Base Plus Plus Plus
Perrigo’s (PRGO) Base Plus Plus Plus business model focuses on leveraging the company’s strengths to achieve short-term and long-term business targets.
The Base Plus Plus Plus business model has been instrumental in Perrigo’s commercial success despite tough competition from peers such as Allergan (ACT), Teva (TEVA), and Mylan (MYL). The above diagram is a graphical representation of Perrigo’s business strategy explaining how the company will steadily target various growth opportunities.
The base is composed of Perrigo’s consumer-facing businesses, consumer health and branded consumer health, which account for about 75% of Perrigo’s total revenues.
The base also consists of Perrigo’s prescription (or Rx) pharmaceuticals business and its specialty sciences business, which earns royalty revenues from Biogen. With their presence in all the key markets of the world, these businesses form a durable global base for Perrigo.
The durable global base of existing businesses supports a research pipeline which is expected to earn $1 billion in new products over the next three years. Thus, existing business and new products are expected to register a compounded average growth rate (or CAGR) of 5–10%, organically, from 2014 to 2017.
Plus Plus Plus opportunities
Perrigo has identified Rx-OTC (prescription to over-the-counter) switch opportunities worth $29 billion in the global market. Rx-OTC switch is a change in the status of a pharmaceutical product from a prescription product to an over-the-counter (or OTC) product. This process requires approval from the U.S. Food and Drug Administration (or FDA).
Once a product has been approved as an OTC product, Perrigo can launch its own OTC version as a new product. Rx-OTC switch opportunities are present across several disease segments such as migraines, overactive bladder, erectile dysfunction, ophthalmics, asthma, and nasals.
The next big opportunity lies in inorganic growth, wherein Perrigo is focused on value-adding acquisitions. These acquisitions help the company to expand its geographic reach, product portfolio, and operating leverage.
The last growth opportunity lies in additional royalty revenues for Perrigo from Tysabri as the drug receives approval for treating new indications such as secondary progressive multiple sclerosis (or SPMS) and strokes.
Investors can benefit from Perrigo’s unique business strategy while eliminating excessive company-specific risks by investing in the Health Care Select Sector SPDR ETF (XLV). Perrigo accounts for 0.90% of XLV’s total holdings.