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Perrigo Company PLC  (NYSE:PRGO)
Q3 2018 Earnings Conference Call
Nov. 08, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Perrigo Third quarter 2018 Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Brad Joseph, Vice President of Global Investor Relations. Please go ahead.

Bradley Joseph -- Vice President, Global Investor Relations & Corporate Communications

Thank you. Good morning, everyone, and welcome to Perrigo's third quarter 2018 earnings conference call. Hope you all had a chance to review the press release we issued earlier this morning. A copy of the releases are available on our website as is the slide presentation for this call.

Joining today's call are Murray Kessler, Perrigo's new President and Chief Executive Officer; and Ron Winowiecki, Perrigo's CFO.

I'd like to remind everybody that during the call, participants may make certain forward-looking statements. Please refer to the important information for investors and shareholders and safe harbor language regarding these statements in our press release issued this morning.

In addition, in the appendix for today's presentation, we provide reconciliations for all non-GAAP financial measures presented.

Turning to the agenda on slide three; first, Ron will share our third quarter performance results and discuss each of the segments in detail. Ron will then review our balance sheet highlights and the company's updated 2018 guidance. Our new President and CEO, Murray Kessler will then share his initial thoughts on his first month at Perrigo, and lay out his priorities before opening the call for questions.

Now, I'd like to turn the call over to Ron.

Ronald Winowiecki -- Chief Financial Officer

Thanks, Brad, and good morning, everyone. We are excited to have Murray Kessler, our recently appointed President and CEO on the call this morning. Murray joins us with a lot of experience having run two public companies prior to Perrigo, as I will outline in more detail later in my remarks.

Before I discuss the financial results for the quarter, I'd like to open with a few remarks on the business. Even though our total adjusted EPS results were above our expectations, the quarter benefited from a one-time tax savings of approximately $0.06 per share. In total, our consumer businesses adjusted operating income was in line with our expectations. However, the Rx segment continued to underperform. The key driver behind the lower 2018 guidance provided today is due primarily to Rx as we continue to experience weakness within this business and anticipate lower new product sales for this segment.

To put this in perspective, when starting the year, our consolidated adjusted operating income guidance was approximately $1.06 billion at the midpoint. Our expectation today, which I'll discuss in more detail shortly, is approximately $905 million at the midpoint, or $155 million below our original guidance. This change in adjusted operating income can be attributed to Rx underperforming against our original plan. This is obviously disappointing.

Now, turning to our third quarter operational highlights, I would like to begin by highlighting things that continue to gain momentum in the business. First, excluding animal health, our consumer businesses grew on an organic constant currency basis by approximately 2%, led by CHC Americas, which grew approximately 3% in the quarter and year-to-date compared to the prior year.

Second, within the CHC International segment, adjusted operating margin increased 230 basis points compared to the prior year to approximately 19% and has achieved an adjusted operating margin of approximately 17% year-to-date.

Third, the Rx team continues to drive our extended topical strategy with continued investment in our pipeline evidenced by higher R&D spend, representing approximately 11% of net sales in the quarter.

Finally, our platform once again delivered consistent cash flow. Cash flow conversion to adjusted net income was slightly under 100% for the quarter, and we utilized our free cash flow generation and balance sheet flexibility to repurchase approximately $135 million worth of Rx shares during the quarter.

Now I will discuss areas that need immediate attention, and what we are doing to correct them. First, as I said the Rx business was a primary driver of our shortfall in adjusted operating income for the quarter and the full year projections. As you may have seen in our press release this morning, we have appointed new leadership. Sharon Kochan was appointed President of the Rx business. Sharon is an experienced operator who is instrumental in building the Perrigo Rx segment from its infancy and is the right executive to lead the previously announced separation.

Second, our animal health business in the CHC Americas segment continues to underperform. We are taking a close look at the core capabilities of this business and its respective position in the animal health industry.

Third, we have identified various operating inefficiencies, which have impacted gross profit and our ability to achieve customer service expectations in both our US consumer and Rx prescription businesses.

The factors leading to these inefficiencies include the culmination of: one, rising input cost; two, lower productivity, due primarily to a tight labor market; and three, competing priorities.

Perrigo's operational model is designed to handle a broad complex portfolio products to meet our customers' needs. A top priority for our team is to ensure our supply chain remains a competitive advantage against others in the industry. We are not satisfied with our overall performance results and corrective actions are under way.

Perrigo has undergone an immense amount of organizational change over the last few years, and with the planned separation of the Rx business, we continue to evolve as an organization. At the same time, the pace of change in our business environment is arguably unprecedented. While the team has done a tremendous job responding to and embracing these shifts, we lost some focus which impacted our performance and our ability to achieve our 2018 operating objectives.

