Perrigo Co. PLC expects its back-end-loaded new product launches will pick up what so far has been a modest fiscal 2012 for the firm’s consumer health care segment.

The private labeler Feb. 7 reported second-quarter OTC sales of $471.3 million, up 9.6%. However, this fell short of some analysts’ estimates; UBS projected sales of $488 million and Deutsche Bank $477 million.

Additionally, consumer health care’s operating margin dipped to 16.9% from 18% in the October-December period, as Perrigo faced continued competitive pressure on “a key gastrointestinal product” – almost certainly generic omeprazole from rival Dr. Reddy's Laboratories Ltd.Also see "Dr. Reddy’s Projects 50% Growth In U.S. OTC Business" - Pink Sheet, 13 February, 2012..

New OTC products generated $26 million in sales during the quarter, led by private-label Allegra. Perrigo CEO Joseph Papa said generics claim more than 50% of the fexofenadine market just six months after Sanofi’s OTC Allegra launch, and Perrigo owns the majority of that store brand slice.

Perrigo CEO Joseph Papa

Photo courtesy of Perrigo

Perrigo typically aims to drive a 30% store brand share of an OTC brand within 12 to 18 months, but Papa said the penetration into the Allegra market sets a new benchmark for the private label leader.

“That is a target that we now know is achievable and certainly one that we will try to duplicate for future launches,” he said.

Companywide net sales climbed 16.8% to $838.2 million in the quarter, with net income up 10.6% to $99.7 million. Perrigo’s Rx business reported growth of 82%, attributable mainly to its acquisition of Paddock Laboratories LLC, which closed last July Also see "In Brief" - Pink Sheet, 1 August, 2011..

Perrigo shifted up by 5 cents the low end of its full-year earnings guidance, to a range of $4.70 to $4.80 per share.

Branded Recall Opportunities Fading

With fexofenadine, Perrigo enjoyed a particularly quick start against the branded competition, launching its version a little more than a month after Sanofi delivered OTC Allegra to retail in March 2011 Also see "Perrigo Takes Two Steps Forward: Generic Allegra Launch, Manufacturing Compliance" - Pink Sheet, 18 April, 2011..

Perrigo will not have that advantage with other launches between now and June, including private-label Mucinex – expected by early May – Allegra-D 12 Hour, Claritin-D, Delsym and Prevacid 24HR.

The company, which expects 12% to 14% consumer health care growth in fiscal 2012, additionally needs strong new product performances to make up for a weak cough/cold season and the waning opportunity presented by recalled Johnson & Johnson OTCs in 2010 and 2011.

J&J already has returned several liquid Children’s Tylenol stock-keeping units to the market, with more on the way Also see "Andrx Concerta" - Pink Sheet, 29 March, 2004.. Collins Stewart analysts estimate J&J’s market absence ultimately will contribute $70 million to Perrigo sales this fiscal year, but that amount could be halved in the firm’s fiscal 2013.

Papa added the upside offered by Novartis Consumer Health Inc.’s recent plant shutdown and recall appears modest – a store brand opportunity worth about $15 million to $25 million per quarter Also see "FDA Pressure Likely In Novartis OTC Plant Shutdown, Recalls" - Pink Sheet, 6 February, 2012..

The chief executive said Perrigo is treating the Novartis situation conservatively, given the unknown duration of the plant’s hiatus and the comparatively old products Novartis recalled – including analgesic brand Excedrin, which faced plenty of preexisting branded and generic competition.

Growth Opportunities In Nutritionals, Diabetes

Perrigo nutritionals, including infant formulas and supplements, contracted in the quarter as net sales fell 4% to $128.1 million. The decline stemmed largely from a tough year-over-year comparison, given last year’s benefit from [Abbott Nutrition]’s recall of Similac infant formula Also see "Perrigo Sales Reach Record Highs Despite Manufacturing Restrictions" - Pink Sheet, 7 February, 2011..

Operating margin for nutritionals suffered under the pressure of higher manufacturing and raw materials costs, dropping 10 percentage points to 5.1% during the quarter.

Despite the weak quarter, the nutritionals segment represents a growth platform for Perrigo, which recently increased formula distribution in China. Papa said the business will expand into adult nutrition and weight-management beverages – a category with minimal store brand presence.

Another growth platform that potentially spans Perrigo’s businesses is diabetes care, based on the company’s January $36 million acquisition of CanAm Care, a distributor of products for diabetics. Papa said the diabetic consumer demographic, though it unfortunately is growing rapidly, grants Perrigo the opportunity to offer sugar-free versions of its current OTCs, such as cough syrups and nicotine lozenges.

Perrigo Relies On New Products For Fiscal Second-Half Boost

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