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Forest Laboratories, Inc. (FRX - Analyst Report) reported first quarter fiscal 2014 earnings (excluding the impact of amortization and other one-time items) of 28 cents per share, flat from the year-ago period. Including the impact of amortization, first quarter fiscal 2014 earnings were 19 cents, a couple of cents below the year-ago earnings of 21 cents. The Zacks Consensus Estimate was 7 cents per share.

Including one-time items, first quarter fiscal 2014 earnings were 9 cents, well below the year-ago earnings of 21 cents.

First quarter revenues grew 1.4% to $832.9 million, with net sales increasing 6% to $796.9 million. Total revenues were well above the Zacks Consensus Estimate of $799 million.

The Quarter in Detail

First quarter product revenues increased 6% to $796.9 million. Performance was primarily driven by new products which posted sales of $294.1 million, up 47.8% from the year-ago quarter.

Namenda, which is approved for the treatment of moderate and severe Alzheimer’s disease, delivered revenues of $397.5 million, recording year-over-year growth of 7.9%. Namenda XR, which was launched in Jun 2013, delivered sales (initial trade stocking) of $14 million.

Namenda sales, which had improved in the fourth quarter of fiscal 2013, declined 9.4% on a sequential basis.

Lexapro sales continued to be negatively impacted by the entry of additional generics in the market following the expiry of the Hatch-Waxman six-month exclusivity period on Sep 13. Sales declined to $28.2 million from $110 million in the year-ago period.

Bystolic, Forest Labs’ beta-blocker for the treatment of hypertension, posted revenues of $126.0 million, up 16.8% 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 reported positive data from a phase III study on a fixed dose combination of Bystolic and valsartan for hypertension. The company intends to file for FDA approval of this combination in early calendar 2014. A fixed dose combination product would expand the patient population for Bystolic.

Savella, which is approved for the management of fibromyalgia, posted revenues of $25 million, down 6% 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 $14.2 million, slightly above $13.1 million posted in the fourth quarter of fiscal 2013. Teflaro’s performance continues to disappoint.

Two other new products, Daliresp and Viibryd, were launched in Aug 2011. While Daliresp, which is approved for the treatment of chronic obstructive pulmonary disease (COPD), recorded revenues of $24 million (up from $23.2 million in the fourth quarter of fiscal 2013), Viibryd, approved for the treatment of major depressive disorder (MDD), recorded revenues of $46.1 million (up from $44.6 million in the fourth quarter of fiscal 2013).

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 $15.9 million (up from $10.8 million in the fourth quarter of fiscal 2013), Linzess sales were $28.8 million (up from $4.5 million in the fourth quarter of fiscal 2013).

Forest Labs is looking to seek FDA approval for a fixed dose combination of Tudorza and formoterol for the treatment of patients with moderate to severe COPD by the end of calendar 2013.

Contract revenues came in at $31.9 million, down from $65.8 million in the year-ago period. Benicar co-promotion income declined 20.6% year-over-year to $28.1 million in first quarter fiscal 2014.

Adjusted SG&A expense increased 9.3% to $417.7 million in the reported quarter. Forest Labs continues to focus on promoting its new products. Adjusted R&D spend declined 14.2% during the quarter.

Our Take

Forest Labs’ first quarter fiscal 2014 results reflected the strong performance of some of its newly launched products especially Linzess as well as lower R&D spend. However, we were disappointed to see a sequential decline in Namenda sales.

Meanwhile, we remain encouraged by Forest Labs’ progress with its pipeline candidates. The company has launched several new products over the past couple of years and is looking to launch additional products going forward.

Forest Labs has two important regulatory events coming up – levomilnacipran (treatment of major depressive disorder) in the coming days and cariprazine (treatment of schizophrenia and acute mania associated with bipolar 1 disorder) later this year.

Forest Labs currently carries a Zacks Rank #3 (Hold). Currently, companies like Cadence Pharmaceuticals Inc. , Jazz Pharmaceuticals (JAZZ - Analyst Report) and Auxilium Pharmaceuticals (AUXL - Analyst Report) look well-positioned. While Cadence and Jazz are Zacks Rank #1 (Strong Buy), Auxilium is a Zacks Rank #2 (Buy) stock.

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