If Papa Leaves Perrigo (PRGO) for Valeant (VRX), It Would Be A Shocker - Jefferies

Jefferies analyst, David Steinberg, weighed in on the specialty pharma shocking news that Joe Papa may leave Perrigo (NYSE: PRGO) for Valeant Pharma (NYSE: VRX). In short, the analyst thinks it makes sense for VRX but leaves a very dark cloud over PRGO. No change to ratings or PT.

During a contentious, lengthy hostile takeover battle, CEO Joe Papa assured investors that PRGO would be much better off as an independent co rather than be acquired by MYL. While MYL’s tender offer eventually failed, PRGO subsequently posted disappointing financial results primarily due to integration issues and miscues with the co’s new European branded OTC drug subsidiary Omega, which was acquired in 2014 for $4.5B. However, on the recent 4Q15 call, PRGO’s CEO promised he’d turn things around.

There appear to be many reasons for VRX to want to hire him. PRGO has 70% share of the OTC store brand market, Mr. Papa would appear to have strong relationships with retailers. His retail expertise and negotiating ability could help maximize the value of the burgeoning Walgreens program. Further, Mr. Papa has extensive experience with managed care organizations from his decades of experience as a pharmaceutical executive. And both his personal style and past experience at Cardinal could be viewed as major positives in dealing with payers/mending fences/ repairing relationships with key customer groups. Mr. Papa is a proven operator with a long and distinguished track record but there are two concerns: 1) is he motivated enough (the challenges are immense) and 2) his qualifications as a “turnaround” expert are not clear.

Papa has become the face of PRGO during his long tenure as CEO. However, with the exception of CFO Judy Brown, the co’s other executives – including John Hendrickson who was appointed President in Oct 2015 – are largely unfamiliar to the investment community. Further, the timing couldn’t have been more inopportune. Mr. Papa is potentially departing prior to the announcement of Q1 results and this follows a string of difficult quarterly financials – particularly in the co’s flagship CHC consumer business.

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