Poor API sales send Perrigo stock tumbling

Perrigo’s second quarter results show the difficulties some companies are facing, with operating income from active pharmaceutical ingredients (API) dropping from $3.4m to $1.1m.

The results for the first six months of fiscal 2009 are also poor with net sales falling by 10 per cent as a result of two key APIs bringing in $13.3m less than last year. This was partially offset by a $6m rise in sales of the rest of its API portfolio.

Reflecting on these difficulties Joseph Papa, Perrigo’s chairman and CEO, said: “We are not immune to the effects of this economy. The API market is changing rapidly as our customers consolidate and manage their own costs, changing the timing of new product development activities​.”

Perrigo’s difficulties were compounded by a $15.1m charge that it incurred on the auction rate securities it purchased from Lehman Brothers.

This charge is mandatory under US accounting standards because the market for these securities, which have a face value of $18m, has been illiquid for 12 months and the credit worthiness of issuers “has continued to deteriorate significantly​”.

An area of hope amid the gloom was provided by Perrigo’s division that manufactures over-the-counter (OTC) products on a contract basis. Operating income from the contract manufacturing segment rose from $38.8m in the second quarter of 2008 to $56.3m for this fiscal year.

This was driven by $77m of new product sales but the company is wary of becoming over reliant on its OTC contract manufacturing operations. Consequently Papa said the company would be looking to remove “underperforming products and assets​”.