The challenges in front of us can be resolved. We have proven that we operate under a clear strategic direction and focus on critical priorities with alignment throughout the organization we win. Perrigo has a highly engaged organization and a winning culture. Murray is quickly refocusing all parts of the organization, and expanding our consumer strategies to return us to that winning path, which he will discuss shortly.

Turning to slide six, you can see our reported results for the third quarter. Net sales were $1.1 billion with a reported net loss of $68 million. I would like to provide a few details and four adjustments to the GAAP results for the quarter.

First, we realized a $213 million impairment of intangible assets and goodwill in our animal health business. During this past quarter, the animal health reporting unit continued to experience declines in its year-to-date financial results and had additional indications of impairment due to changes in channel dynamics, a strategic decision to reprioritize brands in this segment, and a decline in the forecasted outlook of the reporting unit.

Second, we recorded an $18 million restructuring charge for continued infrastructure improvements in Europe. Our International team continues to progressively implement their roadmap of improving the operating margin profile of the CHC International segment.

Third, consistent with our policy of transparency, we will highlight each quarter the amount of the adjustment to GAAP results for the activities related to the separation of Rx. In the quarter, we expensed $5.8 million associated with this strategic action. These expenses include a combination of technical accounting and tax work streams and operational actions to separate the business.

And fourth, you will see that there was a $75 million increase in the fair value of the Tysabri option payment this quarter. Tysabri continues to perform well as a leading therapy in the multiple sclerosis market with global net sales of $1.86 billion in the last 12 months. As a reminder, we have two opportunities to receive milestone payments linked to our 2017 sale of Tysabri. One, a $250 million inflow if 2018 global Tysabri sales exceed $1.85 billion; and two, a $400 million inflow, if 2020 global Tysabri sales exceed $1.95 billion.

GAAP tax expense, as a percent of pre-tax income was 14.5% in the quarter compared to a non-GAAP tax rate of 16.2%. The difference is primarily due to the tax effects of the pre-tax adjustments, notably the intangible asset and goodwill impairments. Also, we experienced favorability in the adjusted tax rate relative to our expectations due to a discrete benefit realized in the third quarter.

Turning to CHC Americas results on slide seven, net sales in the quarter were $596 million or relatively flat on a constant currency basis. Animal health net sales were approximately 50% lower compared to the prior year, due to the anticipated loss of a partnered product and channel dynamics. Excluding the animal health business, on a constant currency basis, CHC Americas grew 3% year-over-year.

Performance in CHC Americas was driven by strong net sales in the smoking cessation, infant formula and dermatological categories, partially offset by lower net sales in the gastrointestinal category. Our infant formula business continues to perform well with its multifaceted growth strategy of integrating our extensive product line with a broad customer base.

CHC Americas adjusted gross margin for the quarter was 32.7%, 370 basis points below the prior year, due primarily to the dynamics in animal health, increased input costs and operating inefficiencies that I just discussed. The adjusted operating margin for the quarter was 19%, 420 basis points lower than the prior year, due primarily to the gross margin flow through and increased selling investments to drive new product introductions such as Omeprazole, oral dissolving product which was launched in April of this year.

Turning to CHC International on slide eight, net sales grew 1% compared to the prior year on an organic constant currency basis. Higher net sales in the analgesic, anti-parasite and personal care categories coupled with new product sales of $19 million were partially offset by lower net sales in the lifestyle category, lower sales in our non-branded UK businesses and discontinued products of $5 million. Adjusted gross margin increased 120 basis points to 52.6% driven by continued gross margin actions, including the launch of margin-enhancing new products in-sourcing and procurement initiatives.

CHC International adjusted operating margin for the third quarter was higher than expected at nearly 19%, an increase of 230 basis points over the prior year, primarily to gross margin flow through and timing of advertising and promotion expenses. Our international leadership team continue to improve the cost structure of this segment with enhanced go-to-market strategies that have improved the overall operating margin profile in this segment.

Turning to the Rx segment results on slide nine, reported net sales in the third quarter were $179 million compared to $251 million last year. The net sales decline was largely due to the absence of new products coupled with price erosion within our authorized generic portfolio, specifically our core extended topical products which compromise approximately 85% of net sales in this segment experienced price erosion in-line with our expectations for the quarter. The business also underperformed as a result of the customer service challenges I previously discussed, resulting in lower sales than anticipated and higher customer service expenses, which are being addressed.

Adjusted gross margin was 52% in the third quarter, a 260 basis points lower than the prior year, primarily due to less favorable product mix. Adjusted operating margin was 32% compared to 42.4% in the prior year, due primarily to an approximate 600 basis point increase in R&D investments compared to the prior year and gross margin flow through. R&D investments for the quarter were approximately 60% higher, accounting for approximately 11% of net sales as the team continues to invest in the pipeline, which is critical to the success in the Rx business.

