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CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page1of28
PerrigoCompanyPLC(PRGO)EarningsReport:Q!2016ConferenceCallTranscriptThefollowingPerrigoCompanyPLCconferencecalltookplaceonMay12,2016,08:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
BradleyJoseph;PerrigoCompany;VPofGlobalIRLaurieBrlas;PerrigoCompany;ChairmanoftheBoardJohnHendrickson;PerrigoCompany;CEOJudyBrown;PerrigoCompany;EVP,BusinessOperationsandCFO
OtherPart icipants
LouiseChen;GuggenheimSecuritiesLLC;AnalystGreggGilbert;DeutscheBank;AnalystRandallStanicky;RBCCapitalMarkets;AnalystElliotWilbur;Needham&Company;AnalystDavidRisinger;MorganStanley;AnalystDavidMaris;WellsFargoSecurities;AnalystDavidSteinberg;JefferiesLLC;AnalystMarcGoodman;UBS;AnalystAnnabelSamimy;StifelNicolaus;AnalystChrisSchott;JPMorgan;AnalystSumantKulkarni;BofAMerrillLynch;AnalystDouglasTsao;BarclaysCapital;AnalystJamiRubin;GoldmanSachs;AnalystTimChiang;BTIG;AnalystMikeGrondahl;NorthlandCapital;AnalystJonAndersen;WilliamBlair&Company;AnalystDerekArchila;LeerinkPartners;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Goodmorning.MynameisVashanta,andIwillbeyourconferenceoperatortoday.Atthistime,IwouldliketowelcomeeveryonetothePerrigocalendaryear2016first-quarterearningsconferencecall.
Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarkswewillholdaquestionandanswersession.Ifyouwouldliketoaskaquestionduringthistime,simplypressstarthanthenumberoneonyourtelephonekeypad.Ifyouwouldliketowithdrawyourquestion,pressthepoundkey.
Thankyou.IwillnowturntheconferenceovertoBradleyJoseph,VicePresidentofGlobalInvestorRelations.Pleasegoahead.
BradleyJoseph (VPofGlobalIR):
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page2of28
Goodmorning.WelcometoPerrigo'sfirst-quarter2016earningsconferencecall.Ihopeyouallhadachancetoreviewourpressrelease,whichweissuedearlierthismorning.Acopyofthereleaseisavailableonourwebsite,asistheslidepresentationforthiscall.
JoiningmetodayisPerrigo'sChairman,LaurieBrlas;ChiefExecutiveOfficer,JohnHendrickson;andExecutiveVicePresident,BusinessOperationsandChiefFinancialOfficer,JudyBrown.
Iwouldliketoremindeveryonethatduringtoday'scallparticipantswillmakecertainforward-lookingstatements.PleaserefertotheimportantinformationforinvestorsandshareholdersandSafeHarborlanguageregardingthesestatementsinourpressreleaseissuedthismorning.Inaddition,intheappendixfortoday'spresentation,wehaveprovidedreconciliationsforallnon-GAAPfinancialmeasurespresented.
Turningtoslide3.Next,I'dliketowalkthroughtheagendafortoday'scall.LauriewillbeginbydiscussingPerrigo'srecentCEOtransitionprocess,fromtheperspectiveofPerrigo'sBoardofDirectors.Next,Johnwillwalkthroughhisprioritiesandoverarchingmanagementphilosophy,andthenwilldiscusshisperspectivesandinsightsonthefuturedirectionofPerrigobysegment.
Judywillthenwalkthroughthefinancialresultsforthequarterandguidanceforcalendar2016.Finally,Johnwilldiscusstheteam'sphilosophyaroundguidance,andwhatyoushouldexpectfromPerrigogoingforward,concludingwithQ&A.IwouldnowliketoturnthecallovertoPerrigo'sChairman,LaurieBrlas.
LaurieBrlas (ChairmanoftheBoard):
Thankyou,Brad.
Goodmorning,everyone,andthanksforjoiningustoday.IhavebeenamemberofPerrigo'sBoardofDirectorssince2003,andhavetheprivilegetoserveonboththeauditandremunerationcommittees.DuringmytenureontheBoardI'vecometodeeplyappreciatethestrengthofthisCompanyanditsmanagement,aswellasourabilitytogrowanddelivervalue,whileeffectivelyaddressingchallenges.
I'dliketotakethisopportunitytodaytotalkwithyouaboutourCEOtransitionprocess.Aspreviouslyannounced,followingourrobustsuccessionplanningprocess,onApril25,theBoardofDirectorsunanimouslyselectedJohnHendricksonasChiefExecutiveOfficer.SpeakingonbehalfoftheentireBoard,IcanassureyouthatthechoicetoelevateJohnwasclear.JohnhasbeenessentialtotheCompany'ssuccessineachofhisroleswithPerrigo.Johnledandshapedtheoperationalbackboneoftheorganization,designingavastandmultifacetedinfrastructuretoproduceandsupplyabroadandcomplexportfolioofproducts.
Heshoweddistinctiveleadershipasheadofourconsumerhealthcarebusinessfrom2003to2007.Duringthatchallengingperiod,whenweweregrapplingwiththemovementofpseudoephedrine,whichwasthelargestproductinourOTCportfolioatthetimetobehindthecounter,Johnledtheteamtoincreaserevenue.Allfunctionsreportedtohim,includingR&D,regulatory,sales,marketingandoperations.
Since2007,JohnhasservedasEVPandheadofglobalsupplychain,untilhispromotiontoPresidentlastyear.Hismanufacturingandsupplychainleadership,exceptionaloperationaltrackrecord,andabilitytoconnectwithandgetthemostoutofhispeoplegaveusgreatconfidenceinourdecisiontopromoteJohntoPresident,aswellasourrecentdecisiontoappointhimtoCEO.
InJohn,weidentifiedaleaderwhoknowsthebusiness,iscommittedtoourmission,andcanmakethechoicesnecessarytodelivervalueforourshareholders.TheBoardrecognizesofcoursethatthesuccessofPerrigodoesnotstartorstopwithoneperson.Johnissupportedbyatalented,experiencedteamand
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page3of28
theBoardhasfullconfidenceintheteam'sabilitytoworkeffectivelywithJohn,execute,anddelivershareholdervalue.
Finally,Iwanttounderscoremyremarksbyhighlightingourcommitmenttocorporategovernanceandtransparency.ToenhanceindependentdecisionmakingattheBoardlevel,andtoalignourstructurewithwhatwebelieveisappropriatefortheCompanyatthistime,theBoardhaschosentoseparatetherolesofCEOandChairmanoftheBoard.Ourcommitmenttoshareholderswillremain,asitalwayshas,centraltoourdecision-makingprocessgoingforward.Now,I'dliketoturnthecallovertoJohn.
JohnHendrickson (CEO):
Thankyou,Laurie.Andwelcomeagain,everybodytoPerrigo'sfirst-quarter2016earningscall.IwanttostartbysayinghowhonoredandprivilegedIamtobeCEOofthisgreatorganization,andleadourmorethan13,000talentedemployees.
DuringmytimewithPerrigo,IhaveservedinavarietyofdifferentcapacitiesasLaurieoutlined,andI'macutelyawareofwhatthisgreatbusinesshastooffercustomers,consumers,andourshareholders.Iwillsayitunequivocallyatitscore,Perrigoisatrulydiversified,uniquebusiness,transcendinggenericprescriptionproductswitharesilientOTCbase.
Ibelievethere'salongrunwayforgrowthaheadofus,andIamconfidentwehavetherightcohesivemanagementteaminplacetofocusontheexecutionthatisrequiredtodeliverclearvaluetoourshareholders.Thatsaid,Iknowthatmeetingorexceedingexpectationsisthefoundationforestablishingyourtrust.Thiswillbemypersonalfocus,andthefocusofthemanagementteamgoingforward.
Turningtoslide6,ourrecenttrackrecordofperformanceagainstourownexpectationsisunacceptable.Iunderstandthat.Ourteamunderstandsthat.
Myfocusandthatofmyteamwillbeonoperationaldisciplineandgeneratingconsistentresults.Iamconfidentwewilldeliver,givenouropportunitiesforgrowth,thepowerofourplatform,andourdeeplong-standingrelationshipswithourcustomers.Wewilldeliverourresults.
Nowletmehighlightthekeycomponentsofouroverarchingleadershipprinciplesforourbusiness.First,asIsaid,ouroperationalexecutionisthecornerstoneofoursuccess.Developing,marketing,purchasing,manufacturing,distributingabroad,complexarrayofcustomizedproductshavealwaysbeenourstrengths.Qualitycontinuestobethedrivingforcebehindourorganization,andwehavetheinfrastructureandqualitytrackrecordtoconsistentlymoveourproductsontoshelvesforourcustomersandintothehomesofourconsumers.
Second,I'mactionoriented.I'vealreadymadecriticaldecisionsinanumberofourbusinesses.Iwillcontinuetotakeappropriatestepstocapitalizeonopportunities,andeffectivelyaddressourchallenges.
Third,Ifeltitimportanttosharemyguidancephilosophy,whichwe'lladdressinmoredetailsoon.I'munequivocallycommittedtotransparency,andwillbeactivelyengagedwithandlisteningtoyou,yourquestionsandcomments.That'showI'vealwaysworkedwithourcustomers,suppliers,employeesandshareholders.
Finally,ourgoalistoultimatelycreatevaluefortheshareholders,theownersofourCompany.Tothatend,myprimaryfocusatthistimeisonourcoreoperatingandorganicgrowthvehicles.Asalways,wewillcontinuetoevaluatewaystorefineandenhanceourportfolioofproductstocustomersandconsumers.Wewillcontinuetolookatsynergistic,bolt-onacquisitionsthatfitstrategicallywithinourcoreinfrastructure,andwewillcontinuetoevaluatemethodsofreturningcapitaltoourshareholderbase.
NowI'dliketogiveyoumyinsightintothePerrigoadvantage,andmyperspectiveoneachofour
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page4of28
businesssegments.Lookingatslide7,ourconsumerhealthcareplatformiscoretoPerrigo.Wehaveastronganddurableposition,withnumerousproducts,dosageforms,andcapabilities.
OurUSconsumerbusinessincludesmoreOTCabbreviatednewdrugapplicationsthananyothermanufacturer,evenincludingthelargebrandedpharmaceuticalcompaniesthatyouallknow.ThisabilitytobringnewproductstomarketwillcontinuetodrivegrowthinourCHCsegment.Inaddition,wehaveoneofthebroadeststorebrandOTCsupplychainsintheworld.Thatmeansthefirstrawmaterialsbeingprocured,throughmanufacturing,allthewaythroughlogisticsanddistribution,ultimatelyaretoourcustomers.
OnetruckloadofproductleavesaPerrigodistributioncenterevery30minutes,24/7,365daysayear,togotoourcustomers,toultimatelygotoourconsumers.WearetheCompanyretailerslooktoastheirpartnerofchoice.WearetheCompanyretailerslookto,todrivevaluefortheirconsumersandultimatelytheirshareholders.
ThissegmentcontinuestobeledbyJeffNeedham.Jeffisanindustryinnovatorwithover30yearsofexperience.Thedeepcustomerrelationshipswehavehelpensurewecontinuetobeavaluedpartnerinthisconsumerspace.
