Forest Isn't Out of the Woods

Forest Laboratories (FRX) posted higher fourth-quarter profit and sales than it had a year ago, but the New York-based drug company's shares were under pressure following the report.

Forest earned $91.9 million, or 28 cents a share, on revenue of $756.3 million for the three months ended March 31. For the same period last year, Forest earned $52.8 million, or 15 cents a share, with revenue of $618.3 million.

However, the stock lost $2.19, or 5.1%, to $41.12 by early afternoon, having fallen as low as $40.70.

"Overall, the quarter was disappointing," says analyst Gary Nachman of Leerink Swann. He maintained his market-perform rating in a research note issued after the quarterly results.

Sales of the antidepressant Lexapro were slightly below his estimate, and the earnings per share was 9 cents short of his prediction. He doesn't own shares, and his firm doesn't have an investment-banking relationship with Forest.

Nachman and other analysts focused their attention on Lexapro, which provided $464.1 million in sales for the fourth quarter, a 16% increase from the same period last year. Lexapro is Forest's biggest product.

Forest licenses the drug from Denmark's H. Lundbeck, and they are suing the former Ivax, now owned by Teva Pharmaceutical Industries (TEVA), for patent infringement. The U.S. trial was held in March, and Forest executives told analysts Tuesday they expect a decision in June or July.

Although Lexapro's sales were affected by discounts and inventory fluctuations, Nachman says "a number of clouds" hang over the drug, including the patent suit and generic competition.

Analysts are tracking how generic versions of Forest's Celexa, the older cousin of Lexapro, and of Pfizer's (PFE) Zoloft will affect Lexapro, as managed care companies try to steer patients to cheaper generics. Zoloft loses U.S. patent protection in late June.