Perrigo steps up Tysabri sale plans at activist’s urging

Perrigo's ($PRGO) brand new activist investor, Starboard Value, may already be getting its way at the troubled company.

Reuters reports that the Dublin drugmaker's revenue interest in Biogen ($BIIB) multiple sclerosis therapy Tysabri could soon go on the block--one option Starboard suggested in a letter to new CEO John Hendrickson.

Perrigo has been weighing a sale of the royalties--which it acquired in 2013 when it snagged Elan for $8.6 billion--since before Starboard released its recommendations, according to the news services’ sources. And at last week’s Bank of America healthcare conference, company CFO Judy Brown said Perrigo was strategically reviewing its portfolio to ID non-core assets it could part with.

Starboard, for one, would certainly be pleased if Perrigo let the royalties go. “We believe the company could benefit from outside advice from a reputable investment bank or advisor on non-core asset divestitures or other broader strategic alternatives,” managing member Jeffrey Smith wrote to Hendrickson last week, calling out the Tysabri revenue stream in particular.

Starboard, which last week disclosed a 4.6% stake in Perrigo, thinks the move will help Perrigo zero in on its key consumer health business--and spur a turnaround accordingly. Ever since Perrigo execs last year persuaded investors to shoot down a Mylan takeover offer, the Irish company has floundered, leaving some shareholders regretting their anti-buyout votes.

RBC Capital Markets’ Randall Stanicky agrees that divesting the royalties “makes sense,” he wrote last week, putting a price tag of about $2.8 billion on the asset. Royalty Pharma, who expressed interest in Elan before Perrigo nabbed it, is the most likely purchaser, he figures.

But letting go of the revenue stream will also have a “material” impact on earnings, Stanicky figures. According to his predictions, a sale at $2.8 billion--with proceeds redeployed to debt paydown--would take 2017 EPS to $6.47 from $8.04.

The real question, as he sees it, is whether Perrigo will follow any of Starboard’s other advice--such as selling off its generics unit, a move that would make a full company breakup “seem more likely.”

“If it digs in and refuses to sell Generics, then we would expect a prolonged process to ‘unlock’ value,” Stanicky wrote.

Meanwhile, Starboard may also be seeing its noisemaking pay off elsewhere in the industry. Last week, Reuters reported that California’s Depomed ($DEPO) was gearing up to put itself on the block, heeding Starboard’s calls to explore a sale.

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Just wait, Perrigo investor urges. We can get the same return--without a Mylan deal