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.

Conference

The 13th Annual Digital Pharma East

Digital Pharma East returns to the Pennsylvania Convention Center September 17–20, bringing together over 1000 attendees from biotech and pharma, to better understand how to present business plans, justify budget and innovation, and de-risk proposals getting shut down — essentially, understand how they can return to the office and become champions for their internal digital needs. Join us and save 15% on standard rates when you register with Discount Code DPE19Fierce.

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.

Related Articles:
New Perrigo activist Starboard slams 'woeful' performance, lobbies for a slimdown
Depomed, heeding activist's advice, prepares to go up for sale
Struggling Perrigo inks deal agreement for GA-based distributor
Shareholders sue struggling Perrigo for 'misleading' them away from Mylan buy
Perrigo up for $20B sale to mystery U.K. buyer: report
Just wait, Perrigo investor urges. We can get the same return--without a Mylan deal

Suggested Articles

Leading Indian drugmakers Sun Pharma, Cipla, Aurobindo and Dr. Reddy's are all trying to expand their presences in China.

New Gilead CEO Daniel O’Day has already replaced some key leaders at the company, but he’s not stopping there with the executive overhaul.

The FDA lambasted Strides Pharma in a warning letter after inspectors found testing records in the trash and in bags by a shredder.