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Perrigo Benefits from Omega Pharmaceuticals Acquisition

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Oct. 14 2015, Updated 12:05 p.m. ET

Perrigo-Omega deal

On March 30, 2015, Perrigo (PRGO) completed its acquisition of Omega Pharmaceuticals. In 2012, Omega Pharmaceuticals acquired 54 leading consumer healthcare brands from GlaxoSmithKline. These have been added to Perrigo’s portfolio post-acquisition of Omega.

The above diagram shows that Omega ranks fifth in the European over-the-counter (or OTC) consumer healthcare market. The company ranks better than major pharmaceutical companies such as Johnson & Johnson (JNJ), Teva (TEVA), and Bristol-Myers Squibb (BMY).

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Acquisition benefits

With Omega, GlaxoSmithKline brands had earned revenues worth $110 million in 2014 and $200 million in 2012, before a major supply-chain problem led to a loss of substantial revenues. These products are well-established OTC brands with brand recognition in the pharmacist and patient community.

Additionally, Perrigo has a strong presence in the Nicotine Replacement Therapy (or NRT) market for smoking cessation in North America. NiQuitin NRT brands in Europe and Latin America once belonging to GlaxoSmithKline and NRT brands in Australia once owned by Novartis have been added to Perrigo’s product portfolio on account of the Omega acquisition. These NRT brands are expected to offer immediate global scale to Perrigo.

Omega also has an extensive distribution network for OTC products in the European market, spanning 36 countries. This commercial network involves 211,000 pharmacists, 105,000 retail stores, and 3,900 para-pharmacies.

This deal is expected to help Perrigo leverage on Omega’s distribution infrastructure to aggressively expand in the $30 billion European OTC market, making the company a leader in key European markets.

In addition to a products and distribution network, the transaction has also added Omega’s world-class management team to Perrigo. This team possesses substantial expertise related to the regulatory approval and marketing of OTC products in Europe. It is expected that by 2019, more than $125 million worth of deal synergies will be realized as additional gross profit.

Investors can benefit from the Perrigo-Omega deal, yet eliminate excessive risks, by investing in the Health Care Select Sector SPDR ETF (XLV). Perrigo accounts for 0.90% of XLV’s total holdings.

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