Turning now to slide 10, our balance sheet and cash flow generation remain strong, underscoring the strength of our business. At the end of the quarter, total cash on the balance sheet was $444 million and total outstanding debt was approximately $3.3 billion. Excluding $50 million related to the Merck NASONEX licensing investment, which is included in GAAP cash flow from operations, year-to-date adjusted cash flow from operations were totaled $449 million. This results in a cash flow conversion as a percentage of adjusted net income of 90% for the first three quarters of the year.

Our capital allocation decisions are focused on total shareholder returns within the context of our long-standing commitment to an investment-grade financial policy. As part of our capital allocation strategy, we completed approximately $135 million of share repurchases and paid $26 million in dividends in the third quarter. With the expiration of the previous share repurchase authorization, today we announced a new share repurchase authorization up to $1 billion of the company's outstanding common stock with no expiration date. The timing and amount of any share repurchases under the new authorization will be determined by management based on balancing our priority of expanding the EBITDA base, with a focus on total shareholder returns.

Now, let's discuss our outlook for the remainder of 2018. Turning to slide 11, we now expect consolidated net sales of approximately $4.72 billion and adjusted EPS guidance in the range of $4.45 to $4.65 per share. As Rx was the main reason for the change in our consolidated guidance, I would like to take a minute to outline the primary drivers of this change. We now expect Rx net sales to be approximately $800 million, with an adjusted operating margin in the mid- to high-30s as a percent of net sales based upon three factors.

Number one, our assumption for generic AndroGel 1.62%. In mid-October, the Rx team launched it's important product to customers in the US. As we enter the market our product -- with our products, a third-party aggressively launch an authorized generic version. Although this product launch will improve trends in the business, the impact from competition was greater than our original expectations, which has reduced our forecast for this product.

Number two, customer service. We delivered poor customer service in certain key products, which has resulted in lower net sales and lost margin opportunity. The poor customer service was due to a combination of operating inefficiencies mentioned earlier and inconsistent supply from certain third-party partners, both of which are being addressed. However, we expect similar dynamics to continue in the fourth quarter as it will implement our improvement plan.

And number three, price erosion in authorized generics. Our price erosion assumptions within our core portfolio remained in line with our expectations. Higher price erosion was experienced in certain authorized generic products and it's built into our forecast for the remainder of the year.

Other changes that changes the 2018 consolidated guidance include a lower forecasted adjusted tax rate for the year due to the previously mentioned benefit realized in the third quarter, which is offset by slightly lower consumer net sales and adjusted operating income, a 100 basis point increase in the adjusted operating margin forecast for CHC International to 16.5%, driven by the margin enhancement actions in this segment, was offset by a similar decrease in the adjusted operating margin forecast for CHC Americas to 20%, primarily driven by the underperformance in the animal health business and operating inefficiencies.

Finally, as cash is king, we are currently forecasting annual adjusted operating cash flow to adjusted net income conversion to be approximately 95% to 100% at the midpoint of our adjusted EPS guidance.

In summary, we continue to drive growth in our consumer businesses, and the team is moving forward with executing on our plan to create two separate independent platforms to actualize strategic and operating focus, eliminate competing priorities, enhance the value creation potential of each of our respective businesses.

Turning to slide 12, I would like to offer a warm welcome to our new CEO, Murray Kessler, who I'm sure, we are looking forward to hearing from. As you know Murray has over 35 years of experience across a broad range of industries, including highly regulated businesses from notable companies like Clorox, Campbell Soup Company, UST and Lorillard. During his tenure as CEO of UST and Lorillard, he created over $22 billion in shareholder value. In his brief time at Perrigo, Murray has already set a tone of focus, clarity and prioritization. He has held leadership meetings in both the US and Europe to quickly access the baseline -- quickly assess baseline his views of the core capabilities and market opportunities available to Perrigo.

I will now turn the call over to Murray.

Murray S. Kessler -- President & Chief Executive Officer

Thanks, Ron, and good morning, everyone. Ron shared a bit about my resume. But for those of you who don't know me, let me expand a bit more on my background and how I operate. I've created significant value in my prior CEO positions using a pretty simple framework each time, while also approaching each situation's unique factors.

The key elements of this framework are, first and most important, focusing on the core with an emphasis on maintaining our competitive advantages; second, pursuing close-in adjacencies to keep the new product pipeline strong; three, making strategic bolt-on acquisitions when they make financial sense; fourth, strong cost control and elimination of non-productive cost and bureaucracy; and five, allocating capital to the highest return options that build the business long term, while concurrently returning excess capital to shareholders.

I pride myself in transparency and telling it like I see it. And I never forget that I'm a fiduciary acting in the best interest of our shareholders. So as I see it, Perrigo is a great company that has gotten off track in the last few years as once again demonstrated in the quarterly results and projection for the remainder of fiscal 2018. This was not a surprise to me when I joined.

