Forest Beats, Ups View - Analyst Blog
January 17 2012 - 7:41AM
Zacks
Forest Laboratories, Inc. (FRX) reported
earnings per share of $1.04 in the third quarter of fiscal 2012,
beating the Zacks Consensus Estimate of $1.00. Third quarter fiscal
2012 earnings, however, came in below the year-earlier earnings of
$1.34. Despite an increase in revenues, higher costs led to the
year-over-year decline in earnings.
Third quarter revenues increased 7.4% to $1.21 billion, with net
sales increasing 9.2% to $1.16 billion. Total revenues topped the
Zacks Consensus Estimate of $1.17 billion.
The Quarter in Detail
Third quarter product revenues increased 9.2% to $1.16 billion.
While Lexapro revenues increased 1.1% to $593 million, Namenda,
which is approved for the treatment of moderate and severe
Alzheimer’s disease, delivered revenues of $340.4 million,
recording year-over-year growth of 6.4%.
Bystolic, Forest Labs’ beta-blocker for the treatment of
hypertension, posted revenues of $90.6 million, up 33%. Savella,
which is approved for the management of fibromyalgia, posted
revenues of $26.3 million, up 6.9% from the year-ago period.
Revenues improved on a sequential basis as well.
Forest Labs’ new product, Teflaro, posted revenues of $6.5
million, up from $5.3 million in the second 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.
The company is targeting 2,200 key hospitals and hospital
systems. The Center for Medicaid and Medicare Services (CMS) has
added Teflaro to the Specifications Manual for National Hospital
Inpatient Quality Measures as a recommended initial antibiotic
(applicable to hospital discharges on or after January 1, 2012).
This should increase the use of Teflaro as a first-line agent,
particularly in community-acquired bacterial pneumonia.
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
$8.4 million (up from $1.2 million in the second quarter), Viibryd
(vilazodone HCl), approved for the treatment of major depressive
disorder (MDD) recorded revenues of $18.9 (up from $5.3 million in
the second quarter).
Contract revenue came in at $34.1 million, down from $46.8
million in the year-ago period. Benicar co-promotion income dropped
26.6% year-over-year to $31.4 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 are expected to decline in fiscal 2012.
Adjusted SG&A expense increased 38.6% to $396.1 million in
the reported quarter. Forest Labs continues to focus on promoting
its new products. Adjusted R&D spend increased 42% during the
quarter.
Ups Guidance
Forest Labs increased its earnings guidance for fiscal 2012 by
five cents. The company now expects earnings in the range of $3.65
- $3.75 per share, up from the earlier guidance of $3.60 to $3.70.
The Zacks Consensus Estimate for fiscal 2012 currently stands at
the lower end of the guidance range at $3.65 per share. With the
company delivering above expectations and increasing its guidance,
we expect upward revisions in earnings estimates.
Pipeline Update
The company provided an update on its pipeline and expects to
have two new products (linaclotide and aclidinium) in its marketed
product portfolio in calendar 2012.
Forest Labs and its partner, Ironwood
Pharmaceuticals, Inc. (IRWD) filed a new drug application
(NDA) for linaclotide. The companies 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 in June 2012.
Another candidate, aclidinium, is currently under regulatory
review. 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.
The company could be in a position to file for approval of two
more candidates in calendar 2012. Forest Labs intends to report
data on phase III candidate, cariprazine, for two indications --
schizophrenia and acute mania associated with bipolar I disorder --
in the first quarter of calendar 2012.
The company will also be reporting top-line results from an
ongoing phase III study for levomilnacipran for the treatment of
major depressive disorder. Positive results from all these studies
would allow Forest Labs to file for both candidates in the second
half of 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). The company is
facing a major patent cliff in March 2012 when lead product Lexapro
is slated to lose exclusivity. Moreover, Namenda will face generic
competition in early 2015 putting another $1+ billion at risk.
In such a scenario, the company is dependent on new products to
make up for a part of the loss of revenues that will take place
with the genericization of Lexapro. We were pleased to see an
improvement in new product sales in the reported quarter. We are
also encouraged by the company’s efforts to grow its pipeline
through in-licensing and acquisition activities.
FOREST LABS A (FRX): Free Stock Analysis Report
IRONWOOD PHARMA (IRWD): Free Stock Analysis Report
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