Forest Labs Beats Easily on 4Q Earnings - Analyst Blog

Forest Laboratories, Inc. FRX reported fourth quarter fiscal 2014 earnings (excluding the impact of amortization and other one-time items) of 87 cents per share, well above the year-ago earnings of 25 cents per share and the Zacks Consensus Estimate of 44 cents per share. Contribution from new products, the Aptalis acquisition and the Saphris deal boosted results.

Fourth quarter revenues grew 34.2% to $1,092.3 million, well above the Zacks Consensus Estimate of $997 million.

Full year earnings increased to $1.78 per share from 45 cents in fiscal 2013. The Zacks Consensus Estimate was $1.34 per share. Revenues increased 17.9% to $3,646.9 million, well above the Zacks Consensus Estimate of $3,552 million.

The Quarter in Detail

Fourth quarter product revenues increased 33.8% to $1.0 billion. Performance was primarily driven by new products which posted sales of $431.1 million, up 69.6% from the year-ago quarter. The Aptalis acquisition as well as the Saphris purchase boosted revenues.

Namenda, which is approved for the treatment of moderate and severe Alzheimer's disease, delivered revenues of $379.2 million, down13.6% from the year-ago quarter. Namenda XR, which was launched in Jun 2013, delivered sales of $72.5 million, up from $37.8 million in the third quarter. Forest Labs is focusing on switching patients to Namenda XR and will discontinue Namenda IR from Aug 15.

Meanwhile, Forest Labs is seeking approval for a fixed-dose combination of Namenda XR and Aricept. The approval of the fixed-dose combination would allow patients to take just one pill a day instead of three pills twice daily. The company is working on getting the combination approved and launched before Namenda IR goes generic in 2015.

Bystolic, Forest Labs' beta-blocker for the treatment of hypertension, posted revenues of $142.9 million, up 8.3% from the year-ago period. Forest Labs is looking to drive Bystolic's growth by providing additional data on the appropriate use of the product.

Forest Labs is also working on extending the product's lifecycle and is seeking FDA approval for a fixed dose combination of Bystolic and valsartan for hypertension. A fixed dose combination product would expand the patient population for Bystolic.

Savella, which is approved for the management of fibromyalgia, posted revenues of $24.6 million, down 6.0% from the year-ago period. Savella's performance remains lackluster.

Teflaro, launched in Mar 2011 for the treatment of patients suffering from acute bacterial skin and skin structure infection and community acquired bacterial pneumonia, posted revenues of $18.9 million, declining from $22.3 million posted in the third quarter.

Two other new products, Daliresp and Viibryd, were launched in Aug 2011. While Daliresp, approved for the treatment of chronic obstructive pulmonary disease (COPD), recorded revenues of $29.6 million (up 27.7% from the year-ago period), Viibryd, approved for the treatment of major depressive disorder MDD, recorded revenues of $52.8 million (up 18.4% from the year-ago period).

Two more products were launched in Dec 2012 – Tudorza (COPD) and Linzess (treatment of irritable bowel syndrome with constipation and chronic idiopathic constipation in adults). While Tudorza delivered sales of $25.3 million (up from $20.4 million in the third quarter), Linzess sales were $60.8 million (up from $51.0 million in the third quarter).

Fetzima, launched in Dec 2013 for the treatment of adults with major depressive disorder recorded sales of $3.7 million. Initial trade stocking was $8.0 million in the third quarter.

Saphris, a twice-daily atypical antipsychotic for the treatment of adults with schizophrenia or acute bipolar mania, was commercially re-launched by Forest Labs in Feb 2014. Sales were $27.9 million.

Products gained through the Feb 2014 Aptalis acquisition contributed $108.4 million to the top line.

Contract revenues came in at $44.0 million, up from $30.6 million in the year-ago period. Benicar co-promotion income grew 15.9% year-over-year to $28.4 million in fourth quarter fiscal 2014.

Adjusted SG&A expense remained flat at $646.7 million in the reported quarter. Forest Labs continues to focus on promoting its new products. Adjusted R&D spend declined 32% during the quarter.

To Acquire Furiex

Forest Labs, which is set to be acquired by Actavis plc ACT in mid-14, continues to focus on strengthening its gastrointestinal (GI) franchise. The company will be acquiring Furiex Pharmaceuticals, Inc. FURX which has a late-stage GI candidate, eluxadoline, in its pipeline. This is the second GI-focused deal to be announced by Forest Labs this year, the other being the Aptalis acquisition. The Furiex acquisition, which has been approved by Actavis, is slated to close in the second/third quarter of 2014.

Our Take

Forest Labs' fourth quarter results were impressive. The company continues to progress with its pipeline and the Furiex deal looks good - eluxadoline should be a strong addition to the company's GI franchise.

Forest Labs is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Salix Pharmaceuticals SLXP, a Zacks Rank #1 (Strong Buy) stock, and Actavis, a Zacks Rank #2 (Buy) stock.