Next,turningtoourbrandedconsumerhealthcaredivision.Despitesomechallenges,myviewofthisbusinesssegmentisoneofoptimismaboutthepoweroftheplatformthatitprovidesus.Perrigoisnowabletodistributeproductstoanadditional32countriesglobally,reachinggreaterthan300,000pharmacistsandretailersinthesecountries.
TheEuropeanOTCmarketrepresents$30billionayearinsales.Sincethebeginningofthiscalendaryear,Ihaveworkedwiththecountryleadersandtheexecutiveteaminourbrandedconsumerhealthcaredivision,todevelopadeeperunderstandingoftheday-to-dayoperationsofthebusiness.WearenowfullyandeffectivelyintegratingBCHintoourexistingleadershipstructure.Wearebuildingupontheteam'scoresalesandmarketingstrengths,implementingourownstrongoperationalcontrolsandstructures.
AsCEO,IhavemadeanumberofadditionalchangestotheBCHbusiness,suchascomingtomutualagreementwithMarkCouckethathewouldresign,andappointingSharonKochanasHeadoftheBCHbusiness.Sharon'sbackground,disciplinedapproach,andabilitytodriveorganizationstopeakperformancemadethedecisiontoappointhimtoleadtheBCHteamaclearone.SharonwasthearchitectofourRxbusiness,whichhebuiltfromthegroundup,withasuperbexecutionaltrackrecord.
Thetrackrecordincludestheacquisitionandintegrationofvariousbolt-onproductsandbusinessesduringhistenure.Asthecurrentheadofourinternationalbusiness,Sharonhasalsooverseendiversemarkets,includingbothbrandedandstorebrandofferingsinmultiplegeographiessuchasMexicoandtheUK.Iamconfidentthatthegrowth,executionandfinancialaccountabilityofthesegmentwillbeenhancedunderSharon'sleadership.
Inadditiontopersonnelchanges,SharonandIareprovidingourstrongBCHleaderswithincreasingresponsibilitiestoleadnewgeographies,prioritizeourportfolioanddivestunderperformingassets.Wearealsoemphasizingnewandinnovativeproducts,suchasournicotinereplacementtherapyfranchise,acquiredfromGSKlastsummer.
Ourleadersarenowalignedwiththestrategytocontinuefocusingonourtop20brands,toensuregrowthofthisstrongportfolio.Andtobeclear,todaythesetop20productscontinuetogrowatafasterpacethanthemarketsthattheyarein.
ThesechangesareinconjunctionwiththeimportantdecisionsJudyhasmadeinthefinance
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page5of28
organization.Shehasenhancedfinancialmanagement,andweareactivelyintheprocessesofputtingBCH'ssales,forecasting,inventorycontrolandoperationsplanningontoPerrigo'sexistingplatform,andupgradingthefinancialplanningandanalysistosupporttheseactivitiesanddrivegrowth.
Again,Iwanttoreiteratethatthetop20brandsthatwehaveinthebusinesstodaycontinuetogrowfasterthanthemarkets.WehaveasupplychainandaplatformtosupportPan-Europeangrowth,andwecanaddproductstofurtherleveragethisbusiness.
TurningnowtoourRxbusiness,ourprescriptionbusinessisanimportantpartofourdiversifiedconsolidatedportfolio.OurRxbusinesshasaclearstrategicrationaleaspartofourbroaddiversifiedportfolio,andisagreatcomplementtoourcoreconsumercompetencies.Products,plans,procurement,technology,distributionareallhighlysynergisticwithourOTCbusiness.AndthisbusinessrepresentsapotentialfeederpipelineforproductconversionsfromRxtoOTC.
Forexample,takeourtopicalacnecategorywithintheRxportfolio.Whenacategorylikethisbeginstoswitch,weareinaprimepositiontocapitalizeonthisopportunity.Theswitchprovidesadermatologypipelineandallowsustobenefitfromtwolifecyclesforasinglepharmaceuticalproduct.
WealsohaveastrongpipelineinourRxbusiness.Whilethesenewproductstendtobemoretechnicallychallenging,withlongerregulatoryapprovaltimeframes,theydopotentiallycreateahigherbarriertoentry,allowingforalonger,moreenduringproductlifespan.
Asallofyouknow,pricingpressuresandultimatelydeflationhavebeenamajortopicacrosstheindustry.OurRxteamhasdoneagreatjoboverthepastyearsofmanagingthroughthis;howeverwearenotimmunetothisdynamic,andultimatelyincreasedcompetitionandgreaterthanexpectedpriceerosionhurtourperformanceinQ1,andresultedinloweringofourexpectationsfortheyear.
DougBoothe,ourEVPandGeneralManageroftheRxbusiness,hasbeenwithPerrigosince2013,leadingthebusinessthroughexceptionalgrowth.Doughasbeenintheindustryandseenvariouscyclesintheprescriptionpharmaceuticalbusiness,andistherightpersontoguidethebusinessinthismarket.
Finally,specialtysciencesandTysabri.Frommyperspective,Tysabriisavaluablefinancialassetwhichcontributesmeaningfullytoourfinancialflexibility,andenablesustocapitalizeonopportunities.
Now,I'dliketohandthecallovertoJudy.BeforeIdoso,I'dliketofirstcongratulateJudyandourCompanyonhernewlyexpandedrole,announcedthismorning.AspartofmystrategytotakeactionsthatwilldeliverenhancedvalueforourCompanyandforourshareholders,youasowners,JudyBrownwilltakeonanexpandedroleasExecutiveVicePresident,BusinessOperationsandChiefFinancialOfficer.
Inthisrole,Judywillhaveleadershipofourglobalproductportfolioandglobalsharedserviceplatform,complementinghercurrentresponsibilitiesforcorporatedevelopment,finance,strategyandcommunications.Leveragingherexperienceinleadingmulti-nationalfinancingandproductdevelopmentorganizations,bothatPerrigoandatWhirlpool,Judywillnowleadtheexpansionofourexistingportfolioandpipelineproductsacrossallbusinesssegmentsandgeographies,whileoptimizingourbusinessservices.
Thankyou,Judy.IwillnowturnthecallovertoJudy.JudyBrown.
JudyBrown (EVP,BusinessOperationsandCFO):
Thankyouverymuch,John.Goodmorningeveryone.
BeforeIdelveintothefinancials,though,letmecongratulateJohnonhisappointmenttoCEO.Ihave
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page6of28
workedwithJohnonthisexecutiveteamformanyyears,verymanyyears,buttimeflies,andIagreewithLaurieandtheBoardthatJohnisabsolutelytherightleaderforPerrigoatthispointinourhistory.Ilookforwardtosupportinghisstatedfocusonexecution,growth,andtransparencyinhisnewrole.Congrats.
JohnHendrickson (CEO):
Thanks,Judy.
JudyBrown (EVP,BusinessOperationsandCFO):
So,divingin.Youcanseeonslide9thatGAAPnetlossforthequarterwas$133.1millioncomparedtoanetlossof$95millionintheprioryear.
LetmeexplaintheprimarydifferencesbetweenourGAAPresultsandadjustedearnings.Ourlong-standingphilosophyistoadjustGAAPEPS,tohelpyoubetterunderstandourunderlyingoperations.Theseadjustmentsincludesuchitemsasacquisition-relatedmatterssuchasnon-cashacquisition-relatedamortizationexpenses,restructuringchargesandrelatedtaxeffects,andthoseitemsoutlinedintables1and2intoday'spressrelease.
YouwillnoticethatasdescribedonFebruary18,wearealsoremovingourvitamins,mineralsandsupplementsoperatingresultsfromouradjustedearningsin2016,asthebusinessiscurrentlyheldforsale.Afullreconciliationcanbeviewedintables1and2inourpressrelease.Therearetwospecificlargenon-cashimpairmentchargeshere,relatedtobrandedconsumerhealthcare,whichIwillalsotalkaboutinamomentwhenwegettothesegmentdetails.
Soasyoucanseenowonslide10,Perrigodeliveredconsolidatedfirst-quarteradjustednetsalesgrowthof33%year-over-yearonaconstantcurrencybasis,excludingcontributionsfromtheVMSbusinessforboth2016and2015.Asnotedonourfourth-quarter2015earningscall,pleaseexcludeapproximately$40millionofcontributionseachquarterinyourmodelsfor2015,relatedtothisbusiness.
Duringthefirstquarter,weexperiencedaconfluenceofevents,whichhasimpactedquarterresultstoamagnitudewecouldnothaveanticipatedatthebeginningofthequarter,andwhichhavealsoimpactedourguidanceforthefullyear,asI'lldiscussshortly.Netsalescontributionsfrombrandedconsumerhealthcare,whichwasnotpartofourbusinessthistimelastyear,wastheprimarydriverofouryear-over-yeartoplinegrowth.
Consolidatednewproductsalesof$74million,including$31millioninBCHnewproductsaleswerepartiallyoffsetby$39millionofdiscontinuedproducts.First-quarterconsolidatedadjustedgrossmarginwasaMarchquarterrecordof47.9%,highlightedbyfirst-quarteradjustedgrossprofitmarginsinourconsumerhealthcaresegmentof33.8%,withfirst-quarterconsolidatedadjustedoperatingmarginof25.1%.
Sowalkingthesegments,startingwithCHConslide11.Inthequarteradjustednetsales,excludingVMS,grew2%onaconstantcurrencybasis,drivenbycontinuedmomentuminstorebrandinfantformula,andcontinuedstrengthinourNRTfranchise.I'mpleasedtonotethatPerrigosuppliedinfantformulamarketsharehasgrownto13.9%accordingtoIRIdata,whichisarecordfortheconsumerhealthcareteam.
Thesegainswerepartiallyoffsetbydecreasesintheanalgesicandcough-coldcategories,followinganextremelymildcough-coldseason,andtheabsenceoftheguaifenesin600milligramERproduct,ascomparedtolastyear.Aspreviouslydiscussed,thisisthelastquarterwhereourinfantformulalabelrefreshwillhaveanegativeyear-over-yearimpact.Thisconversionaccountedforthemajorityoftheabnormallyhighdiscontinuedproductnumberof$32millionembeddedintheseresults.
Newproductsalesinthequarterwere$31million.Remember,weanticipatedournewproductlaunches
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page7of28
inthissegmenttobeweightedmoreheavilytothesecondhalfofthecalendaryear.
Onslide12,youcanseethatBCHpostednetsalesof$318million,withnewproductscontributing$31million,andouracquiredGSKportfolioandYokebebrandcontributinganother$37milliontothistotal.TheBCHsegmentrevenueswereorganicallyflatcomparedtotheprioryear,withgrowthinourtop20brandsprimarilyinthecough,coldandallergycategory,despiteasoftseasoninEurope,whichwasoffsetbylowerOTCsalesincertainmarkets.
Inthequarter,BCHfellconsiderablyshortofourtoplineexpectations.Despitesofttoplineresults,aspreviewedinFebruary,wecontinuedtomakesignificantinvestmentsinadvertisingandpromotioninthisquarter,equaltoapproximately18.6%ofnetsales.Theseeffectsweretheprimarydriversofadjustedoperatingincomeasapercenttosalesofonlyapproximately8%.
Thenetsalesmissinthequarter,combinedwiththechangeinforecastednetsalesandadjustedoperatingincomefortheremainderoftheyear,werethebasisforthechangeinguidanceforthissegment,aswellastriggeringaninitialindicatorofimpairment.Thisstartedaprocesstoupdateourlong-rangesegmentplanstoevaluateassetcarryingvalues.
