Forest Looks for a Spark

Call it a tale of two drug companies.

From early 1988 to early 2004, it was the best of times for Forest Laboratories (FRX Quote), whose stock price rose nearly 80-fold on a split-adjusted basis.

Since then, the times haven't been so good, as Forest's stock has lost about 43% of its value.

"At this point in time, Forest desperately needs a new drug to get investors excited," says Tim Anderson of Prudential Equity Group in a Thursday research report.

New York-based Forest relies heavily on licensing agreements and marketing deals with other drugmakers.

During the boom years, drugs such as the antidepressant Celexa propelled the stock. However, during the last two years, Forest has had mixed results. It has a big hit with Lexapro, a cousin of Celexa, but the latter's revenue has shriveled because of generic competition. Both are licensed from a Danish company.

Meanwhile, the painkiller Combunox is a disappointment, and clinical trials for an experimental Alzheimer's disease drug have failed so far. Attempts to secure government approval for expanded uses of Lexapro and Namenda, an Alzheimer's treatment, have been rebuffed. Namenda and the experimental compound are licensed from a German company.

The scariest item for investors and analysts is the upcoming March trial in which a generic company is trying to break Lexapro's U.S. patent. If Forest loses, its stock would be crushed. Lexapro achieved sales of $467.4 million for the quarter ended Sept. 30, or 63% of Forest's corporate revenue.

Anderson and other analysts say some good news may be on the way. Late Wednesday, Forest said it would license an experimental blood pressure drug, nebivolol, from Mylan Laboratories (MYL Quote).

Nebivolol received conditional approval from the FDA in May, but it's unclear how long it will take the companies to answer the agency's questions. Mylan says it will ask the FDA to approve nebivolol for treating congestive heart failure in the second half of this year.