FRX Forest Road Acquisition Corp

Forest Laboratories, Inc. (FRX) reported earnings per share of $1.04 in the first quarter of fiscal 2012, easily beating the Zacks Consensus Estimate of 96 cents and the year-earlier earnings of 95 cents.

Results were boosted by higher revenues, lower R&D expenses and a lower share count.

Including a charge of $40.0 million (14 cents per share net of tax) for a new product licensing fee, Forest Labs reported first quarter fiscal 2012 earnings of 90 cents.

First quarter revenues increased 7.9% to $1.15 billion, with net sales increasing 8.2% to $1.1 billion. Total revenues topped the Zacks Consensus Estimate of $1.11 billion.

The Quarter in Detail

First quarter product revenues increased 8.2% to $1.1 billion. While Lexapro revenues increased 3.6% to $585.7 million, Namenda, which is approved for the treatment of moderate and severe Alzheimer’s disease, delivered sales of $319.9 million, recording year-over-year growth of 3.9%.

Improved patient access and increased promotional efforts should help keep Namenda sales strong. Moreover, Forest Labs gained FDA approval in June 2010 for Namenda XR, a 28 mg once-daily extended-release formulation, though the launch is yet to take place. Namenda XR received approval for the treatment of moderate to severe dementia of the Alzheimer’s type.

Bystolic, Forest Labs’ beta-blocker for the treatment of hypertension, posted sales of $78 million, up 31%. Savella, which is approved for the management of fibromyalgia, posted sales of $25.8 million, up 25.6% from the year-ago period.

Forest Labs’ new product, Teflaro, posted sales of $2.7 million. 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.

Two other products, Daliresp and Viibryd, were made available to patients during the quarter with the formal launch slated for next month. While Daliresp, which is approved for the treatment of chronic obstructive pulmonary disease (COPD), recorded sales of $8.5 million, Viibryd (vilazodone HCl), approved for the treatment of major depressive disorder (MDD), recorded sales of $7.3 million. Sales represented initial wholesaler stocking.

Contract revenue came in at $40.6 million, up from $39.8 million in the year-ago period. Benicar co-promotion income dropped slightly to $36.7 million from $37.1 million in the year-ago period. 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 are expected to decline in fiscal 2012.

SG&A expense were $358.1 million in the reported quarter. The company continues to focus on promoting its new products, especially Savella, Bystolic and Teflaro. Adjusted R&D spend declined 9% during the quarter.

Pipeline Update

Forest Labs, along with partner Almirall, filed a new drug application (NDA) for aclidinium for the treatment of COPD during the quarter. Aclidinum’s approval would be a major boost for Forest Labs with the COPD market representing huge commercial potential.

Meanwhile, the company remains on track to file a NDA for linaclotide later this quarter. With positive data from two phase III irritable bowel syndrome with constipation (IBS-C) trials and two phase III chronic constipation trials, Forest Labs and  partner, Ironwood Pharmaceuticals, Inc. (IRWD), are looking to file for both indications.

Forest Labs and partner Pierre Fabre presented positive preliminary top-line results on levomilnacipran from a phase III study for the treatment of adults with major depressive disorder. Patients on levomilnacipran (all dose groups) achieved a statistically significant improvement compared to placebo.

Neutral on Forest Labs

We currently have a Neutral recommendation on Forest Labs, which carries a Zacks #3 Rank (short-term “Hold” rating). While products like Namenda, Bystolic and Savella should continue performing well, we remain concerned about long-term growth at Forest Labs, especially from 2012 when Lexapro is exposed to generic competition. However, we are pleased to see the company’s progress with its pipeline.

 
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