What Factors Are Driving Perrigo's Valuations in 2016?
New product launches
Perrigo (PRGO) expects that the prescription drug business could witness strong revenue growth and account for more than 20% of the company’s overall net sales in 2016. This estimate is mainly attributed to the expected revenues from a large number of new products already launched in 2015 as well as those planned for 2016.
The company has about 25 pending abbreviated new drug applications (or ANDAs) pending with the FDA, which also involve four first-to-file ANDAs. Additionally, Perrigo is involved in five Paragraph IV litigation cases and has six projects in its research pipeline.
Among its peers, Teva Pharmaceuticals (TEVA), Mylan (MYL), and Impax Laboratories (IPXL) are also actively involved in multiple Paragraph IV litigation cases. To learn more about Paragraph IV litigation and first-to-file ANDAs, please refer to Is a Para IV Filing Rewarding for a Generic Company?
If approved, these generic drugs can contribute more than $5.5 billion to Perrigo’s sales. This could boost the company’s profit margins as well as its overall share prices. The iShares Russell Mid-Cap ETF (IWR) is also expected to benefit from this development as Perrigo makes up about 0.32% of IWR’s total portfolio holdings.
Prescription drug business performance
In 2015, Perrigo’s prescription drug business earned about $121 million from new product launches. However, it faced around 1% pricing erosion for its generic drugs, which was more pronounced in its Dermatology segment. To diversify this risk, Perrigo has planned to enhance its product portfolio in other segments such as Respiratory, Nasal, and Ophthalmic drugs.
Perrigo is expected to launch a generic version of ProAir in mid-December 2016. Combined with other new product launches, this is expected to boost Perrigo’s gross margins as well as its net operating margins in 2016.
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