Thechangeinfairvaluefrompreviousestimateswasdueprimarilytothechangesinthecurrentmarketandperformanceofthebrands,suchthattheevaluationofthebrandprioritizationandproductextensionsorlaunchesinnewregionsarebeingmorefocusedtomaximizethepotentialofthewholebasketofbrandsinthesegmentportfolio.Theresult,asoutlinedinourpressreleasethismorning,isthatwerealizedapre-taxnon-cashimpairmentchargeofapproximately$467millionrelatedtointangibleassetsacquiredinconjunctionwiththeOmegaacquisition.$273millionrelatedtoindefinitelivedintangibleassets,andtheremaining$194millionrelatedtogoodwill.
ThisisclearlyadisappointmentbutstepsarebeingtakentocorrecttheunderperformanceinBCH,includingchangesinleadership,asJohnhasoutlined.Whilemanystepshavealreadybeentaken,itisimportanttonotethatitwilltaketimetofullyrealizethetruevalueoftheactionswearetaking.
Onslide13,Rxnetsalesincreased2%,whichcameinbelowourexpectations.Weexperiencednegativeorganicgrowthwithinthesegmentresultingfromseveralfactors,soletmeexplain.Thechangeinthecompetitivelandscapewasmuchmoredisruptivetoourplanthanhadbeenanticipatedandimpactedouroverallpricingstrategiesforthesegment.
Duringthequarter,weexperienced24competitivelaunchesagainstourportfolio,producingsharppriceerosioninanumberoftopicalproductswesell.Thesefactors,combinedwithcontinuedpricingpressureduetotheconsolidationofthelargebuyingcooperativegroups,andtheabsenceofsignificantnewproductsinthequarter,furtherimpactedourabilitytoexecuteonourplannedpricingstrategies.
Despiteallofthis,however,theteamwasabletomaintainitsextendedtopicalsleadershippositioninthequarter.Thesepricingpressuresimpactedboththeadjustedgrossandoperatingmargins,accountingforthedeclineyouseehereyear-over-year.Turningtoslide14,specialtysciencenetsaleswere$88millioninthequarter,up9%onaconstantcurrencybasis.
BeforeIturntotheforecast,I'llmakeaquickcommentonthebalancesheet.AsofApril2,2016,totalcashonthebalancesheetwas$589million,andtotaldebtwasapproximately$6.5billion.TheincreaseindebtfromDecember31reflectsthefinancingofthetretinoinacquisitioninJanuary,andthesubsequent$1.2billionseniornotesissuancewedidinearlyMarch,totermoutourshort-termdebt.
Aswehavestatedinthepast,wearefullycommittedtoourinvestmentgraderatings,anddeleveringourbalancesheetthroughEBITDAgrowthanddebtrepayment.Cashflowfromoperationsinthequarterwas$170million,whichincludedone-timeunfavorablereductioninaccountspayableofanestimated$67
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page8of28
millioninbrandedconsumerhealthcare,relatedtothenormalizationoftheiraccountspayableterms.
Asareminder,weintendtofundourpreviously-announcedsharerepurchaseprogram,whichrunsoutuntillatecalendar2018,throughoperatingcashflow.Totheextenttheuseofthosecashflowsforsharerepurchaseswouldimpedeourdeleveraginggoalsoranytuck-inacquisitions,wewouldsloworsuspendtheprogramforaperiodoftime.Quarterly,giventhecashgeneratedandourcommitmenttodelever,wewillevaluatecashavailableforM&Aand/orsharerepos.
So,let'smoveonnowto2016guidance.OnApril25,weprovidedpreliminaryguidancewithoutmuchdetail,soletmewalkyouthroughmoreinformationbysegmentonslide16,startingwithCHC.Weexpectconsumerhealthcarenetsalesfor2016tobeapproximately$2.65billion.
Thesegmenthasbeenupdatedprimarilyfortheexclusionoftheguaifenesin600milligramERproductrelaunch,delayinnewproductlaunches,whichincludearisk-adjustedlaunchofthestorebrandversionofFlonaseinthesecondhalfoftheyear,andsomeadjustmentsforrecentcustomernegotiations.Whiletheteamcontinuestoworkonrelaunchingtheguaifenesin600milligramERproduct,webelieveitmakessensetoremoveitherefromourfinancialforecasts.WeanticipateCHCadjustedoperatingmargintoberelativelyflatyear-over-year.
Next,weexpectBCHnetsalesfor2016tobeapproximately$1.4billion.Tohelpyouthroughyourmodeling,letmegiveyousomecoloronourexpectationsfortheadjustedoperatingmargininthissegment.2015adjustedoperatingmarginforthesegmentwas15.8%fortheninemonthsendedDecember.Ourupdatedguidanceassumedthatadjustedoperatingmarginwillbeapproximately200basispointslowerin2016,duetothemanyorganizationalandportfoliochangeswehavediscussedthismorning,coupledwithcontinuedinvestmentinA&Pinourtop20brands.
Rx.WeexpectRxnetsalesfor2016tobeapproximately$1.2billion.WithinRx,weassumepriceerosionofapproximately6%fortheremainderofthecalendaryearandnowassumethelaunchofthegenericversionofProairin2017.Ourguidancereflectstheexpectationthattheadjustedoperatingmarginwillbeinthehigh40%rangesfortheyear.
Allofthisleadstoourupdatedconsolidatedguidanceperspectiveonslide17.Wenowexpectrevenuebetween$5.6billionand$5.9billion,whichassumesgreaterthan$300millioninnewproductlaunchesacrossallsegmentsfortheyear,adjustedtoreflectthenewproductdelayswe'vealreadydiscussed.
Giventhenewjurisdictionalmixofincomeexpectedacrosssegments,particularlywiththenewproductsslatedforlaunchinthesecondhalfoftheyear,weareupdatingthefull-yearadjustedeffectivetaxrateguidancetobeapproximately15%for2016.Giventhefactthisquarter'staxratewas11.4%,youshouldmodelataxrateofapproximately16%to17%onaquarterlybasisfortherestoftheyear.
SummingallofthisuptotheconsolidatedP&L,wecontinuetoexpect2016adjustedearningsperdilutedsharetobeinarangebetween$8.20and$8.60.Aspreviouslynoted,wecontinuetoexpectapproximately55%ofouradjusteddilutedEPStomaterializeinthesecondhalfofthecalendaryear,dueprimarilytotimingofexpectednewproductlaunches.
Lastly,afewcommentsonoperatingcashflowguidancefortheyear.Weexpecttheperformanceofourbusinesstodeliverfull-yearoperatingcashflowofapproximately$1billion,whichincludestheone-timeunfavorable$67millionBCH-relatednormalizationeffectImentionedafewmomentsago.
Thisrepresentsanoperatingcashflowconversionapproaching90%tothemidpointofouradjustednetincomeearningsguidance.Thisbusinessmodelcontinuestodrivestrongcashflows,andillustratestheabilityofourplatformtogeneratequalitynetincomeperformance.I'llnowhandthecallbacktoJohn.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
©2014TheStreet,Inc.Al l R ightsReserved Page9of28
JohnHendrickson (CEO):
Thankyouverymuch,Judy.
Turningnowtoslide19,IwanttoamplifywhatJudysaidaboutourguidance.TheguidancerangethatweputforwardonApril25accuratelyreflectstheperspectiveofmyfullmanagementteamandouropportunities,andonthedynamicsfacingPerrigoandourindustry.Aswestatedearlier,wewillsetandcommunicatepropertargets,andworktirelesslytomeetorexceedthem.
IalsowanttoreiteratemyleadershipprinciplesthatItalkedaboutupfront,whichatthecorearefocusedonexecutiondesignedtodriveshareholdervalue.First,asIsaidearlier,myforemostpriorityisoperationalexecution.Wehaveagreatbusinessandoperationalexcellenceisthefoundationwhichallofoursuccessisbuilt.Thisiswhoweare,ourplatformisdesignedtoaddproductsandtechnologiesthatfosterourgrowth.
Highqualityandaffordabilityforourconsumerisparamount.Whenweaddnewlegstoourstool,likewedidwithinfantnutritionandanimalhealth,weleveragethesebusinessmodels,investinginR&D,talent,andinfrastructuretofurthergrowth.ThisiswhycanwegeneratethestrongcashflowthatJudyemphasizedearlier.
Second,Iamactionorientedandwilldealwithchallengesandopportunitieshead-on.I'vemadeandwillcontinuetomakecriticaldecisionstoimprovecertainaspectsofourbusinesses.
Third,Iamunequivocallycommittedtotransparencyandwillbeactivelyengagedwithandlisteningtoyourquestionsandcomments.That'showI'vealwaysworked,andthat'showIwillcontinuetowork.
Fourthandfinally,everythingIandthemanagementteamdoisdirectedtodeliveringvaluetoPerrigoshareholders,andwewillcontinuetodeploycapitalprudentlyandappropriatelytothatend.
I'dliketoclosebyreiteratingmyconfidenceinthestrengthofthePerrigobusiness.Wehaveasolidfoundationtobuildon.Wehaveanexperiencedmanagementteam.Wehaveadeeppipelineofnewproducts.Wecontinuetorefineandimproveouroperatingmodelacrossallofoursegmentsofbusinesstodrivereturns.
Ourglobalplatformgivesusthespringboardforgrowth,andweareallfixatedonleveragingourcoreadvantagestodelivershareholdervalue.AndIwouldberemissifIdidn'tthankourmorethan13,000employeesaroundtheworldfortheirhardworkinbuildingPerrigotothebusinessitistoday.Wehaveanexceptionalgroupofprofessionalsworkingtodeliverqualityaffordablehealthcareproductsaroundtheworld,andtheyarecoretooursuccessinthepastandinthefuture,andI'mhonoredtobepartofthisoutstandingorganization.
Wewillnowopenthecallforquestionsandanswers.IwanttoremindyouthatIamjoinedforQ&AbyPerrigo'sChairman,LaurieBrlas,andourExecutiveVicePresident,JudyBrown.
QUESTIONS&ANSWERS
Operator :
Ladiesandgentlemen,asareminderinordertoaskanaudioquestion,pleasepressstaroneonyourtelephonekeypad.
YourfirstquestioncomesfromLouiseChenwithGuggenheim.
LouiseChen (Analyst-GuggenheimSecuritiesLLC):
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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FirstquestionIhadherewasjustforJohnandJudy,intermsofyourphilosophyonfinancialguidance.Hasthatchangedgoingforward,andifso,how?
Secondly,aquestionthatwe'vegottenprettyoftenisregardingyourdebtcovenantsandcoverageratios.Iwaswonderingifyoucouldaddressthat.Lastly,howweshouldthinkaboutgrowthandmarginsforOmegafor2017andbeyond?
JohnHendrickson (CEO):
Thankyouverymuch.Appreciateyourquestion.IthinkIwilltackletheguidancequestion,andI'llprobablytossthenexttwotoJudytodealwith.Sofromaguidance,asI'vesaid,myphilosophyistobeveryopen,clearwithourguidance,withourexpectations,withourgrowth,andthendriveourinternalteamrelentlesslytomeetandexceedthatguidance.Soveryclearinwhatwearetryingtodo,andwherewearetryingtosetthebar.
Judy,ifyouwanttotakethedebtcovenantsandgrowth?