I came in having looked at the company, the same way our investors do. And I believe the challenges I see are the same ones you all see. The challenges I saw confronting Perrigo today are the result of distraction, shifts in leadership and a rapidly changing external environment that was not properly addressed. I came onboard with the belief that by focusing on the initiatives that matter most, namely, a reallocation of Perrigo's vast resources, the sale or spin of Rx and the upgrade of certain skill sets and investment in technologies, we will be able to return Perrigo to its rich history of strong performance and creating shareholder value.

Having reinvigorated companies before, I know it will take some time to put in place a clear consumer-based strategic plan that will generate long-term sustainable and reliable growth. While we are doing so, we will remain cognizant of the near-term and pursue actionable initiatives to drive meaningful progress. That was my incoming perspective, and after a month at Perrigo, including reviews of its operations, business units, skill sets and capabilities around the world, my enthusiasm and optimism is even stronger. I am glad to be here and my confidence on this team's ability to deliver is high.

Let me share a few of my initial observations. Share and volume in our core CHCA store brand business is solid. But in the current environment of less Rx to OTC switches and increased pricing pressure, the new product pipeline is simply insufficient and lower than in prior years. We are already addressing this. CHCI is in the midst of a transformation which is beginning to take hold, but more aggressive top line initiatives are needed there as well. Again, those are being addressed and I am very excited about the long-term prospects of this business.

I agree with the Board's decision to sell or spin Rx as it is a distraction to our core consumer businesses, even though it is a good and profitable business in its own right. Again, the level of new products being launched in the marketplace is a major issue, but unlike the consumer business, the pipeline on Rx is robust and we are just a few FDA approvals away from significantly changing the trajectory of this business. Our regulatory team is optimistic, they will come soon. Importantly, we believe, it's not a matter of if, it's a matter of when.

Complexity has always been a core strength of Perrigo's global platform, but right now, it is working against us, especially on the supply chain, adding cost and putting pressure on margins. This is addressable with more sophisticated planning tools, which are already being put in place. We have made a series of low return inorganic investments. The criteria for investments in inorganic growth will be tightened, and you can expect an increase in investment toward organic growth.

My only real surprise coming into the company was the precipitous decline this quarter in the animal health business, but the reasons here too are quite clear and are being addressed, even while we assess the role this business plays in our future portfolio.

Despite the challenges I had highlighted, I repeat that the core businesses are solid. There are significant resources to bring to bear on generating growth. The Perrigo workforce is talented and highly motivated. We have the commitment of the Board of Directors and there are more opportunities for growth than I initially thought.

I'm excited to be leading this great company through transformation, and we will return Perrigo to its winning ways. I'll be out to meet with a number of our investors and the sell-side on more of a listening tour over the next months, while we are concurrently developing the strategic plan. We should be in a position to share the full plan in early spring.

With that, I'll now open the floor to questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from David Maris with Wells Fargo. Please go ahead.

David Maris -- Wells Fargo Securities LLC -- Analyst

Good morning. I have a lot of questions, but I'm going to limit it to one, since I'm sure a lot of people have questions. At the time of your appointment Murray, the company did a number of calls in which your appointment was described as coming in during -- you know, as a move of strength that things were fine. I had specifically asked would guidance be -- guidance wasn't reiterated, and in my experience that when companies don't reiterate guidance, there is a high likelihood that they're going to miss it. And it was indicated that no, this was being done from a position of strength. But from what you described, you knew that there were challenges coming in.

So, how would you reconcile? I know you were part of those initial conversations. Is the situation at Perrigo changing so dramatically and so negatively that from one quarter to the next things could change this much or was this a trajectory that the company has been on and should have been expected? Thank you.

Murray S. Kessler -- President & Chief Executive Officer

Okay. Well, I would break that into a couple of different pieces. I am a 100% confident that based on my discussions with the Board prior to joining that if right now Ron was telling you from the third quarter that we were raising guidance for the year, they would have still made the same decision.

The entire discussion was not about performance, it was a strategic discussion of how to transform this into a consumer company. And frankly that had evolved over the year, and I've talked to the company a year ago, but I wasn't available for personal reasons to start at that time. And my situation changed and the strategy of the company evolved, and I think the Board clearly has stated over and over again. That was the reason for the change. They want somebody to lead this transformation into being a consumer-driven company. So, I'm positive that it wasn't performance driving that.

I would also say having gotten here, you heard Ron clearly say that the change was pretty much attributable to one piece of the business, which is very new product related. And depending on -- there is a very big, couple of big new products in the pipeline there, and the timing of regulatory approval is driving that. So, no, I don't think that this is a lot of volatility. I took a hard look at the fourth quarter, I wasn't here for the third quarter. But I think we have numbers we believe in and that -- and work is well under way to focus this organization, which is needed.

