The evidence of Perrigo’s attempt to contain costs is visible in the fourth quarter as, excluding the restructuring charge, the company’s active pharmaceutical ingredient (API) operating expenses fell by 19 per cent.
Perrigo claims that these savings were realised by increasing operating efficiency at its plants and managing costs. Consequently the API sector’s adjusted operating income increased by 146 per cent, totalling $9.2m, despite net sales rising by just two per cent.
The charges that turned this into a loss relate to the future closing of Perrigo’s German operations. In particular the company paid costs for the write down of plant assets, demolition expenses and employee severance charges.
Long term benefits
In a conference call with investors Joe Papa, CEO of Perrigo, explained that management has placed a “strategic focus on specialty molecules and vertical integration opportunities”.
Perrigo believes this strategy can improve the cost efficiency of its API operations. APIs currently produced in German, and some made at the Israel plant, will be transferred to Perrigo’s new facility near Mumbai, India.
An 85 per cent stake in Mumbai facility was acquired by Perrigo for $12m earlier this month and the plant is expected to be fully operational in 2011. By producing APIs needed in large volume at its in-house, low cost Mumbai facility Perrigo believes it can improve manufacturing efficiency.
This will also free up capacity at the company’s facility in Israel for production of speciality molecules. Certain speciality molecules will also be manufactured at the Mumbai facility.
Papa added that the “transformation will position Perrigo to be more competitive in the medium and long-term and allow for further growth opportunities”.