JudyBrown (EVP,BusinessOperationsandCFO):
Rightnow,withoutreconcilingEBITDAonthecall,sufficeittosayourleverageratiorightnowisinthehigh3s.Withtheadjustmentwejusttalkedabouttoguidance,notexactlywherewehadanticipatedtobeatthispoint,withtheresultsinQ1ondelevering,butsufficeittosay,committedstilltoourpaydowninQ4,andwithastrongcashflowsandcontinuedgrowthinEBITDA,continuingourdeleveragingtask.
Onthecoverageside,weareverysolidinourcovenantcoverage.Sonoissuesthere,whatsoever.
JohnHendrickson (CEO):
Thankyou,Judy.Omega,marginsforOmega.
JudyBrown (EVP,BusinessOperationsandCFO):
Expectations.
JohnHendrickson (CEO):
Consumerhealthcaremarginexpectationsfor2017.
JudyBrown (EVP,BusinessOperationsandCFO):
Pardonme.Imissedthethirdpart.MaybeI'llmakeacommentonthat.Aswestated,weexpectedoperatingmarginnottoseemuchgrowthforthisyearonayear-over-yearbasis.Infact,giventhesoftfirstquarter,mid-teensthroughouttherestofthisyear.Andgoingintonextyear,we'renotgiving2017-specificguidanceyetbutsufficeittosayforyourmodelingpurposes,assumingthatsamemid-teenswouldbeappropriateatthistime,aswedidourlongrangeplanningthatbecamepartoftheanalysisthatwasdoneinthelastfewweeks,thatIjustmentionedearlier.
JohnHendrickson (CEO):
Iwouldaddtothat.Weseegoodstrengthinthebrands,goodstrengthinthemarkets.Wewanttocontinuetoinvestinouradvertisingandpromotioncampaigns,todrivethoseproducts,andsowe'lldothatprudentlytomanagethebottomline.
BradleyJoseph (VPofGlobalIR):
Nextquestion,please.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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Operator :
YournextquestioncomesfromthelineofGreggGilbertwithDeutscheBank.
GreggGilbert (Analyst-DeutscheBank):
Thankyou.First,thanksforbeingonthecall.
Laurie,Iwanttostartwithyou.IsthereanythinginvestorsshouldknowaboutthecircumstancesaroundJoe'sdeparture,sowedon'thavetorelyonmediaorspeculation?Sorrytolookbackwards,butcanyouwalkusthroughhowtheBoardhandledtheMylansituation,andassureinvestorsthatalloptionswerefullyexplored?
ForJohn,theissuesthathaveweighedonPerrigoinrecenttimesseemtobeablendofexpectationsetting,execution,aswellasstrategicdecisionsthathavebeenmadeinthepast.Somyquestionforyouis,whatchangesdoyouplantomake?Itseemslikesettingexpectations,atleastonpaper,shouldbetheeasiestpartofthat,butperhapsyoucantalkaboutspecificchangestotheexecutionmodelandwhetherornotyouagreewiththestrategicplatform.
Itsoundslikeyoubelievetheplatformisintactandcorrect,andit'saboutexecution.ButwouldreallylikeyoutoexpresswhetheryousortofyouagreewithallthepiecesatPerrigo,andwhetherthey'reallcore,etcetera.Thanks,guys.
JohnHendrickson (CEO):
Thanks,Gregg.Goodquestions.Laurie,whydon'tIhaveyoupickupthefirstone,firstrelatedtotheBoardandJoe.
LaurieBrlas (ChairmanoftheBoard):
Sure.Thanks,John.Firstofall,I'dsayJoemadeadecisiontoresigntopursueanotheropportunityandyou'dhavetoaskhimwhyhedidthatandwhathisthoughtprocesswas.Butoncehemadethatdecision,theBoardlookedforward,asweneedtodo,andwefeltitwasaneasydecision,asImentioned.WewereveryclearthatJohnwastherightpersontoelevatetotherole.
We,andIknowJohnandJudycantellyouthis,it'saveryactive,engagedBoardthatspendsalotoftimewiththem.Wespendalotoftimetalkingaboutsuccession.SowewereverycomfortablethatJohnwastherightperson,andmovedonfromthere.
AstotheMylanquestion,I'llgobacktowe'reprettyactive,engagedBoard.Wespentalotoftimeduringtheperiodoftimethatwasanactiveevent,andspenttimewithJohn,Judy,Joe,alloftheadvisors,evaluatingwhatthedifferentopportunitieswerethatwereavailabletotheCompany,andwecontinuetofeelthatwemadetherightdecision.
JohnHendrickson (CEO):
Thanks,Laurie.AndGregg,I'llattacktheotherone,asyoudirectedthemtome,theotherones.Firstofall,goingbacktoexpectations,guidance,etcetera.
Myphilosophyis,again,Itrytobeastransparentaspossible.Iwanttheexpectationswelayouttoberealistic,numberswefeelwecandeliver,andthendriveourteamtodeliverandbeatthoseeveryday.SoI'llstatethat,andletthatstayatthat.
Ithinkontheexecutionside,wehaveagreatteam.Wehaveagoodexecutionalplatform.Wearetryingtoputstrongoperatorsinchargeofallofthebusinesssegmentsthatwehave,thatknowhowtodrive
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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theresultsofthebusinessallthewaythroughtooperatingincomeandafter-taxincome.
I,asyouknow,Gregg,amanoperatoratheart,deliveringhowdowesell,howdowemarket,howdoweaddorganicproductstothetruck,howdowecontinuetodelivermorethroughourBCHplatforms?Ifeelwehavegreatplatformsinplace.Ithinktherearethingswecandotocontinuetoaddproducts,inwhatIcallbolt-onacquisitions.Sonotnecessarilytransformational,butbolt-onsintoourcurrentplatform.
Andbydoingthatwiththeinfrastructure,Ifeelwehaveagoodgrowthplatformaheadofus.AndIthinkourstrategyfitsrightaroundthosecores.Ithinkwe'recurrentlyingreatareastooperate,greatareastodeliverincreasedvalue,gettingbacktothethingsthatPerrigodoesverywell.
GreggGilbert (Analyst-DeutscheBank):
Thanks.
Operator :
YournextquestioncomesfromthelineofRandallStanickywithRBCCapitalMarkets.
RandallStanicky(Analyst-RBCCapitalMarkets):
John,Judy,Iwasjusthopingthatyoucouldhelpusgetabettersenseofrecentchanges.IsitfairtoassumethatmostofthesechallengeshitbetweenlateMarchandlateApril?Andthen,justhelpusbetterunderstandwhathappenedoverthatonemonthtimeperiodrelativetochainofevents,withrespecttoOmegaandthegenericsbusiness?
AndspecificallyJudy,maybeyoucouldcomment,howmuchofthegenericimpactwascompetitiveentriesversusbidcycles?Andwiththe6%erosionthatyoubuiltin,howcanyougetuscomfortablethat'snotgoingtocontinue,thatwenowhavegoodvisibilityintothatbusiness?Andthenthequickfollow-upforJohn.IsitfairtoassumefromyourpreparedcommentsthatyouviewTysabriasacoreassetandthere'snotgoingtobereviewtodivestthatbusiness?Thanks.
JohnHendrickson (CEO):
Thankyou.Whydon'tIstartofffirstofallonthebigpicturewise,whenwelookatthebigsegments,brandedconsumerhealthcare,Rxbusiness,etcetera,alotofthosechanges,theyallkindofcameandmaterializedstrongerwithinthefirstquarter,andmanyofthemwereevidenttowardtheendofthefirstquarter.Sowithoutgivingdates,theyallhappenedatthattimeperiod,andcontinued,andaswelookedattheyearsomeofthemlingeredon,andsowechangedourguidancebasedonwhatwesawthere.
I'llletJudyjumpintothechainofeventsoranythingelsethatshewantstoadd,andthenI'llcomebacktoTysabri.So,Judy,doyouhaveany?
JudyBrown (EVP,BusinessOperationsandCFO):
OntheRxfront,specificallyyouaskedabouttheevolutionthere,andtheupdatetoourforecast.SowesawI'llcallitsomesoftnessstartinginJanuary,begantoaccelerateasthesecompetitivelaunches,Iquoted24competitorslaunchedagainstourproductsinQ1.Andthatinandofitselfchangedthepricingdynamicforourteamversustheirexpectations.Andsoasyoulookatthat,itstartedtobuildoverthecourseofthequarter.
Soaswelookpragmaticallyattherestoftheyear,wehadtosaywhatisareasonableassumptionbasedonthecompetitivelandscapeasitchasesusrightnow?ThingsIcalledout,withtheincreasedbuyingpressureacrossthecooperativelargegroups,whicheveryoneintheindustryisseeingtosomeextentrightnow,buildingthatintoourexpectations,updatingourforecasttoreflectspecificcontractual
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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agreementsnowinplacefortherestoftheyear,evaluatingthepricingstrategiesthatwehadinplaceforthelastthreequartersoftheyear,andmakingsurethatthoseareupdatedtoreflectthenewrealityfortheremainderof2016,andmakingsurethatinournumbersandinourbottomline,thatwe'restillmakingtherightinvestmentsinR&D.
SonotskimpinginR&Dentirely,withthissituationinthemarket,butmakingsurethatwestillmadethatcontributiontothelong-termgrowthoftheportfolio.Sothat'stheevolutionofthepricingupdate.Wesaid6%fortheremainderoftheyear.Ithinktheteamfeelsthat'sareasonableapproachtopricing,wherethey'veevaluatedandtriedtotakeintheknownknowns,aswellasalittlebitofwiggleroomfortheunknowns,andgoingforward,stilllookingatadjustedoperatingmarginforthesegmentinthehigh40s,adjustedoperatingmarginforthefullyear.
RandallStanicky(Analyst-RBCCapitalMarkets):
Judy,justaquickfollow-up.ThegrossMarchskinswasstrongerthanIthinkalotofpeoplewouldhaveexpected,includingus,justgivenwhatyoucalledoutassomeofthepressures.Isthatrealisticgoingforwardtoholdat61%?
JudyBrown (EVP,BusinessOperationsandCFO):
OurexpectationsfortheyearandtheadjustedoperatingmarginframeworkIgaveyouwouldimplythatthat'sthecase,becausewe'restillmakingtheR&Dinvestment.Soifyoubackup--ifyouworkbackwards,youwouldsaythatwouldbeareasonableassumption.
JohnHendrickson (CEO):
RelatedtoTysabri,I'llstepbackfirstofallandkindofgiveyouthebigpictureperspective.IthinkTysabriisagreatproductfromahealthcarestandpoint.Servesatoughdisease,atoughpopulation.IthinktheCompanythatownsit,marketsit,sellsit,greatCompany,havehighrespectforthem.
Formeandmyperspective,it'snotastrategicassetforPerrigo.It'snotsomethingwe'relookingtoinvestabunchofmoneyin,orgetintomoreproductsrelatedtoit.Itisafinancialasset.Ithasgreatcashflow.
Ithasgreatotherbenefitsarounditthatenableustodootherthings.IamopeneverydaytodifferentwaysofthinkingaboutTysabri,differentwaystoutilizethatfinancialassettodootherthingswithinourbusiness,orfortheshareholderbase.I'mveryopenbutIviewitasafinancialasset,notastrategicinvestmentforus.
BradleyJoseph (VPofGlobalIR):
Canwelimitquestionstoonegoingforward?Thankyou.