David Maris -- Wells Fargo Securities LLC -- Analyst

Just a follow-up, it sounds like what you're saying or the description so far is that the earnings impact maybe primarily related to -- in the fourth quarter and for this quarter related to Rx, which again had already been lowered a number of times, but we'll ignore that for a second and that how fast that's dramatically changed.

But you've mentioned customer service and failures in customer service a number of times, which sounds like a much broader organizational issue. That sounds like something that hadn't been raised before of kind of the stumbles that Perrigo is making. Maybe if you could just expand a little bit on how that sort of emergence and what it showing up as, is it just missed orders or out of stock items? How does the poor customer service show up?

Murray S. Kessler -- President & Chief Executive Officer

It's a couple of things. Here is a big difference between a consumer guy leading this company versus sort of in the past. Most of the dialog that I've seen coming into the company is dollar revenue related versus volume related. Coming out of a CPG company most of the conversations I've always had are volume related. In doing so, the underlying trends on this business are almost completely different in many areas, across all of the divisions.

I mean, our consumer businesses volumes were actually up 4% to 5%. We never talked about those kinds of things. We'd place different demands when an organization focuses on revenues that are kind of flattish. There's also in doing so, the other key framework in this company, the metrics that it measured itself again placed a lot of emphasis on keeping inventories low, and as opposed to maintaining that higher service level that Perrigo was always known for. And then third, there was a lot of complication that's been added to this business in the last couple of years.

The good news is those are all imminently fixable. There's a couple of points of margin in the second half that while Rx is the big thing that can -- I'm not saying it's not hard work, it is, but we have too much of our volume with single source suppliers that in a number of cases met -- we even with 5% volume growth in the US, we couldn't meet demand, which is unacceptable.

There is other areas and planning tools that I would say, and I'm not criticizing the company, it's been focusing on a lot of -- it's made a lot of acquisitions, but more investment needed to be on organic growth and making sure that we maintain the Perrigo advantage. This company has always been known for years of being able to bring -- to handle complexity better than any other company can do. And given our breadth of line and the thousands of SKUs and all that, that's a strength for this organization. They know how to do it. We just need to refocus on that, that that's the top priority, and recapture those margin points, which are easily identifiable.

David Maris -- Wells Fargo Securities LLC -- Analyst

Thank you.

Operator

Our next question comes from Louise Chen with Cantor. Please go ahead.

Murray S. Kessler -- President & Chief Executive Officer

Good morning, Louise.

Louise Chen -- Cantor Fitzgerald Securities -- Analyst

Hi. Good morning. Thanks for taking my questions here. So the first question I have is something that we've been getting a lot this morning, which is that if you annualize your fourth quarter 2018 EPS and you're getting to about $4 in EPS for 2019, that's not assuming any growth on anything or recovery in any of the businesses. So just wondering, is 2019 a growth year for Perrigo, and why or why not? Thank you.

Murray S. Kessler -- President & Chief Executive Officer

Well, I think you've got to balance a couple of things. I'm here a month and we're going through the planning phases, and we'll give you guidance in February like we always give you a guidance. And like I said, shortly after that we should be in a position to lay down our growth strategies. But the good news is, I'd break it up into two pieces. By the way, I'm not going to give you a full answer to that question, because I'm not ready to give you numbers yet.

But I will say, I'm encouraged by both the short-term opportunities for the company and the long-term, because in my comments I said job number one is focusing on the core. So, job number -- that means job number one is to get back to full potential CHCA, which means that we have every distribution point, that we have competitive advantage, every innovation that's being offered by the branded competitors is available and that we have customer service levels that are back in line where they've been historically. So I wouldn't -- I think it would be a mistake to straight line the fourth quarter. I mean, that's where I sit today. But I also have to go through the full planning process, and then I need to clearly -- I need to get the organization to ramp up the new product pipeline.

Operator

Our next question comes from Patrick Trucchio with Berenberg Capital Markets. Please go head.

Patrick Trucchio -- Berenberg Capital Markets -- Analyst

Thanks. Good morning. I have some follow-ups on the generic business. First, do you intend to initiate the restructuring of the business and should we expect charges associated with that? Secondly, in the absence of the major restructuring, why shouldn't we expect the operating margin of that business to contract and to potentially contract substantially? Third, how concerned should we view at the potential disruption caused by the split of this business? And finally, why should we have confidence that you can stabilize the business and execute the split successfully? Thank you.

Murray S. Kessler -- President & Chief Executive Officer

Okay. Yes, a lot of questions there. So, Brad, you're going to need to help me. Let's start with the confidence and the distraction associated with the split, because that is a concern for me, and that is why we made a change in leadership with the most seasoned person we have in the organization to come back and run that business. So, that it can and I have to -- I'm doing everything from aligning the incentives and the goals and the KPIs in this organization to make sure each group is set up to focus on what they need to.

