Forest Laboratories, Inc.
) reported earnings per share of 28 cents in the first quarter of
fiscal 2013, 3 cents above the Zacks Consensus Estimate. First
quarter fiscal 2013 earnings, however, came in well below the
year-earlier earnings of $1.07 per share. Results were hit by the
loss of exclusivity on Alzheimer's drug Lexapro.
First quarter revenues declined 28.7% to $821 million, with net
sales falling 31.9% to $751.8 million. Total revenues missed the
Zacks Consensus Estimate of $826 million.
The Quarter in Detail
First quarter product revenues declined 31.9% to $751.8 million.
While Lexapro revenues fell 81.2% to $110.0 million, Namenda, which
is approved for the treatment of moderate and severe Alzheimer's
disease, delivered revenues of $368.4 million, recording
year-over-year growth of 15.2%.
The June quarter represents the first full quarter of generic
competition for Lexapro. Lexapro sales will continue declining in
fiscal 2013 with sales expected to come in at $215 million. The
company had cut its sales guidance for Lexapro in June due to the
higher-than-expected discounting in the market. Forest Labs said
that it expects a generic substitution rate of 88% instead of
Bystolic, Forest Labs' beta-blocker for the treatment of
hypertension, posted revenues of $107.8 million, up 38.2%. Savella,
which is approved for the management of fibromyalgia, posted
revenues of $26.7 million, up 3.5% from the year-ago period.
Forest Labs' new product, Teflaro, posted revenues of $9.4
million, up from $7.9 million in the fourth quarter of fiscal 2012.
The FDA granted approval to Teflaro for the treatment of patients
suffering from acute bacterial skin and skin structure infection
and community acquired bacterial pneumonia in October 2010. Forest
Labs launched the product in March 2011.
Two other new products, Daliresp and Viibryd, were launched in
August 2011. While Daliresp, which is approved for the treatment of
chronic obstructive pulmonary disease (COPD), recorded revenues of
$17.8 million (up from $13.1 million in the fourth quarter),
Viibryd (vilazodone HCl), approved for the treatment of major
depressive disorder (MDD) recorded revenues of $37.4 million (up
from $24.9 million in the third quarter).
Contract revenue came in at $65.8 million, up from $40.6 million
in the year-ago period. Contract revenue included $29.4 million
earned under the company's agreement with
) for the authorized generic version of Lexapro.
Benicar co-promotion income dropped 3.5% year-over-year to $35.4
million. Under its agreement with Daiichi Sankyo, Forest Labs is
now receiving a gradually declining royalty rate on Benicar until
the end of March 2014. Benicar earnings will continue declining in
Adjusted SG&A expense increased 6.8% to $382.3 million in
the reported quarter. Forest Labs continues to focus on promoting
its new products. Adjusted R&D spend increased 26.4% during the
Fiscal 2013 Guidance Slashed in June
Forest Labs had slashed its outlook for fiscal 2013 in June
mainly due to lower expectations from Lexapro. Lexapro, which was a
key revenue generator at Forest Labs, lost exclusivity in March
2012. With the entry of generic competition, Lexapro sales fell
In addition to lower Lexapro sales, other factors expected to
affect sales are lower than expected royalty income and the
discontinuation of shipping of Levothroid.
Based on these factors, Forest Labs had cut its fiscal 2013
guidance to $0.95 - $1.10 per share. The Zacks Consensus Estimate
currently stands at 74 cents per share.
The company provided an update on its pipeline and expects to
have two new products (linaclotide and aclidinium) in its marketed
product portfolio in fiscal 2013.
Forest Labs and its partner,
Ironwood Pharmaceuticals, Inc.
) are seeking approval for the use of linaclotide for the treatment
of irritable bowel syndrome with constipation (IBS-C) and chronic
constipation (CC). A response from the FDA should be out this
Meanwhile, Forest Labs and its partner Almirall are looking to
gain approval for aclidinium for the treatment of COPD. Aclidinum's
approval would be a major boost for Forest Labs with the COPD
market representing huge commercial potential. A response on
aclidinium should be out shortly.
The company expects to file for approval of two more candidates
in calendar 2012.
Neutral on Forest Labs
We currently have a Neutral recommendation on Forest Labs, which
carries a Zacks #3 Rank (short-term Hold rating). We remain
concerned about long-term growth at Forest Labs, especially now
that Lexapro is facing stiff generic competition.
While Forest Labs has been working on getting new products
approved, we don't expect new product sales to be enough to
compensate for the loss of Lexapro sales. Namenda will face generic
competition in early 2015 - this puts another $1+ billion at
Given the situation, we believe that Forest Labs will continue
to seek in-licensing and acquisition activities to grow its
pipeline. Forest Labs has made significant progress in this regard
and should be on the lookout for additional deals in the next
couple of years.
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