By Ransdell Pierson
Dec 2 Forest Laboratories Inc, which is
facing patent expirations on several of its biggest drugs, on
Monday said it plans to buy rights to a new schizophrenia
treatment from Merck & Co and cut annual operating costs
by $500 million in fiscal 2016.
The specialty drugmaker said it will acquire rights to the
oral drug, Saphris (asenapine), for an upfront payment of $240
million to Merck and additional payments on defined sales
milestones. The product, which was approved in 2009, is also
used to treat acute bipolar mania.
Saphris, with annual revenue of about $150 million, has been
a commercial disappointment for Merck. Earlier this year, Merck
took $330 million in write-offs on the drug due to reduced sales
expectations for it. Merck acquired the product through its
merger in 2009 with Schering-Plough Corp.
Forest Chief Executive Brent Saunders said his company plans
to ramp up sales of Saphris, using 250 sales representatives
dedicated to psychiatric products.
"We have almost double the number of reps that will focus on
this, compared to Merck," Saunders said in an interview on
Monday. But he declined to predict how greatly they could boost
Forest, whose shares rose almost 7 percent, said it would
issue $1 billion in new long-term debt through an offering of
eight-year senior unsecured fixed-rate notes. Proceeds from the
offering will also be used to fund share repurchases and for
general corporate purposes, the company said.
Forest said its board authorized up to $1 billion in
repurchases of its common stock, and the company would begin an
initial $400 million accelerated buyback program before the end
of the calendar year.
The moves come two months after Forest named Saunders, the
former head of eye-care products company Bausch & Lomb Inc, as
its chief executive. He replaced Howard Solomon, who had been at
the helm for more than 30 years.
Forest, which makes antidepressant Lexapro and Alzheimer's
treatment Namenda, said it plans to reduce operating expenses by
$500 million by the end of fiscal year 2016, compared with
expenses it expects to incur in 2014.
BOOSTING BOTTOM LINE
"Forest's operating expenses as a percentage of sales will
still likely be above industry averages by fiscal year 2016,
something we anticipate will be addressed over time through
either further cost restructuring opportunities or product
acquisitions," JP Morgan analyst Chris Schott said in a research
Even so, Schott said the $500 million in cost savings could
boost Forest's earnings per share by more than $1 in fiscal year
2016 and beyond. Analysts, on average, have been expecting
Forest to earn $1.09 per share in current fiscal year 2014 and
$1.68 per share in fiscal year 2015, excluding special items.
The company said about $270 million of the savings will come
from streamlining and realigning research and development, while
$150 million in savings will result from reduced marketing
expenses. Another $80 million in cost savings will come from a
reduction in general, administrative and other expenses.
Forest's sales and earnings have been hurt since Lexapro,
which once had annual sales of $2.3 billion, lost U.S patent
protection in March 2012 and was clobbered by cheaper generics.
And Namenda, meant to improve cognitive function in people with
Alzheimer's disease, loses patent protection in 2015. It has
annual sales of more than $1.5 billion.
The company is hoping that newer products, including a
longer-acting form of Namenda called Namenda XR that has been on
the market since 2010, will help cushion the blow once Namenda
faces generic competition.
The patent cliff, and whether Forest can rebuild a strong
pipeline of experimental drugs, has caused nervousness on Wall
Street. But company shares have jumped 55 percent this year, far
outpacing a 25 percent gain for the ARCA Pharmaceutical Index
, largely on hopes Saunders will buy lucrative new
products and maximize sales of existing drugs.
Forest had wrangled with billionaire investor Carl Icahn for
years and ultimately struck a deal with him last summer that
averted a proxy fight.
Saunders had been Bausch & Lomb's CEO from 2010 until
August. Previously, he held senior positions at Schering-Plough,
where he was considered a protege of that company's former chief
executive, Fred Hassan.
Canada's Valeant Pharmaceuticals International Inc
agreed to buy Bausch & Lomb for about $8.7 billion earlier this
Forest shares were up $3.42 at $54.73 on the New York Stock