Now, the level of effort that comes is radically different depending on which option we pursue and which one creates the most value for shareholders. And as the Board has been previously announced, we're committed to this split for -- because it obviously over the long-term is not aligned with where we want to take the company and believe we can create the most wealth.

As it relates to the business, I think there is -- it's depending on when, because we don't believe it's an if, those new products that have been geared up get approved. They're massive and they have a significant change in the trajectory of the business. I'll also say, when I look at the pipelines of all the different businesses, the pipeline on Rx is actually quite robust. It's part of the US that because of a slowdown in Rx-OTC switches that I most focused on and getting the new product program. I don't see an issue there.

So, I think we have a low period here, but Rx is under good leadership now, leadership that can help prevent that distraction you're talking about, and it has a robust pipeline, and we just need to get through that gap period and build those approvals start coming in. What was the -- give me your first question again.

Patrick Trucchio -- Berenberg Capital Markets -- Analyst

Yes. So just in terms of initiating restructuring or cost restructuring plan, is that something we should expect? Would there be charges associated with that? And then in the absence of one, why would the operating margin stabilize? Why wouldn't it keep contracting?

Murray S. Kessler -- President & Chief Executive Officer

On the remain color or on the new businesses?

Patrick Trucchio -- Berenberg Capital Markets -- Analyst

No, on the generics business.

Murray S. Kessler -- President & Chief Executive Officer

Well, that just depends on the organization, right. I mean it depends whether it's a sale, and it's fitting into something or it's a spin and it's own stand-alone company. We'll give you more detail on that as we progress through the process.

Bradley Joseph -- Vice President, Global Investor Relations & Corporate Communications

Next question please.

Operator

Our next question comes from Dave Risinger with Morgan Stanley. Please go ahead.

Murray S. Kessler -- President & Chief Executive Officer

Good morning, Dave.

David Risinger -- Morgan Stanley -- Analyst

Good morning, and congrats on your new role. I have three questions. First, you had referred to OTC new product opportunities in the face of diminishing OTC switches. Could you just provide a framework for -- at a high level opportunities that you see for the OTC new product flow in the future? Second --

Murray S. Kessler -- President & Chief Executive Officer

Sure, let me just take them one at a time.

David Risinger -- Morgan Stanley -- Analyst

Okay, great.

Murray S. Kessler -- President & Chief Executive Officer

Well, let me start by saying that I see the company different than you guys do. You see a healthcare company and I see a self-care company. That change of reference opens this organization up to massive opportunity that you'll see in the transformation detailed in the strategic plans. But if we are not limiting ourselves through a lens of healthcare, and again, take this self-care reference there are massive, massive categories, some of which the company has tried before that open up again billions and billions and billions and billions of dollars of categories for the company.

So I don't see any shortage of opportunities and changing references what I've done in every company I've gone to. Each and every time I change reference of, so that I don't look it as a north of 60%, 70% share in the United States of store brands in the OTC category. I change that reference over a much smaller percentage of all the self-care. I did it in my previous two roles, and the new product program start to flow. And by the way, a lot of those categories don't have to go through the long process of FDA approval. Many of them are products that we sell already in Europe and we're not leveraging the synergies that are possible between our international business and our US business. And, you know, as well as I do all the different segments there, but I think you're going to see a whole different look on Perrigo going forward.

David Risinger -- Morgan Stanley -- Analyst

Great, that's helpful. And then with respect to your comment earlier, I didn't quite follow it. I think you said 5% volume growth and 0% sales growth, what were you referring to?

Murray S. Kessler -- President & Chief Executive Officer

I don't know if I gave you the exact, right, net sales growth of -- there was net sales growth and Ron spoke about that in the details. But I'm just talking, if you go underneath that, and you look at which I'm used to as a consumer guy looking at the unit shares and the units moving through the registers through some of our sources like IRI, and actually our own units that volume is growing faster than revenues, because there's a little bit of price contraction, not as much in the CHC business, but some. But we gained market share in almost every segment we completed in.

David Risinger -- Morgan Stanley -- Analyst

Okay, got it. And then the final question is, you had mentioned that you are a few regulatory approvals away from much better Rx performance. Could you just comment on what those products are that you're hoping for approval in the next six months or so?

Murray S. Kessler -- President & Chief Executive Officer

Ron, do you want to take that?

Ronald Winowiecki -- Chief Financial Officer

Yes, sure. Yes, obviously the two that we've talked very openly about is the ProAir. We had a CRL that was issued this summer. We respond to that CRL and obviously we're not going to provide updates consistent with our practice, David, on the FDA process. But our team remains committed and dedicated to launching that product, and getting the approvals. That's obviously one of that.

