Branded and generic drug maker Forest Labs (NYSE:FRX) will report Q3 2007 financial results on Tuesday, Jan. 16. Investors shouldn't have to reach for their medicine chest.

What analysts say:

  • Buy, sell, or waffle? There's a whole pharmacopeia of analysts covering Forest Labs, with 19 saying hold, 10 saying buy, and four diagnosing it as a sell.
  • Revenues. Revenues are expected to grow 12% to $834.9 million.
  • Earnings. Profits are also expected to rise, to $0.65 per share, a 14% increase over the year before.

What management says:
Last year marked the first year without Forest's popular antidepressant Celexa having exclusivity. Yet after a rocky start, revenues and earnings have grown to record levels because of Forest Labs' stable of other products, including Lexapro, which succeeded Celexa for depression treatment. Last October, Chairman and CEO Howard Solomon said, "We are very pleased with the continued strong performance of our key marketed products: Lexapro, Namenda and Benicar." Namenda is a treatment for Alzheimer's disease that competes directly with Eisai Pharmaceutical's Aricept, the top-prescribed treatment. Benicar is a treatment for high blood pressure. The strength of these drugs' performances, coupled with moving $43 million in milestone payments into 2007, allowed Forest Labs to increase earnings guidance to $2.60 to $2.65 per share for the fiscal year.

What management does:
Forest Labs has been able to maintain its gross margins, though having to account for stock-based compensation has hurt the company's operating and net margins, as have increases in research and development costs. The pharmaceutical has also had a number of generic challenges to its Lexapro drug, which is not scheduled to go off patent until 2012, and has generally been successful in defending it.

Margin %

09/05

12/05

03/06

06/06

09/06

Gross

78.0

77.7

77.6

77.8

77.7

Operating

33.2

30.9

28.2

28.4

29.1

Net

25.5

23.8

24.3

23.0

23.4

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Until recently, Forest Labs' Namenda was the only treatment prescribed for moderate to severe forms of Alzheimer's, enjoying ever-growing revenues as a result. However, last year Eisai's Aricept was also approved for such symptoms, making it the only drug proved for the entire spectrum of Alzheimer's symptoms. Forest Labs may begin to feel some pressure on sales in this field, though the company remains confident that revenues for the drug will continue to set new records.

With a triumvirate of popular drugs, Forest Labs has significant staying power for the time being, but it has also proved its willingness to acquire companies to bring new drug possibilities in-house. But at more than $51 per share, it's selling at 20 times 2006 earnings and 18 times trailing-12-month free cash flow. While it's not wildly expensive, Forest Labs doesn't look particularly cheap, either.

Competitors:

  • DOV Pharmaceuticals (NASDAQ:DOVP)
  • King Pharmaceuticals (NYSE:KG)
  • Teva Pharmaceuticals (NASDAQ:TEVA)
  • Mylan Labs (NYSE:MYL)
  • Par Pharmaceuticals (NYSE:PRX)
  • Watson Pharmaceuticals (NYSE:WPI)

Related Foolishness:

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Fool contributor Rich Duprey owns shares of Eisai, but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.