Forest Laboratories Inc FRX.N, hit hard by generic rivals to its antidepressant Lexapro, posted a sharp drop in quarterly profit on Tuesday and forecast full-year results below analysts' estimates.
Shares slid about 3 percent. Forest Labs said price discounting on generic Lexapro was greater than expected. Sales of Lexapro, which lost patent protection in March, slid to $44.7 million in the second quarter, down 93 percent from a year ago.
Activist investor Carl Icahn has criticized Forest Labs as ill-prepared to generate new growth in the face of increasing competition for its top products.
The company also said sales of its Alzheimer's drug Namenda were weaker than expected as changing approaches to treating dementia patients in nursing homes reduced demand for Alzheimer's medications.
Cowen & Co. analysts cut their rating on Forest shares to neutral from outperform after the earnings release.
Leerink Swann analyst Seamus Fernandez called the quarter's results mediocre and the outlook disappointing.
"Today's results reinforce activist investors' position around Forest," Fernandez said in a note to clients.
In August, after a bitter proxy battle, Icahn secured one of four seats he had sought on Forest's board with the election of former drug executive Pierre Legault.
Forest Labs said it has five new products on the market that are showing strong growth and received regulatory approval for two new drugs during the quarter. Forest also has submitted an application seeking approval for a third new treatment and expects to submit an application for a fourth by year-end.
"We believe we are well on track to secure the sales and earnings to build long-term growth well into the future," Forest Chief Financial Officer Frank Perier said on a conference call with analysts.
Forest Labs now expects earnings per share, excluding special items, of 45 cents to 60 cents for the fiscal year ending March 31. Analysts had estimated earnings of 66 cents per share, according to Thomson Reuters I/B/E/S.
The company lowered its full-year growth outlook for sales of Namenda to 11 percent from the 17 percent increase it previously forecast.
Net income for the second quarter, ended September 30, fell to $20.8 million, or 8 cents per share, from $249.8 million, or 91 cents per share, a year earlier.
Excluding special items, the company earned 15 cents per share.
Analysts had expected a loss of 1 cent per share on revenue of $770.3 million, according to Thomson Reuters I/B/E/S.
Net sales in the quarter fell 38.8 percent to $692 million. Sales of Namenda rose 9.1 percent to $367.6 million. Lexapro sales dropped to $44.7 million from $596.1 million a year ago.
Sales of blood pressure drug Bystolic, rose 29.4 percent to $106.5 million.
Perier said Forest's focus on drugs prescribed in primary care settings sets it apart from other drugmakers, which are abandoning that approach due to a lack of new products.
"We continue to believe that we can generate significant growth in both sales and earnings over the next five years and can do it with the resources and the structure that we have in place," he told analysts.
The company received approval for two new drugs during the quarter: Tudorza, a long-acting inhaled treatment for COPD, and Linzess for irritable bowel syndrome and chronic constipation.
The company also submitted an application to U.S. regulators seeking approval for levomilnacipran, a treatment for major depression, and is on track to submit an application by the end of 2012 for schizophrenia treatment cariprazine. It hopes to launch those drugs in fiscal 2014 and said it expects to have 1,500 sales representatives supporting the rollout of each product.
Shares of Forest Labs fell $1.17, or about 3.2 percent, to close at $35.43 on the New York Stock Exchange.
(Reporting By Susan Kelly in Chicago and Pallavi Ail in Bangalore; Editing by Maju Samuel, Steve Orlofsky and David Gregorio)