The second one that's obviously in front of us as well as compiling (ph) me, we pulled off the market due to a deviation. The team again responded to that with the FDA, continues to move down our improvement plan in their product. I don't want to get into the pipeline next year. So, yes, Murray is a 100% right. We like our pipeline going into 2019, but obviously we will talk about that in February and give more color on our growth plans in Rx at that time.

David Risinger -- Morgan Stanley -- Analyst

Got it. Thank you.

Operator

Our next question comes from Chris Schott with JP Morgan. Please go ahead.

Chris Neyor -- JPMorgan -- Analyst

Good morning. This is Chris Neyor.

Murray S. Kessler -- President & Chief Executive Officer

Good morning, Chris.

Chris Neyor -- JPMorgan -- Analyst

Good morning. This is Chris Neyor on for Chris Schott. Couple of questions on the Rx business. For the Rx separation, you guys are committed, but does the weaker performance year-to-date caused you to rethink the timing of that potential separation for the business unit?

And then secondly on the recent Androgel launch, could you elaborate on the market dynamics there? Specifically from a share perspective, is that launch in line with your expectations? Thanks.

Murray S. Kessler -- President & Chief Executive Officer

Well, on the first part of the question, we're stewards of shareholder value, both short-term and long-term, and always apply a critical lens to any decision I make around any asset. But be clear, it is our intent to sell or spin and to focus this company. As it relates to Androgel, I just think they had a higher expectation, they anticipated some competition, but it's -- and Ron on the second can you help me with this one too, but I think this is like the first time they've launched in this type of environment with that type of product, where there was that buying consortium. And so it's sort of all or nothing on a few of these, and while it's incremental and it's going to be a big contributor, they didn't hit it, so it did not meet our expectation.

Ronald Winowiecki -- Chief Financial Officer

Yeah, I'll just confirm Chris what Murray said very well as we assumed an authorized generic and it's the first paragraph four -- meaningful paragraph we launched in consortium information 2016, and some of the volume parents became binary and as we learn from it. But to be clear, the exciting part of this product, it is changing the trajectory, it's creating momentum that we've been looking for in this business as we launch new products and we're excited about the contribution that will make for us in Q4 and heading into 2019.

Chris Neyor -- JPMorgan -- Analyst

That's helpful. Thanks.

Operator

Our next question comes from David Steinberg with Jefferies. Please go ahead.

Murray S. Kessler -- President & Chief Executive Officer

Good morning, David.

David Steinberg -- Jefferies -- Analyst

Good morning. Yeah, thanks very much, Murray. You said in your comments that one of your strategic objectives is bolt-on or tuck-in acquisitions. In the past couple of years, the company has made virtually no acquisitions, and maybe this is more of a question for Ron than you. Historically, outside the very large Elan and Omega acquisitions, which didn't turned out so well, the company made a lot of very successful smaller acquisitions, largely private (inaudible). I was just curious, why is it in the last couple of years, we had not been any acquisitions. Is it just a dearth of opportunities with prices too high?

And then going forward Murray, what's your philosophy and M&A, obviously there is some operational issues you have to deal with. One of the good things coming in is a very strong balance sheet. What types of opportunities you are looking at, and you can expand beyond generally small consumer tuck ins that the company has done in the past? Thanks.

Murray S. Kessler -- President & Chief Executive Officer

Well, I think, initially, it's fair to say I'm -- I'd be more interested in the sort of the historic level of tuck-ins that -- you have very different businesses around the world. You know, our leaders and the team in international is actually doing a good job of already starting their transformation. And as you would expect on a business that was very complicated in 35 something countries with different portfolio, some of those brands are good and some of those brands are weak and probably not a good effort for us to go after.

There are other markets that look really quite opportunistic for us, but tuck-in acquisitions would give us the scale we need in those markets to be successful. So, I'm pretty confident that you will start seeing some of those come around pretty quickly. As it relates to a big bet for the company, that's the last thing it needs right now. Right now the number one job is to focus on the core and bringing CHCA to full potential.

David Steinberg -- Jefferies -- Analyst

And just a quick follow-up regarding Rx-OTC switches. I know you talked about looking outside healthcare, but within healthcare, there are only three categories that really switch, and there are many, many more that could be switched pretty much around the table on PPIs, cough, cold allergy, and I know that we have a relatively new FDA commission that's talked about focus on OTCs and lowering healthcare costs. Have you seen any movement recently on FDA interest to expand into new areas? I know there's been talk historically about Statin, Viagra, things like that, but would you anticipate any major categories switching in the near-term?

Murray S. Kessler -- President & Chief Executive Officer

Look, the company obviously made a $50 million investment in a significant switch that is planned to come in the next couple of years, and there's other in the horizon. But I'm just not going to let you take me down that pathway. I don't view that this is a healthcare company. I'd view this as a self-care company. And those along with dozens of opportunities that I see right now that are significant. Well, all be pursued and shared with you on our plans.

