Where would value hounds like me be if the stock market didn't routinely give us second chances at stocks we like? While investors obviously shouldn't buy into every stock drop, sometimes you get the chance to parlay short-term skepticism into longer-term opportunity -- which may be the case with Forest Labs (NYSE:FRX). Some may call this company a pharmaceutical, but I consider it a pharmaceutical development and marketing specialist.
Fiscal fourth-quarter results and future guidance were both a little softer than folks had wanted. Revenue climbed 16% in the period, as sales growth of 16% with Lexapro and 55% with Namenda offset the now-inconsequential contribution of Celexa. Gross margins eased off slightly, and year-over-year comparisons with operating and net income were significantly clouded by both large licensing payments (to Mylan (NYSE:MYL) and Replidyne) and a year-ago tax item.
Honestly, though, I'm far more interested in two different factors. First, will the company prevail in its patent litigation against Teva (NASDAQ:TEVA) concerning Lexapro? The answer to that question puts nearly half a billion dollars per quarter in question.
Second, what will become of Forest's newly recharged pipeline? While the FDA is requiring some additional studies on Nebivolol (the drug acquired from Mylan), they are not full-scale clinical studies, and approval could still come within the next 18 months. What's more, the company added yet another drug to its stable -- LAS34273 from Almirall. This drug has hundreds of millions of dollars' worth of potential as is, though it will compete with a compound marketed by Pfizer (NYSE:PFE). Potential combination products, which Forest will also have rights to, could conceivably someday challenge the GlaxoSmithKline (NYSE:GLX) blockbuster Advair.
With Forest Labs' stock having pulled back, it's now very close to a tantalizing price. I'm not thinking of pulling the trigger just yet (and Motley Fool rules mean I would have to wait at least ten days, anyway), but this is certainly one forest not to lose among the trees.
For more from the Foolish pharmacopoeia:
Pfizer is a Motley Fool Inside Value recommendation. GlaxoSmithKline is a Motley Fool Income Investor recommendation. Whatever your investing style, the Fool has a newsletter for you.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
