Perrigo CEO Joseph Papa Stepping Down to Join Rival Valeant

Resignation plus profit downgrade of the U.S. drug maker traded on the Tel Aviv Stock Exchange sends shares tumbling in New York.

Outgo9ing Perrigo CEO Joseph Pappa.
Ofer Vakhnin

The American drug maker traded on the Tel Aviv Stock Exchange, said Monday its long-serving CEO Joseph Papa was leaving to take the top job at rival Valeant. The company also downgraded forecasts for 2016 earnings.

Reports surfaced last week that Papa might be accepting an offer from Valeant and on Monday Perrigo confirmed that he would be leaving after its board agreed not to enforce at non-compete clause in his contract.

President John Hendrickson, a 27-year veteran of the company, will replace Papa.

Although Perrigo has been going through a rough patch of late, Papa’s departure was taken as bad news by the stock market. On the TASE, the shares fell only a modest 1.3% to 455.10 shekels ($120.92) in a holiday-shortened trading day. But on the New York Stock Exchange they plummeted close to 10% in early trading to about $109.

Papa, 60, boosted the market value of Perrigo, a maker of generic over-the-counter drugs, by some 775% in the years after he became CEO in 2006.

Moreover, he departs just months after the company rebuffed a $26 billion takeover by Mylan, in the largest-ever hostile bid decided by a shareholder vote. Papa had promised shareholders Perrigo would do better remaining independent.

But on Monday Perrigo said it was reducing its forecast to between $8.20 to $8.60 a share for 2016, excluding special items down from a range of $9.50 to $9.80 it had predicted in February, when it reported earnings that missed market estimates for the first time in five quarters.

The company also reported preliminary first-quarter earnings of $1.71 to $1.77 a share, excluding special items. Both the quarterly and full-year estimates were below analysts’ expectations, according to Thomson Reuters I/B/E/S.

Papa’s arrival will be a boon for Valeant, which is in need of a turnaround after controversy about its relationship with a specialty pharmacy and doubts over its acquisitive business model have driven its shares down 86 percent since August.

Hendrickson, 52, has been with Perrigo for 27 years and previously led several of its operations, including its U.S. consumer healthcare business. Perrigo’s board also decided to separate the roles of CEO and chairman, the sources said. It named one of its directors, Laurie Brlas, as its new chairman, they added.

Apart from its TASE listing, Perrigo also has extensive operations in Israel, an inheritance from its acquisition of Israeli pharmaceuticals company Agis in 2005. Perrigo recently invested $46 million to expand a factory in the Israeli town of Yeruham to make difficult-to-manufacture products, such as foams, creams and nasal sprays.

Papa joined Perrigo in 2006 and was previously president and chief operating officer of Watson Pharmaceuticals. Perrigo is scheduled to hold its annual general meeting of shareholders on Tuesday. Under his watch, the company last year bought Belgium’s Omega Pharma for $3.1 billion and over-the-counter brands from GlaxoSmithKline.