Forest Isn't Out of the Woods

Profits and sales rise, but analysts worry about what the future holds for Lexapro.
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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) - Get Report

, 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) - Get Report

Zoloft will affect Lexapro, as managed care companies try to steer patients to cheaper generics. Zoloft loses U.S. patent protection in late June.

David Windley of Jefferies calls the quarterly results "partly sunny," with Lexapro falling below his forecast and Namenda rising above his prediction. Namenda, for moderate to severe Alzheimer's disease, is Forest's second-biggest seller. Fourth-quarter sales rose 55% to $93.9 million.

Windley has a hold rating on Forest. He owns shares, but his firm doesn't have an investment-banking relationship.

For the fiscal year ending next March, Forest projected revenue of just below $3.3 billion, which is in line with the consensus among analysts polled by Thomson First Call. The company expects earnings of $2.74 to $2.79 a share, excluding product-licensing payments and stock-options expensing. On a GAAP basis, the EPS range is $2.37 to $2.42. Because different analysts use different methods of calculating Forest's earnings per share, making a general comparison is difficult.

Forest also said the Food and Drug Administration is requiring

additional tests to support the company's application for nebivolol, a blood-pressure medication licensed from

Mylan Laboratories

(MYL) - Get Report

.

Kenneth Goodman, the president and chief operating officer, said the tests would take three to six months, pushing back the expected approval date. The company had believed the drug would be cleared by the end of the 2007 fiscal year. Forest plans to seek FDA approval for nebivolol as a treatment for congestive heart failure.