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Perrigo Inks Deal

Zacks Equity Research

Perrigo Company (PRGO) announced that is has inked a partnership deal with KanPak, in which Golden State Foods, one of the largest diversified food processors and distributors in the U.S., has a controlling interest.

According to the deal, the Nutritionals unit of Perrigo will manufacture store brand versions of nutritional drinks for adults which are comparable to offerings under the Ensure product line. KanPak, one of the leading suppliers of beverages and desserts, utilizes its aseptic processing technology which leads to highly effective beverage packaging, shipping and storage.

Furthermore, the deal permits Perrigo to supply retailers with six store brand versions of the six nutritional drinks which are currently marketed under the above product line. According to data released by the Symphony IRI group, the market for adult nutritional drinks is worth $900 million in terms of annual branded sales for the last 12 months. Given the significant commercial potential, we are positive on the deal and believe that it is a step in the right direction which will help Perrigo’s nutritionals unit to grow further.

The nutritionals segment performed well in the second quarter of fiscal 2014 (ended Dec 28, 2013) with sales climbing 15% to $140 million. All the sub-groups of the segment witnessed growth during the reported quarter.

We note that Perrigo is constantly entering into acquisition and collaboration agreements to expand its business. Last month, Perrigo acquired a bunch of value-brand over-the-counter (OTC.TO) products from Aspen Global Inc. These value-brand OTC products are sold in Australia and New Zealand and are expected to generate around $20 million annually.

Moreover, Perrigo entered into multiple agreements with Transition Therapeutics Inc. (TTHI) last month. As per these agreements, Transition Therapeutics will be responsible for all development activities and costs associated with Perrigo’s ELND005. We note that ELND005 was added to Perrigo’s portfolio after it acquired Elan last year.

Perrigo carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Meridian Bioscience (VIVO) and SurModics (SRDX). Both stocks carry a Zacks Rank #2 (Buy).

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