Perrigo Is 'Uniquely' Positioned

March 9, 2008
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GRAND RAPIDS —  As Joseph Papa sees it, Perrigo is the right company in the right place at the right time, given the escalating costs of health care.

People are living longer and will require more pharmaceuticals as they age, but that trend is colliding with another trend — the growing struggle among both public and private entities to achieve cost containment in the health care benefit arena. Papa, CEO of Allegan-based Perrigo, told members of the Economic Club at a luncheon Monday that Perrigo is uniquely positioned to help reduce health care costs.

“We believe generic drugs are an important part of the solution to the rising cost of health care,” Papa said. “In the prescription world today, when a product goes generic, its price will drop almost 90 percent.”

For a pharmacist, for example, the price for 100 Prozac tablets was originally about $250, but after the patent expired and a generic version was produced, 100 generic Prozac tablets could be had for about $3 or $4.

There are presently 35 million people over the age of 65 in the United States and 480 million worldwide, Papa observed. By 2030, some 70 million Americans will fall into that category. 

According to Papa, 10 percent of Michigan residents will spend 10 percent of their pre-tax income on health care this year — and about 500,000 are going to shell out 25 percent. In combination with the higher rate of unemployment in Michigan, that makes for a very challenging situation. Data from across the United States, he said, suggests one-half of all bankruptcy filings stem from some kind of a medical issue the homeowner encountered.

Health care spending in this country will reach $4.3 trillion by 2017, or 20 percent of the gross domestic product. Medicare spending will nearly double in the next 15 years, as well, so health care is going to continue to be a major economic driver in this country, Papa stressed. 

“We believe that as a market leader in many areas — such as store brand — we can help reduce health care costs while still supplying quality products,” Papa said. “We believe we have the right people in place, the right structure, the right cost structure and the capability to maintain it all globally. We believe we’ll continue to be a leader in meeting the world’s need for high-quality consumer products.”

Perrigo is the leader in store-brand over-the-counter products, with a 70 percent market share. The magic of store brands is that they provide consumers value while driving retailer profitability, he said. Consumers pay substantially less for a store-brand OTC product versus the national brands, and a retailer’s profit on a store brand is higher than on a national brand. 

“Perrigo invented the store brand,” Papa remarked. “We’ve helped retailers add value for their customers, and the consumer wins with the lowest prices for the products they use the most. The retailer wins with higher margins on those products.”

The company believes there’s approximately $10 billion in prescription products today that are going to “switch” and be made available as over-the-counter products. Perrigo has been involved in 70 percent of the Rx-to-OTC switches over the past 30 years, which is more than any other OTC player in the industry, Papa noted. Few companies have Perrigo’s capabilities on the generic Rx side, he added.

Perrigo also has a vertically integrated active pharmaceutical ingredient business that’s one of the top 10 players in the world. That’s important because the active ingredient of a pharmaceutical usually represents the majority of the cost — 50 percent to 60 percent of the pharmaceutical product, Papa explained. By having its own active pharmaceutical ingredients, Perrigo can remain very cost effective.

In addition, the company has the most abbreviated new drug applications filed with the Food and Drug Administration of any company in the industry, which means more generic products in the pipeline. For instance, Perrigo began shipping to retail customers on Tuesday 20mg Omeprazole tablets, its generic equivalent of Prilosec OTC, a product that generates more than $800 million in annual sales in the U.S. alone.

“We believe that with our pricing (on Omerprazole), we’ll save consumers anywhere from $150 million to $240 million just on this one product,” Papa said. “That’s an important consumer savings potential we can offer, and it’s of real value to patients who are trying to take more control over their own health care expenditures through OTC products.”

Perrigo has the capability of producing 30 billion-plus tablets a year and three billion liquid doses per year, Papa said. Worldwide, more than 90 million people take a Perrigo product each day.

“We believe Perrigo can compete with anyone in the world,” Papa said.

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