Operator :
YournextquestioncomesfromthelineofElliotWilburwithRaymondJames.
Elliot Wilbur (Analyst-Needham&Company):
Nowyouimplementtheonequestionrule.
JudyBrown (EVP,BusinessOperationsandCFO):
Youalwayshadsuchgoodlongones,Elliott.
Elliot Wilbur (Analyst-Needham&Company):
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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I'venevercheatedonairtime.That'sforsure.Thanks.CongratulationsJohn,andcongratulationstoJudy,andlookforwardtoworkingwithyou,John.
JohnHendrickson (CEO):
Thanks,Elliot.
Elliot Wilbur (Analyst-Needham&Company):
Inthefuture.Judy,partofyourpreparedcommentaryyoumentionedsomethingthatcaughtmyattention,andwantedtojustaskyoutoelaborateonit.Specificallytalkingaboutconsumerhealthcarebusinessandsomenegotiationsandconcessionswiththecustomerbase,thatobviouslyItake,isyougivingupsomethinginordertosecureshelfspaceorprotectmargins.Ijustwantedyoutomaybeelaborateonthatalittlebit.
JudyBrown (EVP,BusinessOperationsandCFO):
Absolutely.Goodcatch,Elliot.Welldone.Wefrequentlytalkedaboutouroverallbasketofconsumerhealthcareproducts,beingabletomaintainstablepricing,andthatcontinuestobethecase.
ButI'vealwayssaid,veryclearlythatinperiodsoftimewhenwe'renotlaunchingbig,newproducts,thatdynamicbecomesmorechallengingforourconsumerhealthcareteam.Theydoayeoman'sjoboutinthefieldeveryday,sittingwiththebuyersatimportant,large,sophisticatedretailers,talkingaboutoverallpricing.
Sowedon'thavetheabilityofcoursetosetpricingtotheconsumersontheshelf.That'sthedeterminationbytheretailers.Butweworkactivelyonbeingeffectiveinourownbuying,havingeffectivesupplychaintomitigateanypricingpressureseenfortheconsumerhealthcareteam,andofcourse,whenwelaunchnewproducts,itgivesleveragetotheentirebasketofsalesthattheteamgoesoutandspeakswiththeretailersabout.
Sothephraseusedinmypreparedremarksisdirectlylinkedofcoursetothedynamicofnobig,veryvisible,largeproductslaunchedthisquarterintheOTCbasket.We'regoingtohavesomeveryattractiveonescomingupjustverysoon,butthat'spartoftheyinandyang.Soastheteamsitsdown,theysayveryclearly,getmemynewproductlaunchesbecauseithelpsthewholebasketofgoodshavebetterstickinesslong-terminpricing.
JohnHendrickson (CEO):
I'dliketoaddoneother--steppingback,IthinkwhenyoulookespeciallyasattheUSconsumerbusinesssegment,therelationshipwithourcustomers,thepartnershipsthatwehavewiththecustomers,thefranklymutualimportancethatwearetoeachotherwithourcustomersisthestrengthofthatcorebusiness.We'veworkedwiththemforsomanyyears.Alotoftheirprofitability,theirgrowth,theirsaleswereintegrallyconnected,andsothatbodeswellforuscontinuingastrongrelationshiptheregoingforward.
Nextquestion.
Elliot Wilbur (Analyst-Needham&Company):
Thanks.
Operator :
YournextquestioncomesfromthelineofDavidRisingerwithMorganStanley.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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DavidRisinger (Analyst-MorganStanley):
Iwanttoalsocongratulateyouboth,LaurieandJohn,onyournewroles.Laurie,sincewehaveyouonthephone,Iwashopingthatyoucouldprovidesomemorecoloronakeyquestionthatwe'vereceivedfrominvestors,giventhemediastoriesamonthagoontheCEOcontract.Andthatquestionis,whydidtheBoardreleaseJoePapafromhiscontractwithoutgreaterpenalties,inthewakeofPerrigo'sissuesoverthepastyear?
IfyouIcoulddroponeinforJohn,givenyournewrole,justcouldyoucommentbrieflyonPerrigo'slong-termorganicrevenuegrowthtargetof5%to10%,andwhetheryouexpecttoupdatethat,orhowshouldwethinkaboutthatatthispoint?Thankyou.
JohnHendrickson (CEO):
Great.Thanks.Icancertainlyalsostartout,thenI'lltossitovertoyou,Laurie,onJoe'sdeparture,andwhereweendedupwiththat.Therewererumorsouttherethatwegotridofhisnon-compete.Thoseweren'ttrue.
Wedidnot.Weactuallyfine-tunedhisnon-compete.ValeantandPerrigodonotcompletetodayonproducts,etcetera,sothere'sveryfewfringeproducts.Weactuallyfine-tunedhisnon-competeagreementsothatitmorealignedwithcategorieswithinPerrigothathecouldnotcompetein,andsowefeltgoodaboutthatnegotiation.
TherewereotherrumorsaboutwhatJoegotwhenheleft,etcetera.Hewasbasicallypaidupuntilthislastdayofemployment,andnothinggoingforward.SoLaurie,Idon'tknowiftheyouhaveanythingtoaddtothat,butIwantedtoclarifysomeofthoserumorsthatwerewrongoutthereinthemarketplace.
LaurieBrlas (ChairmanoftheBoard):
Thanks,John,andIreallyappreciatethequestion,David,becausetheBoardspentquiteabitoftimeensuringvaluefortheshareholdersandfocusingonthenon-compete.Itwasamended.Itwasnotwaived.Hedidnotgetoutofit.
AsJohnsaid,wefeltthatwemadeitabsolutelyclearerthatduringthenext24months,JoeremainsprohibitedfromreallyservingasasignificantcompetitortoPerrigo,sowefeltverygoodaboutthatandhedidwalkawayfromanyofhisunvestedshares,orsoforth.Sowethinkthatwedidtherightthingfortheshareholders,andIreallyappreciateyouaskingthequestion,sothatwecanclearupsomeofthoserumors.
JohnHendrickson (CEO):
David,onthelong-termplan,whatIwilldoiswalkyouthroughtheprocessofhowI'mgoingtoworkourteamthroughit,ratherthangiveyouthenumbertoday,becauseI'mnotpreparedtoIsayhere'swhatthenextthreeyears,fouryearslooklike.Wearegettingtogetherhereoverthenextfewweeksandnextmonth,andthenpresentingtotheBoardourperspectiveofourlongrangeplan,whichgoesoutandlooksatthat.AndIwillcommittoyouandeveryoneelsethatinthesummertimeframe,wewillbecomingbacktofolkswithourupdatedlongrangeplanandoutlook.
DavidRisinger (Analyst-MorganStanley):
Thankyou.
Operator :
YournextquestioncomesfromDavidMariswithWellsFargo.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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DavidMaris (Analyst-WellsFargoSecurities):
Acouplequestions.First,onthecapitaldeployment,doyouthinkthatacontinuedM&AstrategyinEuropeiscompatiblewithwhatyousayisaprincipleofreturnstoshareholders,sinceitappearsthatreturnonequityandassetsandROIChaveweakened,sinceyoustartedthatstrategy?Andthenseparately,24competitivelaunchesagainstthetopicalproductline,canyouquantifythatindollars,andwhat'sthistrendrelatedto?IsthistheFDApushingmoreapprovals,andmaybejustanycommentsonthevulnerabilitythatyoumighthaveonthathappeningwithmoreproductsgoingforward?
JohnHendrickson (CEO):
Yes,thanks,David.Letmetakesomeofthose,andthenImaytossitovertoJudyforacoupleothers.
Firstofall,capitaldeploymentandreturntoshareholders.AsIgothroughagain,andthinkaboutpriority,andIlaytheseout,tryingtomentallygettheseclear,Ithinkorganicgrowth,greatwaytodoit,greatplatform,makessense.
IbelieveinEuropewehaveagoodplatform.We'retryingtoputmoreoperatingstructureintoit,takealittlebitoftheoperatingentrepreneurshipoutofitandbringsomestructuresintoit,butitisagoodplatform.
TheGSKproductsthatweboughtafewmonthsbackareperformingwellinthosemarkets.Thenicotinefranchise,oneofthebiggestnicotinefranchises,nicotinereplacementtherapyfranchisesintheUS,andnowhavingthatinEurope,agreatnaturalextensionforourcoreconsumerbusinesses.
SoIdobelievethataddingoncorebolt-onacquisitionswithintheinfrastructurescanhaveagoodreturnforshareholdervalue,soI'mabelieverinthat.Ultimately,whatelsedowedowiththecashandthevaluethatwe'regenerating,arethereotherwaysofreturningthatvaluetoshareholders.ButIwouldputtheminthatorder,becauseIthinkthat'saprioritythatwecandelivervaluetothegroup.
Whydon'tIturnitovertoJudyonthe24,andtheescalation,etcetera?
JudyBrown (EVP,BusinessOperationsandCFO):
David,Ijustcalledthatout.I'mnotquantifyingthespecificdollarsversusourexpectationinQ1thatthe24launcheshadonourbottomlinethisquarter.ThereasonIdidcallitoutisbecausecomparedtoprobablyeveryotherquartersincewe'veownedRx,itwasanescalation,arapidescalationofapprovalsandchangeincompetitivelandscapethatIjustwantedtocallout.
Sofasterthanwehadanticipated,andwehavelaunchescomingupintheremainderoftheyear.Thisparticularquarter,thedynamicforthecompetitionwasdifferentthanours.That'stheonlyreasonIcalleditout.
DavidMaris (Analyst-WellsFargoSecurities):
Thankyou.
Operator :
YournextquestioncomesfromDavidSteinbergwithJefferies.
DavidSteinberg (Analyst-JefferiesLLC):
John,inyourpreparedremarksyoumentionedyouputanewleadershipteamintotheOmegabusiness,onethathadbeenverysuccessfulwithbolt-ons.Justcurious,howcanyougetuscomfortablethatyou
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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candothesamewithOmega?Afterall,it'saverylargeacquisition,over$1billioninsales,versusbolt-on.
TheyhavemomandpopsinEurope.It'smultiplecountries.Theydon'thaveconsolidatedchains.Howcanyougetuscomfortablethatintegrationwillgowell,andthatyouhaveahandleonthebusiness?Andrelatedtothat,duringtheMylansaga,apparentlyStadahadchangedtheirbusinesswithOmega,andIthinkMylanwasblamedsomehow.
WenevergotafullansweronwhathappenedwithStada,andwilltheycomebackastheywerebefore?Andfinally,canyougiveusanupdateontheFlonaselaunch?Thanks.
JohnHendrickson (CEO):
Thankyou,David.Letmego--tryandgoinorder.Firstofall,Ido,asyousaid,havegreatconfidencewiththeteamandtheinitialactionswe'vetakenwiththeOmega,withbrandedconsumerhealthcareaswecallit,inEurope.Iwon'tgobacktogothroughallSharon'saccolades,buthisintegrity,hisabilitytodriveperformancetotheoperatingline,he'sprovenhimself.
SoI'mconfidentinhim.I'mconfidentthatwewillneedtoaddmoreleadersandaddmorethingstodriveit,butIthinkwe'reofftoagreatstart.
Wealsoaddedoneofourexperiencedfinancialleaderstothatbusinessabouttwomonthsago.Hehasalreadybegunamuchstrongerfinancialplanning,financialcontrolacumentotheBCHteam.SoIfeelgoodaboutthat.
DoIthinkthatyoucanaddabrandacrosseveryEuropeancountry,justlikeyoudointheUS?No.Eachofourbrandsaremorespecializedwithinregionsthere.ItmightbetheNordics,oritmightbedownintheBalticareas,butthey'reallmoreregionalized.
Ibelievethatevenwithinthoseregions,oneoftheadvantagesthatOmegahasinourbrandedconsumerhealthcaredivisionistheyhavetheabilitytolaunchproductswithinregionsegmentsandmakethemprofitable.SowhenIsaybolt-ons,itmaynotbejustonePan-Europeanbrand,itmaybebrandsthataremuchmoreregionalbutwecanaddtothatinfrastructureandgrow.SoIdohaveconfidenceinthat.Ihaveconfidenceinourabilitytocontinuetoprovidegrowthontothatplatform.
Ithinktheintegration,we'regoingtocontinue.Theyhaveagreatsalesmarketingdryfootprint.Thewaytheyworkwitheachcountry,whetherit'sapharmacy-drivencountry,whetherit'smoreliketheUK,whichtendstobemoreliketheUSfromaretailerdistribution,nomatterwhat,they'vegotagoodinfrastructurethere,andthey'vebeenabletoshowstrongleadership.Andso,I'vegotalotofconfidenceinthebusinessdriversthere,etcetera.Ithinkweneedtheoperationalbackbone,thefinancialbackbonethatPerrigobrings,tosolidifythatoverallstructure.
RelatedtotheMylanStadabusiness,StadaisagenericCompanythatwedistributeforinBelgium,asyoumightrecall.DuringalltheMylandiscussions,etcetera,thereweresomestrainedrelationshipstherewithStadaholdingoffsomedistribution,etcetera.Wearebasicallythroughthat.WearecontinuingtooperatewithStadaanddistributetheirproductsinBelgium.
Wearetalkingwiththemaboutwhatthego-forwardrelationshipmightbeormightnotbe.Butwestillhaveatimeperiodofacoupleyearsforthatrelationship.Sothat'swhereit'sat.Today,we'remeetingwellwiththem.
DavidSteinberg (Analyst-JefferiesLLC):
AndjusttheupdateonFlonase?
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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JohnHendrickson (CEO):
Oh,Flonase.SowearestillplanningonlaunchingFlonase,awaitingforourfinalapproval,andhaveretailers,etcetera,readytolaunchandreadytogo.Productisinourdocks,readytoship,assoonaswegetourapproval.
DavidSteinberg (Analyst-JefferiesLLC):
Thanksverymuch.
Operator :
YournextquestioncomesfromMarcGoodmanwithUBS.
MarcGoodman (Analyst-UBS):
YoumentionedFlonasejustnow.YoualsohadmentionedProair,youpushedouttheMucinex600milligrams.Isthisjustbeingmoreconservativeacrosstheboard,oristheresomereasonyoucan'tlaunchProairnowinthiscalendaryear?
AndMucinex,IguessIunderstand,you'rejustbeingmoreconservative.Justgiveusalittlemoreflavoronthat.
AndthenOmega,youmentionedlowerlifestyleandnaturalhealth,BMSIguess,productswaskeyinthequarter,andforthechangeoftheguidance.Canyoujustgiveusasenseofhowbigtheseproductsare,whatwasthechange?Thanks.
JohnHendrickson (CEO):
Sofirstofall,wetalkaboutthenewproducts,Flonase,Proair,Mucinex.Idon'tliketosayconservative.I'drathersayrealistic.We'retryingtoputrealisticexpectationsoutthere.
Couldsomeofthosestillhitintheyear?Yestheywould.They'renotplanned.Flonasewestillhaveinourplan.Mucinexwemovedout.Arewestillaggressivelyworkingtogetthatbacktomarket?Weare.
Proairwasplannedtolaunchrightattheendofthecalendaryear,andgivenallthedynamics,we'vedecidedtomoveitoutoftheyear.Arewestillworkingtotryanddriveit?Weare.It'sadelayinwhenwe'dexpectitbutwe'restilltryingtodrivethattocompletion.
RelatedtothebrandedconsumerhealthcareandOmegaproducts,Judy,Idon'tknowifyouwanttotalkaboutthatrelatedtotheimpairmentside,andtheissuesrelatedthere,thatwetookonthoseareas?
JudyBrown (EVP,BusinessOperationsandCFO):
Certainly.Letmejustgiveeveryonealittlebitofcolortotheextentyouhadquestionsontheimpairmentsdiscussed.Theintangibleassetsthatarerecordedintheindefinitelivedintangibleassetbasket,thatisrecordedonourbalancesheet,isacompositionofthebrandedportfolioofOmegaatthetimeofacquisition.Sowithineachofthemajorcategoriesareseveralbrands.
Astheyearhasprogressedin2015andinto2016,wealsodidadditionalacquisitions.WedidaGSKportfolio.WelaunchedtheYokebeproductline,whichhasproventobeaverysuccessfullifestylehealthproductthatisperformingverywellintheportfolioandcapturingalotofmarketshare.
Aswemovedthenstrategicallyasateam,theteamlookedattheofferingsofproducts,andaremovingawayfromXLS,whichwasintheoriginalacquisitionbasketandmovingtowardYokebe.Thattriggerstherequirementtolowerthecarryingvalueofthoseparticularassetsonthebalancesheet.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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Soonecanlookattheimpairmentasanegative.Wearewritingdowncertainassetsthatwereacquiredatthetimeofacquisition.Atthesametime,we'realsoinvestinginotherbrandsintheportfolioforfuturegrowth.
Sothat'spartofthiscompositionofJohntalking,hemadeseveralcommentsaboutreanalyzingtheportfolio,reprioritizingthatportfolioforgrowth.Partofthatprioritizationprocessactuallyiswhattriggeredthediscussionaroundtheimpairment.Soit'smovingfromplanAtoplanB,intriggeringthatimpairment,thatnon-cashcharge.
Inlookingattheremainderoftheyear,allofthatcomestogether.Theguidancewasupdatedtoreflectcertainchangesinthatportfolio,someup,somedown,loweringtheoverallguidanceacrosscertaincategories,tomakesomeadjustments,primarilywiththefocusonnewproducts.
Sosomeexpectationsoftimingchangesonthoseandhowwereprioritizethetop20brands,arewhatwerethedriversforthisyear'sguidance.Andwedidn'tgetspecificonwhichcategoriesgotchangedinguidance,butsufficeittosayit'sreallyaboutpullingdifferentleverswithintheoveralltop20brandbasket.
MarcGoodman (Analyst-UBS):
Thanks,Judy.
Operator :
YournextquestioncomesfromthelineofAnnabelSamimywithStifel.
AnnabelSamimy(Analyst-StifelNicolaus):
Congratulationsonyourappointments.IguessIwanttolookbiggerpictureatgenericsbusiness.It'salwaysbeencharacterized,giventhatit'stopical,asahigherbarriertypeofgenericscomposition,andthatdoesn'tseemtobethecaseatallthisquarter,givenyouhadsomanycompetingproductsthatgotapproved.
Howshouldwereallythinkaboutyourgenericsbusinessfromthispointforward?Isitgoingto--istopicalnowbecomingamorecommoditizedbusiness,oristhisjustaflukeintermsofthebacklogthattheFDAstartedapproving?Anddoyouhavetherightcompositionofassetsthere?
IntermsofOmega,justlongertermit'salwaysbeencharacterizedas5%to10%growingbusinessandalsothestrategicrationaleistoreallybelessofanoperatingsynergyplaybutmoreofarevenuesynergyplayandsodoesthatstillstand?Doyoustillhavealotofopportunitiesforrevenuesynergiesinthelongerterm,twotothreeyearsout?Thanks.
JohnHendrickson (CEO):
Great.Judy,whydon'tyouleadoffonthefirstquestion?
JudyBrown (EVP,BusinessOperationsandCFO):
Thatwasamulti-partquestion.
AnnabelSamimy(Analyst-StifelNicolaus):
Ididn'tbreathe.Ididn'tbreathebetweenthequestions.
JudyBrown (EVP,BusinessOperationsandCFO):
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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Goodpoint.
JohnHendrickson (CEO):
Nocomment.Nocomment.
JudyBrown (EVP,BusinessOperationsandCFO):
That'satipforeveryoneelse.Ifyoucanmanagetogoalongwaywithoutbreathingyou'reallset.Letmestartoffbriefly.
IwanttomakeonepointontheRxfront.BecausetheRxquarterperformedsomuchdifferentlythanourexpectations,becauseoftheitemsIhavealreadymentioned,andwe'retakingapragmaticviewfortherestoftheyear,wehaveloweredourguidance.We'recallingoutthereasonstherefore.
Iwanttopointouttoeveryone,sortofstatingtheobvious,wesawflow-throughinthesepricingdynamicsinthetoplinewhichrolledthroughindollartermsthroughtothebottomlineversusourexpectations,andtheimpactforthefullyear.Butpleasenote,theadjustedmarginsarestillverystrong.Sotheteam'sstillleadershippositioninthespace.Theproductsthatweputtomarketarestillstickierinrelativetermsthantheaveragegeneric.
Andyoucanseethatthroughboththisquarter,whilethequarteryear-over-yearisinfactdown,notarguingthatpoint,thosearestillveryattractiveoperatingmargins,withcontinuedinvestmentinR&D.SoIjustwanttopointthatpartout,becauseit'sreallyaboutrelativedynamics,butstillattractiveportfolio.Andwebelievethatwe'vebuiltinanupdatetothenewlandscape,andstillarelookingatveryattractivemargins.
JohnHendrickson (CEO):
Thankyou,Judy.Similar,Ithinkthatthetechnology,thebarriers,they'reallthere,aswedescribed,tocommandagoodmarket,andwhat'sthere.OntheOmegafront,Iwouldsayonthelong-termlookattheOmegagrowth,I'mgoingtosaythesamethingIdidearlier,whichis,Iwanttomakesurewegetachancetogetourwholeteamtogethertolookatthelongrangeplan,toreviewitandconsolidateit.Welookatitbybusinesssegment,butthenwelookatwhatothervaluewecanbringtoeachofthosebusinesses.And,again,mycommitmentistocomebacktoyouandothersinthesummerherewithourlong-rangegrowthplanrelatedtoOmega.
Whenyouthinkaboutthesynergisticsidethatwehavewiththebrandedconsumerhealthcarebusiness,theyarestillthere.Theoperatingsidesynergies,theteam'sstilldrivinghardtotryanddeliver,drivingthosetothebottomline.
Therevenuesynergies,inmymind,arestillthere.Theytake,andeveninourmodel,longertogettobecauseyouhavemultipleregistrations,multiplehowdoyouadvertiseandpromotedifferentthings,multipleregulationswithindifferentcountries,evenintheUS.
Inmyperspective,theyarestilltherefromalong-termplanstandpoint.Butjusttakelongertogettothoseultimaterevenuesynergies.
ByputtingJudyinhernewrole,oneofhergreatopportunitieswillbetakingtheproductsthatwehaveindifferentdivisions,andfiguringouthowdoweleveragethoseacrossourglobalbusinessportfolios.SothatwillbeoneofJudy'skeyto-dos,beginningtomorrow.
