Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

A day after new Valeant CEO Joe Papa stuck to ambitious year-end goals for his new employer, his old employer demonstrated how his promises don't always come true.

Perrigo on Wednesday reported second-quarter results that missed Wall Street forecasts and slashed its full-year outlook for non-GAAP EPS by $1.40, citing competition and pricing pressure for its generic drugs. Perrigo shares fell 10 percent on Wednesday and are down 41 percent so far this year. In contrast, Papa's steadfastness a day earlier drove Valeant shares up 25 percent.

Perrigo's update is a reminder that Papa's recent record on guidance is sort of atrocious -- even the announcement of his departure from Perrigo in April came with a forecast cut. And it reaffirms something Valeant should know well: Businesses based on old drugs can erode rapidly.

Five Years Gone
After four guidance cuts and the departure of its longtime CEO to take over Valeant, Perrigo shares are at their lowest point in years
Source: Bloomberg

As recently as January of this year, Papa actually raised the midpoint of Perrigo's full-year non-GAAP EPS guidance to $9.80. The company's cut on Wednesday brings it down to $7. Papa's last guidance for GAAP earnings was a midpoint of $5.70. It's down to 41 cents now. 

Papa Don't Preach
After former CEO Joe Papa's departure, Perrigo's business has deteriorated and it has substantially cut his guidance for 2016 earnings. Each of the company's guidance updates are charted below
Source: Bloomberg

Perrigo's biggest business, making store-brand, over-the-counter medicines, is fine. But things are looking so bad at the generics business -- which has had few new product launches in 2016 -- that full-year revenue expectations have fallen by $200 million since May.

Generics account for most Perrigo's latest guidance cut. The rest comes from continued disappointing performance in its branded consumer business, which came with Papa's $4.5 billion acquisition of Omega in late 2014.  

Papa seems to have left others holding the bag at a deteriorating company, after making overly optimistic projections based on bad assumptions.

That doesn't boost confidence in his assertion that Valeant -- which has cut revenue guidance by $1 billion twice this year, once under Papa -- will be able to perform well enough in the second half to hit its targets

While Valeant's business isn't all generics, it has a lot of old and expensive products subject to generic competition and price pressure. Generics are part of its biggest U.S. unit, which saw sales decline 11 percent in the latest quarter from a year ago. Only 11 of Valeant's top 30 products by sales have patent protection (some of the 30 are over-the-counter products), and 7 of those saw double-digit declines in the second quarter from a year earlier. 

Valeant shareholders were dancing jigs on Tuesday. Perrigo's announcement should warn them the party will soon be over.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net