There wasn't much to complain about in Forest Labs'
Revenue for the fourth quarter increased 12%, with sales of depression drug Lexapro growing 9% and Alzheimer's drug Namenda gaining 26% year over year. Forest's income was up 18% year over year, excluding one-time charges from both quarters. Not bad at all, but investing is all about the future, and it looks like both top- and bottom-line growth won't be as good this year.
Part of the problem is that Forest's projected revenue growth for the new year will be relatively anemic at just 4%. That would be OK in an environment where it could keep spending down, but Lexapro and Namenda, which together made up a whopping 89% of Forest's revenue last quarter, will go off patent in 2012 and 2013, respectively. Because of the generic competition, Forest wants to double the potential market that its late-stage pipeline could reach by 2012. For this fiscal year that means a 27% increase in spending on research and development.
Selling, general, and administrative costs also will increase substantially. Lexapro and Namenda don't require a lot of free samples to get doctors to write prescriptions. However, it will take more of an effort to entice doctors to prescribe its newest offering, Bystolic, instead of other beta blockers that have been around a while, like generic versions of Wyeth's
Forest is doing its best not to make this race against the clock one that goes down to the wire. In October, it should hear from the Food and Drug Administration about its marketing application for minalcipran to treat fibromyalgia. That drug would compete in a fairly wide-open market against Pfizer's
Still, replacing more than $3 billion in revenue per year before Lexapro and Namenda go off patent isn't going to be easy. Expect these shares to trade at a deep discount to their peers until Forest shows it's up to the task.
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