AnnabelSamimy(Analyst-StifelNicolaus):
Thankyou.
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Operator :
YournextquestioncomesfromChrisSchottwithJPMorgan.
ChrisSchott (Analyst-JPMorgan):
Justahigherlevelquestion.InlightofJoe'sdepartureandtherecentperformanceinthebusiness,IguessthisisforJohnandLaurie,areyoureviewingtheoverallportfolio?Iguessmyquestionhereis,doyouhavetherightassetsinplace,andisthismaybeatimetolookmorecarefullyattheportfolioandperhapsevenmorerefocusonacoregroupofassetsanddivestsomefranchises?
IfIcouldsneakinaquickfollow-upontheRxbusiness.Judy,I'msorrytore-askthis,butI'mstilljustnotclearexactlywhy.Whyisn'tthebusinessseeingmoremarginerosion,giventhecompetitivedynamicsandpricing.
Seemslikemanyofyourpeerswhoareseeingpricingcompetition,that'stranslatingtoverysteepmarginerosion.I'mtryingtounderstandwhythatisn'tthecasewithPerrigo,andIwouldthinklowerpricewoulddrivedownmarginshere.Thankssomuch.
JohnHendrickson (CEO):
Great.Laurie,I'lljumpinandclearlyaddsomething,withJoe'sdeparture,recentdeparture.IwouldsaytheBoardandIareveryalignedinlookingateveryaspectofthebusiness,andfiguringoutifthere'sbusinesssegments,productlines,anythingthatdoesnotfit,orthere'sadifferentvaluefor,thatweshouldbelookingat.
I'llsayitforme.Iwon'tspeakforLaurieandtheBoard.Butthereisno--I'mnotmarriedtoanybusinesssegmentthatisn'tdeliveringitsfairshareofvalue.
Wedidthatwithvitamins.WediditwiththeIndiabusinesssegmentwehad,thatweputupforsale.WediditwithacoupleofthebrandsinOmegathatweputforsale,becausetheyweren'taddingvaluetotheportfolio.
SoI'mveryopentolookingatthat,andopentolisteningtootherwaysofthinkingaboutit.Bigpicture,we'regoingtostepback.Therearecertainpartsofourbusinessthatareverysynergistictogether,andeventhoughtheyseemasseparatesegments,doaddvaluetoeachother.
Whenwethinkaboutstandaloneorbreakingupalltheparts,alotofthemdoconnectverywelltogether,togiveusultimatelymorevaluethantheywouldseparated.Butstill,veryopenandinterestedtothoughts,commentsfromanyone,andtheBoardisveryopentothatalso.Laurie,Idon'tknowifyouhaveanythingtoaddtothosecommentsonthat?
LaurieBrlas (ChairmanoftheBoard):
Idon'tknowthatIcouldaddawholelot,John,butIwouldjustechowhatyousaid.TheBoardisveryinterestedinlearningaboutandhearingaboutdifferentoptions,andveryopentoconsideringalloptionsthatwilldriveshareholdervalue,fromthatperspective.
JohnHendrickson (CEO):
Great.Soletmejumponthesecondpartofthequestion.AndthenJudy,pleasejumpin.IfIstepbackandlookatyouit,wecertainlyhavehadpricingdynamicsthatweren'tasexpectedorweren'tasdesired,allofthosethings.
Whenwestepbackandlookatourportfolioofproductsandthemixthatwehave,it'saprettyprofitable
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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mix.Sodespite--Iknowitsoundscontradictory,butwe'vehadpricingpressures,pricesandmarginhavecomedown.WhenwelookatourwholebasketofmixwithinourRxbusiness,itisstillaveryprofitablemix,asyouseeinthemargins.
JudyBrown (EVP,BusinessOperationsandCFO):
Andwe'vehadtheacquisitionscompletedattheendof2015,andbeginningof2016,whichhascontributedattractivemarginstothebasket,aswell.Soonayear-over-yearbasis,thereareplusesandminuses.Onaquarter-over-quarterbasis,therewerethepricingpressuresthatwespentalotoftimeonalreadythismorning,offsetinlargepartfromamarginperspectivewiththeacquiredproducts.Sothebasket'sstillworking,theportfolio,onamarginperspective,isstillworkingwell.
ChrisSchott (Analyst-JPMorgan):
Thanks,Judy.
Operator :
YournextquestioncomesfromthelineofSumantKulkarniwithBankofAmerica-MerrillLynch.
SumantKulkarni(Analyst-BofAMerrillLynch):
Youhaveasmallbrandedspecialtypharmaeffortgoing.Isitfairtocharacterizethatasbeingonthebackburnernow?Istheinfantnutritionbusinessmeetingyourcriteria?
JohnHendrickson (CEO):
Whydon'tIstartfromthebackfirst.First,theinfantformulabusinessismeetingourcriteria.Itisgrowing.Ifyougobackayearortwoago,weconvertedthewholebusinesstoanewmarketingpresentation,etcetera.
Sincewehaverelaunchedallofthoseproducts,ithasdoneverywell.Goodmovementatretail.Weareverypleasedwithwhereit'sgoingandtheupsidepotentialofthatbusiness.Inmymind,itismeetingourcriteria,fitswellintoourconsumerfranchise.
Relatedtothesmallbranded,Judy,maybeI'lltossthatonebacktoyouonthesmallotherinvestmentswehave,otherthanTysabri.
JudyBrown (EVP,BusinessOperationsandCFO):
Withinourbrandedportfolio.
JohnHendrickson (CEO):
Yes.
JudyBrown (EVP,BusinessOperationsandCFO):
BrandedRxportfolio.Itisanascentbusiness.DougBootheandhisteamarecontinuingtolookatopportunitiestoexpandtheirbasketofproducts.Veryspecialtyfocused,nottryingtogoouttoproductcategorieswherewehavetohavethousandsofsalesfolkstocovertheUnitedStates,butbeingverytargeted,andlookingforalsoadditionallyproductsthatwouldfitintoourDurhambusiness,wherewecouldhaveawholelifecyclemanagementofbrandedtogenerics,ofcoursetoourOTCbusinesses.Sostillsmallbutlookingforproducts,productsthatcanbetuckedintothat,andutilizingthesalesforceswehavetoday.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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SumantKulkarni(Analyst-BofAMerrillLynch):
Thankyou.
Operator :
YournextquestioncomesfromthelineofDouglasTsaowithBarclays.
DouglasT sao (Analyst-BarclaysCapital):
Justfirst,Judy,maybeifyoucouldhelpusintermsofthesequencingfortheconsumerhealthcarebusinessthroughtherestoftheyear.Intermsoftheguidance,itseemstoberelatively--therestofthequarterseemstoberelativelyflattish,maybeupalittlebitfromthefirstquarter.Butshouldweexpectittobedownandthenbackupinthesecondhalf?
AndthenjustintermsofProair,didyoureceiveacompleteresponseletter,ordoyouhaveatargetactiondatefromtheFDAforthatlaunch?
JohnHendrickson (CEO):
Judy,whydon'tyoutalktoconsumerhealthcare?
JudyBrown (EVP,BusinessOperationsandCFO):
Onarelativebasis,asIthinkabouttheyearinconsumerhealthcare,insomewaysit'ssimilartothewaywetriedtoguideyou--IalwayscallitthearcoftheyearforthefullCompany.Theconsumerhealthcarebusinesswillhaveabiggersecondhalf.Theirnewproductlaunchesareconcentratedinthebackhalfoftheyear.Sothatmeansthatit'sabuildoverthecourseoftheyear.
Investmentscontinueoverthecourseoftheyear.Andifyourecall,theJunequarterforthemlastyear,aswellasforbrandedconsumerhealthcare,werequitebigintheJunequarterof2015.Soitwasahugequarter.SoexpectthecompsinCHConayear-over-yearbasistobemorechallenged,againbecauseofthelastyeardynamic.
Newproductslaunchupinthesecondhalf,growthcontinues,sothatCHCline,toyourpoint,Ithinkyoucalleditoutdoesadip,andthenpicksbackupandthat'sareasonableestimateandthat'swhywealsomadethatcomment.CHC'sourlargestbusiness.Wemadethatcommentabout,expectapproximately55%ofEPStocomeinthesecondhalfoftheyear.
JohnHendrickson (CEO):
RelatedtotheProairproduct,wedidbasicallyget--wegotsomecommentsfromtheFDA.We'reworkingtoaddressallthosecommentsandconcernsandgetthatinformationbackintheirhands.I'lljustleaveitatthat,duetoconfidentialityatthispoint.
DouglasT sao (Analyst-BarclaysCapital):
Okay.Thankyouverymuch.That'sveryhelpful.
Operator :
YournextquestioncomesfromthelineofJamiRubinwithGoldmanSachs.
JamiRubin (Analyst-GoldmanSachs):
John,I'mlookingforwardtomeetingyouandcongratulationsonyournewopportunity.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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JohnHendrickson (CEO):
Likewise.Thankyou.
JamiRubin (Analyst-GoldmanSachs):
Ifyoucouldjust,bothofyou,takeastepbackatthegenericdrugbusiness,becauseitseemsthatthecompaniesthatgotcaughtoff-guardonRxpricingwerecompanieswithconcentratedportfolios.Certainlyyourportfolioismostlydermproducts,whichhavebenefitedfromunusualpriceinflation,typicallygenericdrugsaredeflationary,butyou'vebenefitedfrominflationaryproducts.
Whenyoutakeastepback,clearlytheenvironment'schanged.ItseemsthattheFDA'sapprovingmoredrugsinthisspace,that'screatingcompetition,whichispushingdownprices.Atthesametime,withconsolidatedbuyersarepressingforabroaderdepthofportfolio.
Soitjustseemsthatattheendoftheday,thecompaniesthatwerecaughtoffguardhadconcentratedportfolios.Thosethatweren't,andwhohadanticipatedalowtomidsingledigitdeclineinpriceshavebroadglobalportfolios.
John,yourportfolioishighlyconcentrated,allintheUS.WhilethathasclearlyservedtheCompanywelloverthepastcoupleofyears,goingforward,itdoesappearthattheenvironmentischangingforyourtypeofportfolio.
Whatdoyouseeasapossiblestrategicoptionforthisbusiness?DoesitstillmakesensetokeepforPerrigo,andisthisaone-timerebasingordoweworryaboutthosemarginseventuallycomingbackdowntowhereTeva'sandMylan'sare?Howdoyouthinkaboutthatbusinessstrategically?
Andthenjustmyfollow-upquestiononTysabri.Youtalkedaboutthatnotbeingcore,that'safinancialasset.Isn'tthough,thelongeryouwait,thelessit'sworth,justgiventhecompetitioniscomingnextyear?Thanksverymuch.
JohnHendrickson (CEO):
Wow.Thatwasalotoftheminthere.IthinkImadegoodnoteshere,butwe'lldomybesttotryanddothose.
Letmestartbackandcommentonourgenericbusiness,gobacktothebigpicture.Itdefinitelyisabusinessfocusedonextendedtopicals,soit'snotjustderm.It'sophthalmics,it'swomen'shealth,butit'sextendedtopicalproducts,thosethatusuallyrequireclinicals,broadertypesofapprovalstogetinthere.
Theyusuallyarenot$1billionblockbusters.Theyusuallyaremuchmorethebrands,areusuallymuchmore$100millionproducts,etcetera.Andsoyouusuallydon'thave57competitorsgoingafterthat,likeyoumightwithan800milligramibuprofen,orsomethingofthatnature.Soitisstillaspace.
