Forest Beats, But Maintains Guidance

Yesterday, Forest Labs (FRX) reported fiscal first quarter EPS of 87 cents per share, exceeding both our and the consensus forecast of 82 cents per share.  Total revenues came in $1,008.2 million, up 4.3% from the same period in 2009 and slightly above our forecast of $1,001 million. 

Product sales, which came in at $948.2 million, were just above our forecast mainly due to stronger-than-expected sales of Namenda and Savella.  Savella, which was launched recently, was off to a good start with sales coming in at $9.6 million.  Meanwhile, Lexapro sales were slightly lower-than-expected at $565.5 million.  Contract revenues also declined 11.9% to $47.7 million, mainly due to lower Benicar co-promotion income.

Net income totaled $262.9 million during the fiscal first quarter, up 8% year-over-year.  Net income exceeded our forecasts by $15 million thanks to lower-than-expected operating costs and a lower tax rate in the quarter. The company exited the reported quarter with approximately $3.4 billion in cash and marketable securities.

Although the results exceeded expectations, Forest maintained its financial guidance for 2010.  The company expects earnings in the range of $3.45 to $3.55 per diluted share on revenues of approximately $4.1 billion. This implies relatively flat EPS from fiscal 2009 and revenue growth of about 5%. 

Forest expects Lexapro to post flat sales growth in 2010 while Namenda sales are expected to grow 12%.  Management expects Savella to post sales of about $30 million in 2010 which is below our forecast - we expect Savella sales in the range of $35 million in fiscal 2010. 

EPS guidance is in-line with our expectations although we are at the high end of the range based on stronger sales of Savella and lower operating expenses.  We look for 2010 sales and EPS of $4.1 billion and $3.55, growth of 4.8% and 2.3%, respectively.

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