Perrigo Is Poised for a Rebound
The beaten-down drugmaker has a wide range of products and a powerful pipeline.
by Matthew Boyle

(FORTUNE Magazine) - With sniffle season upon us, it's time to stock up on cold medicine. That's good news for Perrigo (PRGO, $15), the nation's largest manufacturer of store-brand, over-the-counter pharmaceuticals and vitamins. Founded in 1887, the company generates more than $1 billion in sales from some 1,300 products sold at retailers like Walgreen and Wal-Mart.

The stock got walloped last year (down 13%) because of concerns over pseudoephedrine (PSE), the active ingredient in many of Perrigo's cough and cold remedies. PSE is used illegally to manufacture methamphetamine, so many states have required retailers to put products containing PSE behind the pharmacy counter, which could slash Perrigo's sales by up to $70 million this fiscal year.

Investors have overreacted to the PSE scare, according to analyst Bill Driscoll at Chicago-based Talon Asset Management, which owns 1.2 million shares. "The management team is navigating a difficult environment well," he says. (CEO David Gibbons, a 3M veteran, is a noted operations guru.) And Perrigo's 2005 acquisition of generic-pharmaceutical maker Agis not only will make up for lost PSE sales but should also provide a growing pipeline of high-margin generics, according to Barrington Research analyst Derek Leckow. In a sluggish environment for health-care stocks, Perrigo could prove to be sound medicine. Top of page