WearearelativelybigRxplayer.We'recertainlyinthetop10,notjustwithintheextendedtopical,butingeneral,whenyoulookattheUSgenericsspace.
Ithinkithit,aswelookbackandunderstandhowithit,therecertainlyweresomeapprovals.There'ssomebuyingpower,allofthosethings,thathitusfasterthanweexpected,andwehadtoaddress.Ithinktheothershadbeen--ithitthemearlierbecauseoftheirbroadportfolio,theyhadanumberofproductsthatcertainlyweretargetedinthatinitialbarrage,ifyouwill.
SoIdothinkwe'reinauniquetime.Wehaveagoodproductpipeline,andweexpecttocontinuetogetthoseapprovals,andcontinuetobeabletobalanceouttheupsanddownsofourproductmixandportfolio,givenwe'regoingtocontinuetoseeconstantpricepressureonourolderproducts.We've
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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alwaysseenthat.It'sheescalatedhereinthelastquarterwiththeapprovals.
Sowhenyoulookglobally,Ithinkit'sagreatquestion,oneIthinkwe'llcontemplatehereoverthenextcouplemonths,aswelookthroughthelong-termstrategyofourRxbusiness.Wecertainly,aswegettoothercountries,haveRxbusinesses.They'renotnearlyasbig.
WedoanRxbusinessintheUKthatmakesspecialtyprescriptions.WehavesomebusinessesthatdistributethroughRxinMexico.WehavepartsofourbusinessthatareRx,certainlymuchsmallerthanourcoreUSbusiness.
Sowewilllookathowthatfits,doesitfitinternationally,doesitfitgloballyintoourstructure?ClearlyintheUS,ithasalotofadvantages.Again,ourwholeinfrastructureisgearedaroundbothofthose,anditprovidesapipelineforustocontinuetofeedourOTCmarketplace,andOTCengine.Soallofthat'sverygood.
IthinkthelastpartofitisTysabri.Again,Idoseeitasafinancialasset.Ithinkwewillcontinuetolookatit,andfigureoutwhatisthebestwaytoutilizethatasset.I
sitascashtofundotherthings?Isitliquidatingpartsofittousemoneytodootherthingswith?We'llcontinuetoevaluatethebestuseofthatTysabriasset.
JamiRubin (Analyst-GoldmanSachs):
Thankyou.
Operator :
YournextquestioncomesfromthelineofTimChiangwithBTIG.
T imChiang (Analyst-BTIG):
Iwantedtojustgobacktotheprescriptionpharmabusiness.IfIlookatjusttheoverallmarketthatyou'reintopicals,itdidlooklikeyousufferedfrommuchmorepriceerosiononyourbasebusiness.Itlookslikeyoulostabout$50millioninthefirstquarter,orinthisquarteronsales.Andyou'restillforecastingabout,what,$1.2billionofprescriptionpharmasales,whichwouldreflectaroundabout11%,12%year-over-yeargrowth.
Socouldyousortofprovidealittlebitmorecoloronhowyougettothatfigureforthefullyear?Eitherthat'sgoingtorequiremoreacquisitions,oryou'regoingtohavetohavealotofincrementalnewprescriptionproductscomingonline.Anycolorwouldbegreatlyappreciated.
JohnHendrickson (CEO):
Great.Soletmekindofstartfirstofall,andagain,I'mgoingtogobackandreiterate.Wethinkit'sagreatbusiness.WedidexperiencemorepricinginQ1andadjustmentstothere.
Wedoexpectabout6%pricinginourmodelgoingforward,andfeelthatistherightnumber,andwe'recomfortablewithwherethingsareat,thatnumberatthistimemakessenseforus.Aswelookattheoverallgrowth,we'vegotnewproductandproductmixthatareallpartofthatgo-forwardprojection,andleadtothatmixofproducts,thatblendofgrossmargin,operatingincomeforthatsegment.
Judy,Idon'tknowifyouhaveanyotherperspectivesordetailstoaddtothat?
JudyBrown (EVP,BusinessOperationsandCFO):
Ijustwanttomakesure,justtoclarifyonepointthatconfusedme.Ournumber'sapproximately$1.2
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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billioninrevenueexpectedinthatsegmentthisyear,includesannouncedacquisitionsEntocort,tretinoin.Itincludeslaunches.LikeJohnsaid,weputProairoutbutotherproductlaunches.Itdoesn'thaveanysortofagapfillerinthereforacquisitionsorpotentialtuck-insoverthecourseoftheyear.Thatisthefootprintofproductsthatweowntodayand/orwehaveondeckinthecalendaryeartolaunch.
JohnHendrickson (CEO):
Correct.Thankyouforclarifying,Judy.
T imChiang (Analyst-BTIG):
Thankyou.
Operator :
YournextquestioncomesfromthelineofDavidBuckwithNorthlandCapital.
MikeGrondahl(Analyst-NorthlandCapital):
ThisisMikeonforDavid.Thanksfortakingmyquestion.YoutalkedaboutalittlebitaboutbalancingM&Awithotherusesofcapital.Therecentchangesinpricingpressure,doesthatchangehowyoulookatacquisitionsacrossdifferentsegments?Thanks.
JohnHendrickson (CEO):
Thanksforthequestion.Soagain,I'llstepbackandsay,ifyoulookatourbusinesscomposition,westillremain70%directconsumer-facingwithoutapharmacistinterface.SoifIlookatacquisitions,usingM&Aandtalkaboutbolt-onacquisitionsversuscompletelytransformational-typeacquisitions,mybeliefistheywillfitwithinthecategoriesinthatproportion.
BradleyJoseph (VPofGlobalIR):
Thankyou.Nextquestion,please.
Operator :
YourlastfinalquestioncomesfromJonAndersonwithWilliamBlair.
JonAndersen (Analyst-WilliamBlair&Company):
Congratulationsonthenewandenhancedroles.IwantedtoaskabouttheCHCbusiness,andspecifically,ifyoucouldcommentalittlebitmoreonoverallmarketsharetrendsforstorebrandsinyourtargetcategories,andwhetherwe'rereachingaplateauinthelegacybusiness,intermsofoverallmarketshare,orwhetherweshouldcontinuetoconsiderahistoricaltrendrateof50to100basispointsofshareimprovementovertime.Thanks.
JohnHendrickson (CEO):
Yes,thankyou,Jon.Iappreciatethequestion.Aswestepback,andthethingthatyouhaveinconsumerhealthcareisyoudohaveebbsandflows.Wehad,Johnson&Johnsonwasoutofthemarketwithcertainproducts,thentheycameback.Youcertainlyhaveebbsandflowsthatarebiggershiftsinthemarket.
ButwhenIstepback,bigpicture-wiseandsaywhat'sexpected,thedynamicsintheindustryinmymindstillremainunchanged.Asinnovatorslaunchtheproducts,we'reinagreatpositiontocapitalizeonthat.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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Themacroeconomictrendsofpeoplegettingolder,needingmore,healthcarecostsgoingup,despiteourabilityordesiretocontrolthemmore,continuetodrivepeopletowardsretailbrandsandfranklywhentheytrythem,theyrecognizethequalitythere.Andsothatallowsthesharetogrow,andmybeliefthatitwillcontinuetoallowthesharetodriveupward.
I'dhatetospeculaterightnowwithout,again,goingthroughalongrangeplanteam,exactlywhatpercentagesitwillgo.Iforeseecontinuedsharegrowth.Again,whenyou'vegotproductbyproductdynamics,butcontinuedsharegrowthforourcoreUSstorebrandmarket.
BradleyJoseph (VPofGlobalIR):
Sorry,operator.Couldwetakeonemorequestion,please?
Operator :
Yes.YourfinalquestioncomesfromJasonGerberrywithLeerinkPartners.
DerekArchila(Analyst-LeerinkPartners):
Goodmorning,guys.ThisisDerekonforJason.Thanksfortakingmyquestions.
Maybefirst,justontheupdatedguidance.Whatdoesthatimplyforproduct--newproductcontributionin2016,justtryingtohegetabetterunderstandingacrossthesegments,wherethenewproductsaredefinitelycomingfrom.
AndthensecondforJohn,inthePR,youcommentedconsumeristhecoreofthebusiness.Howdoyoubelieveyoucangrowthatorganicallyandstrengthenthatcore?Thanks.
JohnHendrickson (CEO):
Great.Thankyou.Letmestartoutonthenewproductsideandtheguidancethere.I'mjustgoingtotossthattoJudybecauseshehastheexact.
JudyBrown (EVP,BusinessOperationsandCFO):
Theofficialstatementmadeinmypreparedremarksisthatwehadpreviouslysaidgreaterthan$400million,andwehadmovedthattogreaterthan$300million.Soit'sjust--it'smixacrossallthreemajorbusinessunitsintermsofproducttiming.Soit'salittlefromCHC,morefromBCH,andsomeadjustmentstoRx.
JohnHendrickson (CEO):
Onthesecondpartofyourquestion,whenyoulookatconsumerhealthcareandthecore,soasIaddupalltheparts,thereissomebasegrowthfromourbusinessthatcontinuestoallowthatconsumerhealthcarebusinesstogrow.Switchesarecertainlygamechangingorcategorychanging,dependingonwhichkindofswitchitis.Wecontinuetoseeswitchesasabigpartofthegrowthofthatover-the-countermarket,whenyoulookoutoverthenextfewyears.
Andasdifferentcategories,Italkedaboutdermorothersthatswitch,thoseopenbiggeropportunities,goingbackaways,nottogetbacktoofar,butwhenyoulookatnon-sedatingantihistamines,it'sprobablyoneoftheclearercategories,usedtoeithergototheover-the-counterorgetsomethingthatwouldputyoutosleepwhenyouhadyourallergies,oryouwenttoadoctorandgotaprescription.Nowasthoseproductsswitchtoalloverthecountertheamountofopportunitythathascreatedintheover-the-counterspaceisgreat.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q!2016EarningsCallMarketCapasofEventDate:13.28BPriceasofEventDate:89.0
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Weseethatcontinuingforcategories,andfranklytheregulatoryagenciesandgovernmentwantingtotryanddrivesafehealthcaretobemoreaffordable.Andsoallofthosewethinkworkinthefavorofthat.
Relatedtoadditionaladd-ins,wecertainlyareabigpartofthebusiness,buttherearestillothersegments,otherareasthatwouldfitwellwithinouroverallsystem,overallstructure,addingmoreitemstothetruckthatarepharmaceuticallyorientedthatwecontinuetolookat.Andnotallofthemwillmakesenseforus,butwecontinuetomakesurethatwehavetheoptimalportfoliotobringthatvaluetoourretailers,andthenultimatelytoconsumers.Ithinkthere'sstillthoseleft,thatJeffandhisteamarecontinuingtolookat,toseehowweaddthosein.
Thankyou.Thanks,Derek.
BradleyJoseph (VPofGlobalIR):
Withthat,Ithankeveryoneforjoiningusforthecall.Iappreciateyourtime,andIlookforwardtomeetingyoupersonallyhereinthenextcoupleweeks,asIgetachancetoknowandtalkwithyoupersonally.Thankyouverymuch.
Operator :
Thankyou,ladiesandgentlemen.Thisconcludestoday'sconferencecall.Youmaynowdisconnect.
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