For some reason, most pharmaceutical investors never seem to have much enthusiasm for Forest Laboratories (NYSE:FRX). Maybe it's because Forest's drugs aren't sexy biologics or aren't used to treat diseases like cancer. Yet Forest is extremely well run, and its management has shown an ability to overcome numerous obstacles over the past two years.

Yesterday, Forest announced fiscal 2007 second-quarter results that looked pretty good, but the big story of the quarter has been its courtroom victory over Teva Pharmaceuticals (NASDAQ:TEVA), a win that affirmed the validity of the company's patents on its lead anxiety and depression treatment, Lexapro. Forest will keep its sales exclusivity on the drug until 2012 as a result. That's a big deal, since the company derived nearly 62% of its revenues for the third quarter from Lexapro.

For the second quarter, meanwhile, revenues climbed 15% to $847 million and net income increased 18% to $241 million, for earnings growth of a robust 27% to $0.75 a share over last year helped along by copious amounts of share buybacks. It also helped that sales of all three of Forest's key drugs -- Lexapro, Namenda for treating Alzheimer's disease, and anti-hypertension drug Benicar -- were up nicely.



Year-Over-Year Growth


$523 million



$156 million



$48 million


Perhaps the greatest thing about this quarter for Forest is that it was able to maintain its earnings growth and increase its net margins by nearly 70 basis points even in the face of 43% higher R&D spending. And with seven phase 2 and phase 3 trials currently running, Forest is bound to have a few winning compounds come out of the clinic, so all of this extra R&D spending should pay off down the road.

Forest also raised its guidance for earnings per share to come in at $2.60-$2.65 for the year, which would be roughly a 26% increase over its fiscal 2006 earnings of $2.08 a share. This will happen even though Forest has been devastated by generic competition for its anti-depression drug Celexa.

Trading at roughly 20 times its forward earnings guidance even with a much higher level of R&D spending, Forest is a company that investors shouldn't lose sight of amidst the rest of the trees.

Try out any of our investing newsletter services free for 30 days.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .