This morning, Forest Laboratories, Inc. (FRX), reported earnings per share of 97 cents for the third quarter of fiscal 2010, well above the Zacks Consensus Estimate of 86 cents. Total revenues increased 6.7% to $1.06 billion with product revenues increasing 8.4% to $997 million.
Although Lexapro sales declined 0.5% to $582.6 million, Namenda, which is approved for the treatment of moderate and severe Alzheimer’s disease, delivered sales of $282.5 million, recording a growth of 17.3% from the year-ago period. Improved patient access and increased promotional efforts should help keep Namenda sales strong.
Bystolic, Forest’s beta-blocker for the treatment of hypertension, posted sales of $47.5 million. This was significantly higher than the year-ago sales of $21 million. Contract revenue, consisting primarily of Benicar co-promotion income, increased 6.5% to $55.8 million.
Forest’s most recent product launch, Savella, which is approved for the management of fibromyalgia, posted sales of $15.4 million. The product, which has been developed in collaboration with Cypress Biosciences (CYPB), was launched in late April 2009. We believe Savella may have multi-hundred million dollar potential.
Selling, general and administrative expense was $307 million, reflecting the company’s promotional activities in support of its currently marketed products, especially Savella. Research and development spending increased 22.9% during the quarter, excluding licensing payments.
Forest also provided an update on its pipeline and recent in-licensing activities. The company recently filed for US Food and Drug Administration (FDA) approval of ceftaroline, which is being developed for the treatment of patients suffering from complicated skin structure and skin infections (cSSSI), community acquired bacterial pneumonia (CABP) and for patients infected with methicillin-resistant Staphylococcus aureus (MRSA).
Forest also reported positive top-line results on three pipeline candidates: linaclotide (for chronic constipation), cariprazine (for the treatment of acute exacerbation of schizophrenia) and aclidinium (for the treatment of chronic obstructive pulmonary disease). Besides, the company is also pursuing in-licensing deals to expand its pipeline and recently announced two deals, including one with AstraZeneca (AZN).
Forest shares were up 2.7% following the release of third quarter results. While we are pleased with the company’s strong third quarter results, we remain concerned about longer-term growth at Forest, especially towards the beginning of the next decade when Lexapro is exposed to generic competition.
With Lexapro alone contributing more than 50% to the top-line, the entry of generic versions of the product in the next few years puts a lot of pressure on the pipeline to come through. We currently have a Neutral recommendation on Forest.
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