Forest Labs: Antidepressant Drug Lexapro Maintains Market Share

We do not consider Forest Laboratories' (FRX) reported loss for Q4 to be meaningful. This was expected; the charges relate to the acquisition of Cerexa. In January 2007, FRX acquired Cerexa for $494M in cash plus an additional $100M conditional payment. Putting the acquisition costs aside, FRX earned in Q4 FY2007 (ended March 2007) $0.74 per share. YOY revenue growth was spurred by the antidepressant Lexapro (+14%), Alzheimer's therapy Namenda (+24%) and smaller contributor Benicar (+54%).

Though the all important Lexapro competes against 37+ other antidepressants, FRX maintained a cheery 13+% market share.

Pipeline

As with all pharmaceutical companies, pipeline considerations influence stock valuation. Forest Labs is not in the same financial league as Merck (MRK) and therefore tends to team up with others, usually non major league players.

Lexapro and Namenda go off patent in 2012.

In the near term, FRX will most likely introduce in FY2008 Nibivolol (heart - beta blocker), licensed from Mylan Laboratories. In addition, phase III results are expected for Milnacipran (fibromyalgia), co-developed with Cypress Bioscience and Desmoteplase (ischemic stroke).

A bit further out is Faropenem, an enhanced antibiotic co-developed with Replidyne.

Further down the pipeline road are the three antibiotics under development at Cerexa. The most important (as of today) is Ceftaroline which is expected to enter phase III in FY2008.

EPS

Forest laboratories recently issued EPS guidance for FY2008 at $3.05 to $3.15 per share. There is no change to our FY2008 estimates at $3.15. CrossProfit EPS estimates include additional payment for Cerexa. Balance sheet remains strong with zero long term debt.

FRX 1-yr chart

Disclosure: No conflicts.

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2007 Jul 21 11:29 PM