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Upbeat 2Q Earnings Report from Forest Labs

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Forest Laboratories, Inc. reported second quarter fiscal 2014 earnings (excluding the impact of amortization and other one-time items) of 36 cents per share, well above the year-ago earnings of 15 cents per share. Including the impact of amortization, second quarter fiscal 2014 earnings were 26 cents, above the year-ago earnings of 8 cents. The Zacks Consensus Estimate was 14 cents per share.

Second quarter revenues grew 12.4% to $855.3 million, with net sales increasing 17.3% to $811.4 million. Total revenues were well above the Zacks Consensus Estimate of $829 million.

The Quarter in Detail

Second quarter product revenues increased 17.3% to $811.4 million. Performance was primarily driven by new products which posted sales of $303 million, up 49.9% from the year-ago quarter.

Namenda, which is approved for the treatment of moderate and severe Alzheimer’s disease, delivered revenues of $396.3 million, recording year-over-year growth of 7.8%. Namenda XR, which was launched in Jun 2013, delivered sales of $11.5 million.

Bystolic, Forest Labs’ beta-blocker for the treatment of hypertension, posted revenues of $130.0 million, up 22.1% 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. A fixed dose combination product would expand the patient population for Bystolic.

Savella, which is approved for the management of fibromyalgia, posted revenues of $23.5 million, down 10.4% 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 $14.9 million, slightly above $14.2 million posted in the first quarter. 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 $24.5 million (up 25.4% from the year-ago period), Viibryd, approved for the treatment of major depressive disorder (MDD), recorded revenues of $47.4 million (up 18.9% from the year-ago period).

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 $16.7 million (up from $15.9 million in the first quarter), Linzess sales were $34.4 million (up from $28.8 million in the first quarter).

Contract revenues came in at $36 million, down from $54.3 million in the year-ago period. Benicar co-promotion income grew 15.9% year-over-year to $35 million in second quarter fiscal 2014.

Adjusted SG&A expense increased 8.2% to $393.7 million in the reported quarter. Forest Labs continues to focus on promoting its new products. Adjusted R&D spend declined 5.7% during the quarter. Forest Labs expects to spend about $800 million on R&D this year.

Guidance Updated

Forest Labs is now guiding towards fiscal 2014 earnings of 95 cents - $1.15 per share. Earlier this year, at the time of releasing fourth quarter fiscal 2013 results, the company had guided towards fiscal 2014 earnings of 80 cents - $1.00 per share. The Zacks Consensus Estimate currently stands at 96 cents per share, towards the lower end of the new guidance range.

Our Take

Forest Labs’ second quarter fiscal 2014 results reflected the strong performance of some of its newly launched products as well as lower R&D spend. With the company raising its guidance and reporting better-than-expected results, shares were up in pre-market trading. 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 currently carries a Zacks Rank #3 (Hold). At present, companies like Roche (RHHBY - Free Report) , Bayer (BAYRY - Free Report) and GlaxoSmithKline (GSK - Free Report) look well-positioned. While Roche is a Zacks Rank #1 (Strong Buy) stock, Glaxo and Bayer are Zacks Rank #2 (Buy) stocks.

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