Perrigo Company (PRGO) recently announced the resolution of manufacturing issues at its Allegan, Michigan facility with the US Food and Drug Administration (FDA) following conclusion of re-inspection of the facility by the agency. The FDA commenced a re-inspection of the facility in early March 2011.
The FDA concluded that the Allegan facility now meets the regulatory standards, thus removing a major overhang on Perrigo. Perrigo can now look for approval of any export license or generic drug applications for products manufactured from the facility.
Approval of products, due to be manufactured at the Allegan facility, like the generic version of Mucinex was being held up due to the FDA warning letter. Following the resolution of the letter, we believe that approval of such generics will be expedited.
In April 2010, the FDA sent a warning letter to Perrigo questioning the quality control at its Allegan, Michigan facility, which manufactures store brand over the counter (OTC) products constituting almost 80% of its business. Production at the Allegan facility had slowed in the past few months as the company addressed the FDA warning letter, impacting sales in the second quarter of fiscal 2011.
Our Recommendation
Currently, we have an Outperform recommendation on Perrigo, which is supported by a Zacks #2 Rank (short-term “Buy” rating). We believe that Perrigo’s strong position in the brand OTC pharmaceutical market and growing generics and active pharmaceutical ingredients (API) businesses will help it deliver solid top- and bottom-line growth in the coming years. Moreover, management’s policy of pursuing smart strategic deals will complement its growth trajectory. Perrigo also has a very strong and impressive pipeline. The FDA resolution of quality issues at Allegan is also a major relief for the company.
We expect the company to benefit from OTC switches from branded products in the next five years. Perrigo acquired exclusive sales and distribution rights to its OTC store brand version of Sanofi Aventis’ (SNY) Allegra (for seasonal allergies) and Allegra D from Teva Pharmaceuticals (TEVA) in June 2010. Sanofi has already received FDA approval to move Allegra from prescription to OTC status. Perrigo expects to launch its OTC version soon. Perrigo’s partner Teva is currently working to secure a switch approval.
PERRIGO COMPANY (PRGO): Free Stock Analysis Report
SANOFI-AVENTIS (SNY): Free Stock Analysis Report
TEVA PHARM ADR (TEVA): Free Stock Analysis Report
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