GRAND RAPIDS — Allegan-based pharmaceutical firm Perrigo Co. saw its quarterly revenues increase 43 percent during the second quarter of fiscal 2006. Net income was up by 60 percent.
While those figures seem astronomical, they can be easily explained. In the second quarter of fiscal 2005, Perrigo did not have the benefit of owning Agis Industries, an Israeli firm that manufactures topical prescription drugs and ingredients used in pharmaceuticals. Now that Perrigo owns Agis, it gets to include an additional $100 million in profitable quarterly sales into its financial picture.
Looking a little deeper into the numbers, things are not all double-digit growth. For starters, sales of over-the-counter medications containing pseudoephedrine have been down for the past several quarters, largely due to changing state regulations designed to limit the manufacture of illegal methamphetamines.
“Our results in consumer health care reflect the transition occurring in pseudoephedrine-based cough and cold products,” said Perrigo Chairman, President and CEO David Gibbons. “The elimination of certain pseudoephedrine products and the shift to behind-the-counter (sales) by many retailers has resulted in lower cough and cold product sales, operational complexity and continued pressure on our consumer health care segment profits as we push to reformulate these products and introduce a record number of new products at the same time.”
The company saw a loss of $20 million in pseudoephedrine-based product sales during the quarter. Fortunately that was more than offset by $14 million in Agis product sales and $17 million in new product sales.
Another factor in the strong performance in this quarter was a pair of unusual events. In the second quarter of 2005, Perrigo suffered a $5.3 million expense related to a product recall. This year, the company benefited from the $2.9 million sale of its interest in a Canadian distribution company. That $8.2 million swing is clearly evident in the quarter’s numbers.
During a conference call following the release of the earnings statement, Gibbons expressed the company’s pleasure at the strength of the Agis division’s performance, as some of the company’s core business has been slipping.
“We hoped that when one business was down, the other one would be making up for it. And that has happened this year. And the real strength comes when both of those businesses are up,” said Gibbons.
To be specific, in the first six months of fiscal 2006, the company has seen $200 million in increased sales, to $679 million. Roughly $209 million of that came from Agis, according to information in the conference call. In other words, Perrigo’s core sales are off by $9 million so far in 2006.
Nonetheless, the combination seems to be working. Gibbons said that he expects more of the same for the second half of 2006: strong sales and profitability in prescription drugs and pharmaceutical ingredients, making up for lower sales and higher expenses in the consumer health care market.
Shareholders responded favorably to the news. The company’s stock was up by roughly 2 percent the day of the earnings announcement.