2016 was not kind to Perrigo—and investors shouldn’t hold their breath on a 2017 comeback, either, one analyst says.
Jefferies’ David Steinberg lowered his full-year 2017 and 2018 revenue and EPS estimates for the Dublin drugmaker on Monday. He took this year’s top-line prediction down by $394 million and cut EPS by 65 cents, and for next year, he pared his revenue number down by $386 million and shaved 64 cents off his EPS forecast.
The reasons are myriad, Steinberg wrote in a note to clients. For one, he sees a potential delay to the launch of store brand OTC Nexium, which he figures represents an opportunity of $350 million or more. Teva recently declared itself the first to file on that med, which could hand the Israeli drugmaker six months of exclusivity and push Perrigo’s store brand rollout until late this year.
Pricing is also now down between 3% and 4% within Perrigo’s consumer healthcare business, company execs told Steinberg, compared with the 1% to 2% deterioration the company had previously acknowledged. Retailers of Perrigo’s products are also experiencing less foot traffic, piling on even more pressure. And with those factors in mind, posting 2017 growth “could prove quite challenging,” Steinberg wrote.
And those are just the biggest of the issues Steinberg sees. Branded generics could take a hit thanks to pricing headwinds and more competition to Perrigo’s Crohn's- and ulcerative colitis-treating Entocort franchise. He also expects that the restructuring within underperforming 2015 buy Omega—where the company announced in December that it would be axing up to 80 staffers—will result in a $150 million revenue toll each year.
In short? “Effectively, we’re now forecasting close to flat EPS growth this year,” Steinberg wrote.
Perrigo’s struggles surfaced after the company fought off a hostile takeover attempt from suitor Mylan—and investors, who felt duped into rejecting the buy, weren’t too happy with that timing. The company has pinned some of the blame on departed CEO Joseph Papa—now in the No. 1 seat at Valeant—with new chief John Hendrickson telling shareholders in May that Perrigo’s “recent track record of performance against our own expectations is unacceptable,” and stressing that he wants “the expectations we lay out to be realistic, numbers we feel we can deliver.”
Meanwhile, though, activists have jumped into the fray, pressuring Perrigo to sell off its branded generics business and the royalty stream it owns on Biogen multiple sclerosis fighter Tysabri—ideas that some analysts, Steinberg included, aren’t all that keen on.
“If Perrigo was to shed these businesses the hope would be that pricing can firm up in the consumer healthcare business, there will be robust new product flow in the coming years, and with improved execution—improvement in the multiple,” he wrote.