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Forest Labs (NYSE:FRX) is set to announce its first quarter fiscal 2012 results on July 19. The Zacks Consensus Estimate for the first quarter is 96 cents, a penny above the year-ago earnings of 95 cents.

Fourth Quarter Fiscal 2011 Highlights

Forest Labs reported strong earnings in the fourth quarter of $1.12, easily beating the Zacks Consensus Estimate of $1.08 and the year-earlier earnings of 83 cents. Strong Namenda sales, lower R&D expenses and lower share count boosted earnings.

Total revenues increased 7.8% to $1.14 billion with net sales increasing 9.7% to $1.09 billion. Total revenues topped the Zacks Consensus Estimate of $1.10 billion.

While Lexapro revenues increased 6.9% to $594.8 million, Namenda, which is approved for the treatment of moderate and severe Alzheimer’s disease, delivered sales of $329 million, recording a growth of 10.5% from the year-earlier period.

Improved patient access and increased promotional efforts should help keep Namenda sales strong. Moreover, Forest Labs gained FDA approval in June 2010 for Namenda XR, a 28 mg once-daily extended-release formulation. Namenda XR received approval for the treatment of moderate to severe dementia of the Alzheimer’s type.

Bystolic, Forest Labs’ beta-blocker for the treatment of hypertension, posted sales of $73.1 million, up 37.7%. Savella, which is approved for the management of fibromyalgia, posted sales of $23.7 million, up significantly from the year-earlier sales of $17.4 million.

With Lexapro slated to lose exclusivity on March 14, 2012, Forest Labs provided much-awaited guidance for fiscal 2012. The company expects earnings in the range of $3.60 to $3.70 on total revenues of $4.5 billion (up 3%). Net sales are expected to grow 4.5% to $4.4 billion in fiscal 2012. Lexapro sales are expected to decline 10% to just over $2 billion in fiscal 2012.

Agreement of Estimate Revisions

Over the past seven days, only one of the 25 analysts following Forest Labs reduced an estimate for the first quarter with no movements in the opposite direction. Over the past 30 days, only one analyst raised estimates for the first quarter as well as for fiscal 2012. Only one analyst pulled back for the first quarter in the past 30 days.

Magnitude of Revisions and Earnings Surprise

The magnitude of revisions is negligible over the past 30 days for the first quarter as well as for fiscal 2012. The Zacks Consensus Estimate for the first quarter currently stands at 96 cents. Forest Labs has exceeded expectations over the past four quarters with an average earnings surprise of 13.9%.

For the first quarter, Forest Labs is expected to deliver a positive earnings surprise of 4.17%. Forest Labs will continue repurchasing shares in fiscal 2012, which should drive the bottom line. The company has authorization to purchase an additional 38.8 million shares.

Recommendation

We currently have a Neutral recommendation on Forest Labs, which carries a Zacks #3 Rank (short-term “Hold” rating). While products like Namenda, Bystolic and Savella should continue performing well, we remain concerned about long-term growth at Forest Labs, especially from 2012 when Lexapro is exposed to generic competition. That puts a lot of pressure on the pipeline to come through.

Source: Forest Labs Earnings Preview