UPDATE 3-Forest outlook sluggish, shares decline
(Adds company comments, details, byline, updates shares)
By Lewis Krauskopf
NEW YORK, April 15 (Reuters) - Forest Laboratories Inc (FRX.N) posted a better-than-expected profit on Tuesday, but shares fell 8 percent as the mid-sized drugmaker projected only slightly higher fiscal-year earnings on disappointing revenue.
Forest also forecast sharply higher spending on research and development as it tries to improve its product line ahead of losing exclusive U.S. rights to its two biggest drugs early next decade.
"I thought there was more earnings power that the company was going to show in fiscal '09, and I would say that is pretty disappointing," Leerink Swann analyst Gary Nachman said.
The New York-based company projected fiscal-year earnings of $3.10 to $3.20 per share, up only slightly over the $3.06 it posted for its 2008 fiscal year.
It projected revenue up nearly 4 percent, to about $3.99 billion, short of the $4.16 billion expected by analysts on average, according to Reuters Estimates.
Nachman, who expected earnings of $3.55 per share for 2009, said the prime reason for the shortfall was lower-than-expected sales of Forest's new hypertension treatment, Bystolic. Forest projected $60 million in sales, while Nachman expected $150 million.
The drugmaker reported a fiscal fourth-quarter profit of $172.8 million, or 55 cents per share. That compared with a net loss of $237.9 million, or 75 cents per share, a year ago, when Forest took a big charge for an acquisition.
Excluding a 35-cent per-share charge for a licensing payment, earnings of 90 cents were 12 cents ahead of the average estimate from analysts, according to Reuters Estimates.
Revenues for the quarter rose 12 percent to $990.9 million. Sales of the anti-depressant Lexapro rose 9 percent to $577.2 million. Sales of Alzheimer's treatment Namenda climbed 26 percent to $179.7 million.
Forest projected Lexapro sales rising about 4 percent in the fiscal year to about $2.4 billion. While the company forecast a 2 percent increase in prescriptions for the overall antidepressant market, it said Lexapro's prescription share would shrink slightly.
Like many large drugmakers, patent expirations cast a cloud over Forest's prospects. Lexapro and Namenda are both expected to lose U.S. patent protection early next decade, leading to competition from low-cost generic drugs that will leave a huge hole in the company's revenue.
"Our first priority remains to provide for the future growth of the company's revenue beyond this period," Chief Operating Officer Lawrence Olanoff told analysts and investors on a conference call.
To respond, Forest has been seeking deals to boost its experimental product line as well as advancing its experimental medicines toward the market. Olanoff called fiscal 2009 a "significant investment year."
Forest projected a 27 percent jump in research and development spending to $625 million for the fiscal year, as it invests in five late-stage projects. Important data is expected later this year for drugs for hospital infections and chronic obstructive pulmonary disease.
Sales, general and administrative spending is expected to rise about 12 percent, Forest said, as it markets Bystolic and plans to launch milnacipran for the pain condition fibromyalgia.
"Even with a lower top line than what people expected the expense levels are still pretty robust," Nachman said. "They have to do it. Strategically it's the right decision, and they're willing to take the pain in the earnings in the near term."
Shares fell $3.20 to $36.60 in morning trading on the New York Stock Exchange. Tuesday's fall means the stock price is largely unchanged for 2008. (Reporting by Lewis Krauskopf; Editing by Derek Caney)
