Forest Laboratories, Inc. (FRX) recently received a boost with an advisory panel of the US Food and Drug Administration (FDA) voting in favor of approving its antibiotic candidate, ceftaroline.
Committee Unanimously in Favor of Approval
The FDA’s Anti-Infective Drugs Advisory Committee voted unanimously (21-0) in favor of approving the candidate for the treatment of community-acquired bacterial pneumonia (CABP). The committee also voted unanimously (18-0) in favor of approving ceftaroline for complicated skin and skin structure infections (cSSSI).
Final Decision in October
The favorable recommendation from the advisory panel is a major positive for Forest Labs. Although the FDA is not required to follow the panel’s recommendation, it usually does so. A final decision regarding the approvability of ceftaroline should be out in late October.
The approval of ceftaroline will be a huge boost for Forest Labs, which is facing a major patent cliff from 2012 when anti-depressant Lexapro loses exclusivity. Another key drug, Namenda, is slated to lose exclusivity in 2015. Forest Labs, therefore, needs new products in its portfolio which will help compensate the loss of revenues that will take place once these key drugs start facing generic competition.
Ceftaroline became a part of Forest Labs’ pipeline with its acquisition of Cerexa Inc. in Jan 2007. In addition to developing ceftaroline on its own, Forest Labs has an agreement with AstraZeneca (AZN) for the development of a ceftaroline in combination with a novel intravenous beta-lactamase inhibitor, NXL104.
Neutral on Forest Labs
We currently have a Neutral recommendation on Forest Labs, which is supported by a Zacks #3 Rank (short-term Hold rating). We remain concerned about the strength of the company’s pipeline relative to the loss in sales that will come with the Lexapro (2012) and Namenda (2015) patent expirations. With Lexapro losing patent protection in March 2012, roughly half the company’s top-line will be at risk to generic competition.
While Bystolic and Savella should be very meaningful contributors by that time, we believe that their combined sales will not be enough to compensate for the loss of Lexapro sales. Namenda will face generic competition in early 2015 — this puts another $1+ billion at risk.
Given the situation, we believe that Forest will continue to seek in-licensing and acquisition activities to grow its pipeline. In fact, the company’s goal is to double the commercial value of its late-stage pipeline by 2012 through in-licensing deals and acquisitions. Forest 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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