Perrigo Seals Generic Claritin Deal

January 31, 2003
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ALLEGAN — The first six months of fiscal 2003 were the best ever for Perrigo Co., despite a 1 percent decline in sales growth.

For the six months ended Dec. 28, net sales were $440.7 million, down from $445.8 million for the first half of fiscal 2002.

But net income for the first half was $35.6 million, or 50 cents per share, compared with net income of $27 million, or 36 cents per share, a year ago.

Although Perrigo President and CEO David T. Gibbons said he would have liked to see some sales growth in the mix, he noted that the company’s business simplification and packaging automation initiatives, among others factors, contributed to record earnings.

Plant floor productivity is up, inventories are in “great shape” and service levels remain high, he added.

For the second quarter, the company reported net sales of $227.5 million, compared with $228.7 million for 2002’s second quarter.

Net income, however, increased 11 percent to $16.8 million, or 24 cents, compared with $15.2 million, or 20 cents per share, in the year-ago second quarter.

Perrigo’s over-the-counter (OTC) business was down 4 percent and its nutrition business was up 9 percent for the quarter.

While analgesic, laxative and contract sales were down, cough and cold, feminine hygiene and vitamin sales were up, Gibbons said.

The company’s Mexico subsidiary, Quimica Y Farmacia, saw sales bounce back from its weak first quarter. Perrigo’s U.K. subsidiary, Wrafton Laboratories Ltd., had an “excellent” quarter with a double-digit sales increase, he said.

The week before results were announced, Perrigo’s board of directors instituted the company’s first regular quarterly dividend of 2.5 cents per share payable March 21 to shareholders of record on Feb. 28.

“Beginning with the second quarter, we’ve elected to expense stock options because we think it’s the right thing to do and the right time to do it,” Gibbons said. “That represents our ongoing commitment to our shareholders and it certainly also illustrates our management’s and our board’s confidence in our long-term prospects.”

The company also added three new outside directors to its board in late January.

While Perrigo is gaining a new supplier for one product, it’s losing the supplier for another.

The company announced last week it had entered into a multi-year agreement with Florida-based Andrx Corp. whereby Andrx will manufacture and supply Perrigo with three forms of loratadine tablets, the generic equivalent of Claritin-D 12 Hour, Claritin-D 24 Hour and Claritin RediTabs.

Upon labeling approval, Andrx expects to receive first-to-file marketing exclusivity on the generic version of Claritin-D 24, which would be for a period of 180 days.

Final approval is expected on the D-12 and quick dissolve generic forms upon expiration of other manufacturers’ exclusivity periods.

“The importance of this alliance is that it really is the quickest path to market,” he said. “Perrigo is the leader in Rx-to-OTC switches in the store brand area and we have an excellent opportunity here to partner with Andrx to continue that.”

The company anticipates initial shipments of the D-24 equivalent by the middle of this year. The D-12 and quick dissolve forms will be introduced in fiscal 2004.

At the same time, the company anticipates losing some business due to a supplier’s termination of a contract for gelatin-enrobed acetametaphen tablets.

Sales of those products over the last 12 months were $36 million out of $826 million, so it’s less than 5 percent of annual revenue, said Ernest Schenk, manager of investor relations and communications.

Schenk said Perrigo and the supplier couldn’t agree on terms, but declined to identify the supplier. The contract effectively ends March 31. 

“We’re looking at alternative sources for similar products but the timing of any alternative is uncertain at this time,” Gibbons said. “We know we will lose a significant portion of our $36 million sales in the short term.”

Gibbons stressed that Perrigo’s long-term focus is to continue to make itself more cost competitive.           

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