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Forest Labs and Glenmark Pharmaceuticals S.A, a wholly owned subsidiary of Glenmark Pharmaceuticals Limited India, recently signed a collaboration agreement. The companies will work on the development of novel mPGES-1 inhibitors for the treatment of chronic inflammatory conditions, including pain.

Potential candidates have already been identified by Glenmark. Glenmark is conducting pre-clinical studies with these candidates prior to the initiation of human studies.

Glenmark will receive an upfront payment of $6 million from Forest Labs. Moreover, Forest Labs will pay $3 million to fund the next phase of work. Additional payments will be made by Forest Labs in fiscal 2014 to support the development program. Once phase I development is completed, Forest Labs has an exclusive option to acquire licensing rights to the program.

With this deal, Glenmark is gaining a strong commercialization partner like Forest Labs. Meanwhile, the deal is in line with Forest Labs’ efforts to expand its pipeline. Forest Labs is facing tough times with Lexapro losing patent protection. Over the past few years, Forest Labs has been very active in signing in-licensing and partnership deals with the intention of expanding its pipeline. The company has licensing agreements with several companies like Almirall SA, AstraZeneca (AZN - Free Report) , and Ironwood Pharma (IRWD - Free Report) among others.

We currently have a Neutral recommendation on Forest Labs, which carries a Zacks #3 Rank (Hold). Following the release of second quarter results, Forest Labs once again cut its outlook for fiscal 2013. More than Lexapro’s genericization, the cut in Namenda’s guidance is disappointing as Namenda is currently the main contributor to the company’s top line. Moreover, the performance of new products especially Teflaro, has been below expectations. We note that Namenda will face generic competition in early 2015 putting another $1+ billion at risk.

Both Ironwood Pharma and AstraZeneca are Zacks #2 Rank (Buy) stocks.

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