So, you know, again, I view it from a different lens, than you view it from. And I think we won't have any problems, developing a strong pipeline. I'm also not convinced. We've fully explored our product. You see us having run the gamut relative to being a player in the Rx to OTC switches that have already happened. That doesn't mean we've reached full potential on those, not even close.

Operator

Our final question comes from Tim Chiang with BTIG. Please go ahead.

Murray S. Kessler -- President & Chief Executive Officer

Hey, good morning.

Tim Chiang -- BTIG -- Analyst

Good morning. So, I know you're sort of coming in at sort of an inflection point for Perrigo. I mean, one, could you just sort of talk about what you think the long-term plan for recovery is for Perrigo here? I mean obviously other executives come in to specialty pharma companies, and they have aggressively cut costs. Others have gone the organic route in terms of trying to fix companies. I sort of wanted to get your perspective. Obviously, there's pros and cons with Perrigo at this point, but it does seem like, they are running into some issues, certainly on the Rx side. The OTC side had a tough time growing over the past couple of years. And I just wanted to get your longer-term perspective on how you think you'll be able to fix Perrigo?

Murray S. Kessler -- President & Chief Executive Officer

Well, I think that's what all of my comments have been about. I just don't agree with that, that the company is facing challenges with underlying volume growth. It's facing challenges with price competition because it has given back some of its competitive advantage, which has to be reinstated, right. So, I mean, I have worked on dozens of consumer packaged goods categories and to have a growing segment like -- in the businesses we're in today that our total store brands growing as a percentage of OTC and us gaining market share and growing more than that. I think that's a disservice to say that, and as part of that just having a sales discussion. So that frame of reference also needs to change that as we're growing volume and market share, do we have enough competitive advantages?

When I talked to some of our biggest customers, they tell me that four years ago, they could not go to anybody else but Perrigo, because the advantage was so great. We still have an advantage, but the gap has narrowed. That gap needs to be widened again. So, you're asking for my strategy without getting specific details, we will first and foremost, focus on the core. Someone else asked the question will we consider bolt-on -- I don't see a transformational acquisition in the near-term, things change but I don't see it right now.

I see bolt-ons helping stabilize or give us scale in certain markets and in Europe and in the US, if some of these new categories that present themselves from a self-care definition versus a healthcare definition require small acquisitions for technology or to give us a certain skill set that could be on the table but job one fix the core, get the core going. The volume is strong, the talent is strong, there's no resources that have been cut, R&D budgets are intact, which I was glad to see when I got here all the makings are there.

The organization needs to focus and go after those opportunities. We have to fix the service issues on the core business, which are infinitely fixable. And this company knows how to do it. It's always maintain some of the best service levels, despite the fact that it has a portfolio that is way more complex as they have been there. We haven't kept up with technology and the planning tools that are available to make that happen, that will be very quickly done as well. We'll ramp up the new product program and that affects the mid-term and the long-term. And all of this will be shared with you.

And by the way, when we fix the services, service area, we will be able to not look -- we've lost revenues and certain places meaningful revenues from not being able to service customers in certain respects. And there are all kinds of cost implications when that starts to happen relative to over time and customer fines, and all kinds of things that can come as a result of that that can be cleaned backup right back out of that P&L again. And we've had -- the company has resisted or even though it's made some very big bets on inorganic growth, it's been actually quite very, very conservative on investing for organic growth to the point that there are capacity constraints on some areas where our demand is exceeding our capacity and we're running full out.

So I mean, again, those can be changed immediately. I recognize that I'm giving you high level. I'm just letting you know after a month here, I'm not seeing a shortage of opportunities at all, and we will go after those and you will find I'm very transparent. I only need a few months to get that going. I'll see you in early spring and we will unveil the whole plan, the work that had been done prior -- with prior CEOs won't be wasted. There's a lot of good stuff that's there as well, and then we'll have a full plan that brings to life this beginnings of a vision, I'm talking about.

So that I believe was the last question. So, let me just close by saying I look forward to getting to know you all, and most importantly, sharing our plan soon to deliver consistent and reliable growth that build value for our shareholders. Thank you for your interest in Perrigo.

Operator

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Duration: 52 minutes

Call participants:

Bradley Joseph -- Vice President, Global Investor Relations & Corporate Communications

Ronald Winowiecki -- Chief Financial Officer

Murray S. Kessler -- President & Chief Executive Officer

David Maris -- Wells Fargo Securities LLC -- Analyst

Louise Chen -- Cantor Fitzgerald Securities -- Analyst

Patrick Trucchio -- Berenberg Capital Markets -- Analyst

David Risinger -- Morgan Stanley -- Analyst

Chris Neyor -- JPMorgan -- Analyst

David Steinberg -- Jefferies -- Analyst

Tim Chiang -- BTIG -- Analyst

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