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Consumer Healthcare Segment Expects Revenue of $2.6 Billion in 2016

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Consumer Healthcare segment

Excluding revenues from VMS (vitamins, minerals, and supplements) products, Perrigo (PRGO) is expected to earn revenues of ~$2.6 billion from the sale of its consumer healthcare products in 2016. Similar to what it witnessed in 1H16, the company also expects the CHC (Consumer Healthcare) segment’s adjusted operating margins to remain strong in 2H16. On June 20, 2016, Perrigo announced its plans to divest the VMS business to International Vitamin Corporation.

If the CHC segment’s revenues manage to surpass these projections, it could have a positive impact on Perrigo’s share prices. It could also boost the share prices of the iShares Core S&P 500 ETF (IVV). Perrigo makes up ~0.07% of IVV’s total portfolio holdings.

The above graph shows the strong growth in the CHC segment’s revenues from 2011 to 2015. To learn more about Perrigo’s CHC segment, read Consumer Healthcare Should Be a Key Driver of Perrigo’s 2016 Growth.

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Performance drivers

According to Perrigo’s 10K statement for 2015, “Consumer Healthcare (“CHC”) is focused primarily on the global sale of OTC store brand products including cough, cold, allergy and sinus, analgesic, gastrointestinal, smoking cessation, infant formula and food, Vitamins, Minerals and Supplements (“VMS”), animal health, and diagnostic products.”

Perrigo leveraged its supply chain capabilities and strong relationships with other stakeholders to boost the sales of its store brand OTC (over-the-counter) products across multiple dosages. The company has one of the strongest OTC drug supply chains in the world. The strong supply chain helps alleviate the pricing pressures witnessed by the CHC segment in periods when there aren’t any new drug launches. Perrigo can’t control the pricing of its OTC products—prices are determined by retailers. A sturdy supply chain helps retain the CHC segment’s profit margins.

Perrigo also has a large number of new drug applications for OTC products—greater than that possessed by any other pharmaceutical player in the US. This differentiating factor is directly related to the company’s capacity to launch new OTC products in the market.

A strong pipeline of OTC products combined with a strong supply chain is expected to enable Perrigo to pose strong competition to other generic players such as Akorn (AKRX), Mylan (MYL), and Teva Pharmaceutical (TEVA).

In the next part, we’ll explore Perrigo’s branded CHC business in more detail.

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