Perrigo Eyes Opportunities

November 9, 2007
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ALLEGAN — There are a few companies that are doing well despite the dismal economic environment in Michigan, and Perrigo Co. is one of them.

As a global developer, manufacturer and distributor of over-the-counter and prescription pharmaceuticals, nutritional products and active pharmaceutical ingredients, Perrigo sees its role today as meeting the world's growing need for quality, affordable health care products. 

CEO, President and Chairman Joseph C. Papa said the $1.5 billion company is uniquely positioned for future growth as the demand for health care products rises among an aging population. People over age 65 typically require two to three times the number of prescription and over-the-counter products as those under 65, so the tremendous demand seen today is only going up, Papa said at a Seidman College of Business Alumni Association's Breakfast Series presentation Wednesday.

Perrigo is the world's largest manufacturer of OTC pharmaceutical products for the store brand market, with a global market share of nearly 70 percent, Papa noted. It holds that position by focusing on product quality, customer service and new product introductions, by maintaining its low-cost position, and through "people development" at all levels of the organization, he said. New product introductions include Perrigo's forthcoming launch of a generic version of Prilosec OTC in late March 2008.

The magic of store brands is that they provide consumers value while driving retail profitability, according to Papa. A consumer usually pays $10 for a national brand that cost the retailer $7.50 to purchase, yielding him a profit of $2.50 per sale, Papa explained. On the store brand side, a consumer may pay $7 for the bio-generic equivalent product, which the retailer can buy for $3 and make a $4 profit on, he said. Perrigo gives "tremendous" marketing support to its retailers, as well.

"Not only do we help them with their product, but we help them promote the product, so that consumers understand that these products are the same products but they are less expensive and provide a good value for them as consumers." 

Perrigo's health care segment markets a broad line of OTC and nutrition products comparable in quality and effectiveness to the advertised brands in categories such as analgesics, cough and cold remedies and gastrointestinal products. It manufactures approximately 30 billion tablets annually or an average of 100 tablets for every American yearly, Papa said.

"That gives you some sense of the critical mass that comes out of our facilities here in western Michigan," he said. "We think the critical mass we have is what places Perrigo in a unique position to solve the problem of health care."  

Perrigo's generic pharmaceuticals business produces generic prescription pharmaceuticals by transferring FDA-approved prescription medication to nonprescription status, a process known as an Rx-to-OTC switch. This business segment, which is predominantly focused on topical formulations for the U.S. market, has made Perrigo one of the top three players in topical generic prescription products. The company has more than 60 topical products in its current portfolio and 12 "Abbreviated New Drug Applications" pending at the FDA. Perrigo actually has more Rx-to-OTC switches and ANDAs than any other company, and is spending 13 percent of sales on research and development for generic prescription products this year, Papa observed.

"We're looking for a very positive growth opportunity in our prescription business over the next five years," he remarked.

Perrigo also increased R&D spending in its active pharmaceutical ingredients business to 4.6 percent of sales this year. The company is one of the top 10 global active pharmaceutical ingredients suppliers, selling to pharmaceutical companies in 25 countries. In order to compete with countries around the world, Papa said, Perrigo has to make sure it maintains the lowest cost on its active ingredients because active ingredients for a pharmaceutical product usually represent somewhere between 50 percent and 60 percent of the cost of the final product. 

"R&D investment is a theme you're going to hear a lot about from anybody in the pharmaceutical industry, because you really need to spend the money on research and development today to have the products in year three, four, five, six and beyond."   

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