devices were released into our customers' supply chains, taking this action is the right thing to do."

- here's the release
- here's a transcript of the earnings call

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