Sunday, April 17, 2011

Forest Laboratories Inc. (NYSE: FRX): Q4 Earnings Preview 2011

Forest Laboratories Inc. (NYSE: FRX) is scheduled to release fiscal fourth-quarter earnings before the opening bell on Tuesday, April 19, 2011. Analysts, on average, expect the company to report earnings of $1.07 per share on revenue of $1.11 billion. In the year-ago period, the company reported earnings of 83 cents per share on revenue of $1.06 billion.

Forest Laboratories, Inc. develops, manufactures, and sells branded and generic forms of ethical drug products. The Company’s United States products are marketed directly, or detailed, to physicians by its salesforces. Its principal products include Lexapro to treat depression; Namenda to treat Alzheimer's disease; Bystolic, beta-blocker to treat hypertension; and Savella for the treatment of fibromyalgia.

In the preceding fiscal third-quarter, the New York-based company's net income was $320.71 million or $1.11 per share, compared with a profit of $210.23 million or $0.69 per share in the previous year. Excluding charges, adjusted earnings per share were $1.34, higher than $0.97 in the year-ago quarter. Revenue increased to $1.13 billion from $1.06 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 99 cents per share on revenue of $1.10 billion.

At its last earnings call in January, the company boosted its earnings outlook for the fiscal year ending March 31, 2011. The company said that it now expects adjusted earnings per share to be in the range of $4.20 to $4.30, up from the prior guidance range of $3.80 to $3.90 per share. Current fiscal earnings per share forecast exclude charges in the June quarter related to the settlement with United States Department of Justice and the upfront licensing payment to TransTech Pharma, excluding the upfront licensing payment to Gruenenthal in the fourth quarter, but including the impact of the accelerated share repurchase transaction.

Forest Laboratories is trying hard to come up with new drugs that can help replace lost revenue when its antidepressant drug Lexapro goes off patent in March 2012.  The drug generated $2.3 billion in revenue last year. Similarly, the company's Alzheimer's drug Namenda faces patent expiration in April 2015. According to IMS Health, Namenda had U.S. sales of $1.2 billion for the twelve months ended March 31, 2010. Once a drug loses its exclusivity, the field becomes open to generic drugmakers, who sell much more cheaply and typically take the majority of the market.

Last month, the company agreed to acquire specialty pharmaceutical company Clinical Data, Inc. for $1.2 billion to add to its portfolio of drugs to treat depression.  Forest expects the deal to leverage its existing presence in the antidepressant category by the addition of Clinical Data's Viibryd. Viibryd, or vilazodone HCL tablets, was developed by Clinical Data and approved by the FDA late January for the treatment of adults with MDD (major depressive disorder). Forest plans to launch Viibryd in the U.S. during the second half of 2011 and is expected to retain market exclusivity until March 2020.. In addition, the transaction brings to Forest, Stedivaze, a coronary vasodilator in Phase III development as a pharmacologic stress agent for radionuclide myocardial perfusion imaging or MPI. The deal is expected to be dilutive, net of synergies, to Forest's earnings per share for the next three fiscal years, with earnings per share dilution in the range of ($0.55) to ($0.65) in fiscal 2012. Forest said the transaction is likely to become accretive during fiscal 2014.  "We believe that we are uniquely positioned to bring Viibryd to market in light of our long and successful experience of clinical development and expertise in the antidepressant market," said Howard Solomon, Forest's chief executive. "This transaction is consistent with our strategy to acquire new products that will help offset the loss of revenues due to patent expiries."

The company's stock currently trades at a forward P/E (fye Mar 31, 2012) of 8.70 and PEG ratio (5 yr expected) of -3.08. In terms of stock performance, Forest Labs shares have lost nearly 3 percent over the past year.

Full Disclosure: None.
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