Heading up the OTC giant

October 5, 2009
| By Pete Daly |
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Perrigo CEO Joseph
C. Papa sees the
pharmaceutical company's
expansion continuing

The average person walking down the street — except for streets in Allegan — probably doesn't know the name of the world's largest manufacturer of over-the-counter pharmaceuticals.

Joseph C. Papa, the president, CEO and chairman of Perrigo Co., said he would guess from his many years in the pharmaceutical industry that "Perrigo probably is one of the top five manufacturers of pharmaceutical products in the world — and yet, many people don't know our name."

Even here in West Michigan, he said, most people don't realize how big the 122-year-old company has become.

"It turns out," said Papa, that each year "we make over 30 billion tablets right here in Allegan, Michigan." About 75 percent of the global company's production takes place in West Michigan, according to his estimate.

Thirty billion tablets is almost 1,000 pills per second — and the company is picking up speed.

Papa, who joined Perrigo as its leader three years ago, was proud to announce in August that the publicly held company had sales over $2 billion for the first time, in the fiscal year that ended in June.

The sales revenue of Perrigo is several times the volume of its closest competitor in the world — if you want to call them competitors. While there are many companies around the world manufacturing some type of pharmaceutical product, Perrigo executives flatly assert that their company has no significant competition anywhere in the OTC niche it fills.

Papa is gung-ho about the future of Perrigo and its market, especially with the recession and the health care cost crisis in America increasing demand for more affordable health care — including medications and nutritional supplements.

Papa, 53, is a Connecticut native who earned a pharmacy degree there in 1978, and then worked in a hospital pharmacy for several years before going back to school at Northwestern, where he earned an MBA from the Kellogg Graduate School of Management.

From 1983 through 1997, he served in a variety of general management, sales, marketing and R&D positions at Novartis Pharmaceuticals. He was president of Searle’s U.S. operations from 1997 to 2000, and president of global country operations for Pharmacia's North American business from 2000 to 2001. Then followed three years as president/COO at Watson Pharmaceuticals. Prior to joining Perrigo, Papa was chairman and CEO of Cardinal Health's Pharmaceutical Technologies and Services business unit from 2004 through 2006.

While many companies in other industries in Michigan over the last 12 months were cutting jobs and closing facilities, Perrigo has been heading in the opposite direction. In September 2008, it purchased JB Laboratories in Holland for approximately $44 million in cash, which is expected to add more than $70 million to Perrigo annual sales.

In October 2008, it acquired a Mexican company for $25 million that makes store-brand over-the-counter and prescription pharmaceuticals. In November, it acquired Unico Holdings of Lake Worth, Fla., for $49 million. That company makes store brand pediatric electrolytes, enemas and feminine hygiene products.

Right now Perrigo is nearing completion of a $25 million expansion to its Plant No. 4 on Hooker Road in Allegan, which is expected to add a total of 50 new jobs by this fall.

In early August, Perrigo acquired an 85 percent stake in a state-of-the-art plant near Mumbai, India, that produces API — active pharmaceutical ingredients. By 2011, that new facility is expected to go on-line, producing API that is now made in Germany and Israel.

"We are actually, at this time, looking for additional geographic expansion around the world," said Papa.

About 75 percent of Perrigo's business is over-the-counter pharmaceuticals, about 10 to 12 percent is prescription drugs, and the remainder is mostly their API business.

There is no such thing as a "Perrigo" brand name on any label, however. The company's OTC products are sold by major retail companies under their own private labels, including corporations such as Meijer, Wal-Mart, CVS, Walgreens, Kroger, Safeway, Dollar General, Sam's Club and Costco.

The OTC products fall into several categories. Perrigo makes private-label cough/cold/allergy/sinus medications; analgesics, dietary supplements, gastrointestinal medications and smoking cessation pharmaceuticals. The national brands comparable to Perrigo products include such well-known names as Advil, Motrin, Tylenol, Centrum, One-A-Day, Pepto-Bismol and Nicorette.

In the world of generic prescription remedies, Perrigo focuses on topical products that are absorbed through the skin or through the lungs or nasal passages.

In March 2008, Perrigo began production of an omeprazole OTC for private label, comparable to Prilosec OTC.

"The omeprazole has been a great success for us," said Papa. Perrigo does not reveal specific financial numbers related to its sales of omeprazole but Papa noted that they had predicted it would represent up to $200 million in annual sales.

"For a two billion dollar company to show $150 to $200 million on one new product" is impressive, said Papa, adding that omeprazole is clearly a "growth driver."

Perhaps no other pharma company watches the lifecycle of prescription drugs as closely as Perrigo. Companies that develop a new prescription drug approved by the FDA are granted a patent that may last for several years or more. Once the patent expires, the drug is generally considered fair game for other companies to produce.

Some of the companies that have created a successful prescription drug will later ask the FDA to switch it from a prescription to an OTC category before the patent has expired, and then market it exclusively for a set period of time as a protected, brand-name OTC.

Perrigo has an Rx group that watches the prescription drug pipeline for years in advance, in order to be ready to produce a generic version when patents expire, or to enter into partnerships with other companies interested in producing or marketing that drug as its patented lifespan nears its end.

In 2008, Perrigo had an OTC cetirizine "on the shelves a week before Zyrtec was," according to Perrigo spokesperson Daniel Willard. Perrigo's store brand cetirizine is comparable to the Zyrtec-D OTC tablets for allergies and nasal congestion. Half of all OTC cetirizine sold now is produced by Perrigo.

The recession has been good for companies like Perrigo, which offer a low-cost alternative to expensive brands.

"We are in what we call the quality, affordable health care segment," said Papa.

Store-brand OTC products are "a savings to the consumer of approximately 30 percent," said Papa.

The health care debate in Washington is all about cost, and that brings the store brands into focus.

"I can't imagine any solution to health care that does not attempt to lower the cost of health care," said Papa. "The only way to really deal with lowering costs is to use generic and store brand, private label, over-the-counter products."

"We feel very comfortable that whichever way the health care reform debate goes, quality, affordable health care — specifically the private label store brand products as well as the generic prescription products we make — will be an important part of the solution."

According to a corporate presentation Perrigo employees made at an investment bank conference in July, store brands not only benefit consumers, they benefit the retailer too. A retailer's profit on a well-known national brand of cough syrup is about 25 percent, but it is about 55 percent on a comparable store brand product made by Perrigo.

Over-the-counter health care products are continuing to take a bigger bite out of the marketplace. In 1990, said Papa, about 10 percent of the OTC market was private label store brands. "Today, we're up to around 25 or 26 percent," said Papa.

Time — and the baby boomers — are also on Perrigo's side.

"We're really excited about our future," said Papa, because he sees the market for both OTC and prescription remedies expanding "as people live longer."

"We know people over the age of 65 utilize more pharmaceutical products" than younger people, he said.

Plus, there’s that cost factor again.

"We're really optimistic that more and more people are turning to private label store brands and generic products, to help offset some of the cost," he said.

"The demographics are encouraging."

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