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Forest Laboratories, Inc. and partner Gedeon Richter Plc. suffered a regulatory setback with the FDA issuing a complete response letter (CRL) for their schizophrenia and bipolar mania candidate, cariprazine.

While the FDA agreed that cariprazine was effective in the treatment of schizophrenia and mania associated with bipolar disorder, the agency said that more information will be needed for approval. Importantly, the agency has asked for additional trial data.

Forest Labs and Gedeon Richter intend to meet with the FDA shortly to determine the path forward.

Forest Labs has been looking to replace revenues lost to generic competition by launching new products. While Lexapro started facing generics in Mar 2012, Namenda is slated to face generic competition from early 2015 putting $1+ billion of revenues at risk.

In such a scenario, the cariprazine CRL is disappointing. With the FDA asking for additional trial data, Forest Labs may be required to conduct an additional study which could push out the product approval and launch by anything ranging from a few months to more than a year. This would mean additional costs as well. At present, we have low visibility on the exact requirement and await an update on the same.

Forest Labs currently carries a Zacks Rank #2 (Buy). We believe the company will continue to pursue in-licensing deals and acquisitions to grow its pipeline.

Other stocks worth considering include Shire plc (SHPG - Analyst Report), Jazz Pharmaceuticals Public Limited Company (JAZZ - Analyst Report) and BioSpecifics Technologies Corp. . All three carry a Zacks Rank #1 (Strong Buy).

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