Forest Labs: Will You Invest In This Game Changer Antidepressant?

| About: Forest Laboratories, (FRX)
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Forest Laboratories (NYSE:FRX) has been on the lookout for a new antidepressant drug, fearing revenue loss due to patent expiration last year of Lexapro, its product for treatment of depression. July 26, 2013 marked the end of this search when it got FDA approval for Fetzima. In late stage clinical trials Fetzima achieved its primary endpoint by demonstrating "statistically significant and clinically meaningful improvement."

This article discusses the promise the drug holds for patients of depression in general and Forest Laboratories in particular.

About Fetzima

Fetzima is a serotonin and norepinephrine reuptake inhibitor ('SNRI) approved by the FDA for treatment of major depressive disorder ('MDD), the medical name for depression. Originally discovered by Pierre Fabre Laboratories of France, Forest Laboratories holds the license for selling it in the U.S. and Canada. It is to be delivered once daily as an extended release capsule containing the active pharmaceutical agent, levomilnacipran. It will have three doses, 40, 80 and 120 mg, to be prescribed according to specific requirements of the patient.

Fetzima is the fourth drug in its class of SNRI drugs and considered to be more potent than existing drugs. It was approved in France in 1996 but it is only now that it has been studied in the U.S.

Forest Labs - financials

Fetzima is the fourth drug in Forest Laboratories' portfolio of treatments for mental health after Lexapro, Celexa and Viibyrd, which came to it with the $1.2 billion acquisition of Clinical Data in 2011. Lexapro, which went off patent last year, is primarily used for treatment of MDD in adults and adolescents and GAD in adults.

The company reported a decline of 58% in earnings for the most recent quarter ended June 2013, despite a 6% increase in overall product sales -up $796.90 million from $751.80 in the same quarter prior year. Revenue loss due to generic competition on patent expiration of Lexapro was offset by increase of 47.8% in sales of next generation products. ViiBryd posted sales of $46.10 million, up 23.4% from the same quarter prior year.


Out of the large range of medications for treating different indications of depression, Fetzima is most likely to offer competition to Cymbalta and Pristiq.

Cymbalta is an Eli Lilly (NYSE:LLY) product approved for treatment of MDD in adults and also for GAD (generalized anxiety disorder), lower back and arthritic pain and nerve pain in diabetics. At 1.5 billion, the drug registered an increase of 22% in global sales in second quarter 2013. Cymbalta contributed $5.93 billion to Eli Lilly's total annual sales in 2012. Cymbalta goes off patent in December 2013, which could be one of the reasons why the company increased its price in the U.S.

Pristiq from Pfizer (NYSE:PFE) was approved for MDD in 2008 and is available in tablet form. The drug contributed $177 million to the company's Q2 2013 revenue of $12.97 billion - 12% more than the same period last year. In contrast to Cymbalta, overseas growth (26%) was more than growth in U.S. (10%).

Both Pfizer and Eli Lilly have strong bottom lines, are dividend paying companies and good stocks to include in any healthcare portfolio.

Market for Antidepressants

From 2004 to 2011, the market for antidepressants for all four depression indications, MDD, GAD (generalized anxiety disorder), OCD (obsessive compulsive disorder) and PD (personality disorder) increased at a compounded annual growth rate of 1.7% - from $10.5 billion to $11.9 billion. It is expected to grow at 1.8% and be worth $13.4 billion by 2018.

The exact cause of depression is still not known. However, there is a general increase in the incidence of the medical disorder indicated by the rising number of prescriptions. With most of the existing antidepressants going off patent, Fetzima's approval holds significant importance not only for the company but also for those who find the currently available medications ineffective.


The search for new antidepressants is primarily driven by, as Howard Solomon, Chairman and CEO of Forest Labs puts it, the fact that "people respond differently to different medications." While the large size of the market suggests that there is room for everyone, it depends upon how much market share Fetzima is able to grab from the other medications in the same class.

Cost would be a major issue particularly because of the presence of a fair number of generic options. It needs to be kept in mind that Fetzima has been approved on the basis of "significant improvement" as compared to placebo, which is the old approach. The FDA may not be interested but insurers, the payers are definitely interested in comparative studies and patient-reported outcomes.

Fetzima can prove to be a game changer provided it is proved to be a better treatment than existing cheaper options. Additionally, drugs currently being developed are taking a multi-targeted approach for treatment of all four indications of depression. Before putting a value to Fetzima, I would rather wait for results of comparative studies and/or approval for new indications.

Disclosure: I am long FRX, LLY, PFE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.