Sometimes bad things happen to good companies. Consider drug maker Forest Laboratories
After the market closed yesterday, the company announced that the phase 3 trials for its Alzheimer's drug Neramexane had not produced statistically significant results when used in combination with any of the three most widely prescribed Alzheimer's drugs. As bad as this news was, the company is not stopping phase 2/3 trials using Neramexane as a stand-alone drug for Alzheimer's.
Forest already has Namenda -- a drug that treats moderate to severe Alzheimer's disease (the same target as Neramexane). It had hoped that Neramexane would be another tool for doctors to use to slow the disease.
The Neramexane news sent Forest stock down 8% to a new 52-week low of $42 a share. Down from an all-time high of $78.81 in February, you have to wonder about the company's future. Or do you?
At the end of July, Forest received FDA approval for Campral to treat alcohol dependence. Forest is also seeking FDA approval on the supplemental use of Lexapro for panic disorder. A final FDA ruling may be coming in a few months.
So, on the drug front, there has been good news.
When compared with its peers, Forest looks extremely healthy. Its 37% operating margins far exceed the 16% margins at Eli Lilly
The real problem for Forest may be the political football that high health-care costs have become. The debate about importing drugs from Canada (and the industry's high profit margins) has cast a pall over the drug manufacturers.
For investors willing to take the political risk, today's drug news has taken a battered stock, with a great balance sheet, to very reasonable price levels.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.