While Merck (NYSE:MRK) nurses a monster headache with the withdrawal of Vioxx from the marketplace, Forest Laboratories' (NYSE:FRX) antidepressant franchise is, well (yes, that too), anything but depressed.

Forest Labs is happily reporting that diluted earnings per share for the upcoming quarter will exceed consensus estimates by 20%. The news is lifting the stock 7%.

A rock-solid balance sheet is buoying the spirits of those buying Forest Labs. There is no debt and $1.8 billion in cash. And the $700 million the company has pumped out in free cash flow over the last year is cheering Foolish investors.

Back on the first day of September, Forest Labs' stock was ailing and reached a new 52-week low. At that time, the company announced unfavorable phase 3 trial results for its Alzheimer's drug. Remember, this analyst saw Forest Labs at "very reasonable price levels." Reasonable they were. The stock has soared 17% since then.

Forest Labs is extremely healthy. While operating margins are 16% at competitors Eli Lilly (NYSE:LLY) and 30% at GlaxoSmithKline (NYSE:GSK), Forest Labs has 37% margins. And, even after the run-up in the stock's price, it sells for a reasonable 22 times earnings -- far below the 29 multiple at Pfizer (NYSE:PFE).

The news is also good on the drug front. In July, the Food and Drug Administration approved Campral for treating alcohol dependence. The company is also seeking to use Lexapro, the high-selling antidepressant, to treat panic disorder.

Prior to this morning's earnings surprise, analysts were looking for current-year earnings of $2.49 a share. That values the stock at 19 times forward earnings -- hardly a huge multiple.

The pharmaceutical industry is under political assault for pricing, and that is depressing drug manufacturing stocks. With high margins and impressive free cash flow, Forest Labs is one manufacturer with the profits and the balance sheet to weather the storm and reward patient investors.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned. Is W.D. following Nancy Reagan's advice and saying no to drugs (at least the stocks)?