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Forest Turns In Fairish Results

The company says fiscal-year results will be essentially in line with estimates.

Forest Laboratories


reported third-quarter earnings that dropped from the same period a year ago, but the results for the three months ended Dec. 31 were in line with analysts' estimates.

The New York-based drug company also said Tuesday that earnings for the fiscal year ending March 31 are on track to be around $2.30 a share, excluding one-time items. A tax benefit related to the repatriation of earnings from foreign subsidiaries will push the full-year EPS to $2.40.

Analysts polled by Thomson First Call had been forecasting $2.31 a share before items. Forest's estimate of $3 billion in fiscal-year revenue is in line with the Wall Street consensus.

Forest's stock responded erratically on heavy volume. By midafternoon, the stock was down 94 cents, or 2.1%, to $43.30.

For the third quarter, Forest earned $195.2 million, or 57 cents a share, on revenue of $757.8 million. That figure includes an upfront payment of 5 cents a share to a company for a research agreement. Forest didn't mention the payment in previous financial guidance comments.

The consensus among analysts predicted a third-quarter profit of 62 cents a share, excluding items. The analysts estimated third-quarter revenue at $762.1 million.

For the same period in 2004, Forest earned $260.8 million, or 70 cents a share, on revenue of $832.3 million.

The results were "less than stellar," says Timothy Chiang, a Natexis Bleichroeder analyst who issued a research report after Forest released its results. He doesn't own shares, and his firm doesn't provide stock ratings or have an investment banking relationship with the company.

"Overall impression: only an okay quarter," adds Tim Anderson of Prudential Equity Group in a report to clients. Anderson, who doesn't own shares, has an overweight rating on Forest. His firm doesn't have an investment banking relationship.

The decline in quarterly sales and earnings is primarily a result of the dramatic erosion in sales of the antidepressant Celexa caused by generic-drug competition. In the most recent quarter, Celexa produced only $4.8 million in sales vs. $133.5 million during the same period in 2004.

Celexa's sinking sales were partially offset by improved sales of the antidepressant Lexapro, which totaled $480.7 million vs. $427.1 million for the year-ago period, and the Alzheimer's disease drug Namenda, whose sales rose to $124 million from $100.6 million last year.

For the full fiscal year, Forest predicts Lexapro will produce $1.9 billion in sales and Namenda will contribute $500 million.

Kenneth E. Goodman, the company's president and chief operating officer, said generic competition to Celexa hasn't hurt sales of Lexapro, a cousin of the older drug. He said Lexapro sales should improve when


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loses U.S. patent protection on Zoloft later this year.

Responding to a question during a telephone conference call with analysts, Goodman said he doubted Lexapro would be affected by therapeutic substitution, that is, the practice of doctors switching patients from brand-name drugs to generics. Managed care companies put pressure on doctors to prescribe cheaper drugs when the firms assert that there's little or no difference among drugs except cost.

If a patient has been stabilized with one drug, physicians don't like to switch them to another drug, Goodman said. However, patients receiving antidepressants for the first time could be steered to generics, he added.

Goodman said there have been no discussions with



concerning the Miami-based company's challenge of Lexapro's U.S. patent. A trial is set for March 15, but some analysts predict the companies will settle the dispute.

Goodman said Forest has stopped using sales representatives to promote Combunox, a narcotic painkiller whose sales have been disappointing. It's hard to say why this drug performed poorly, said Goodman, adding that doctors appear satisfied with existing medications in this category.

The representatives are being reassigned to other products. At some point, they will be asked to promote the experimental blood-pressure drug nebivolol, which Forest recently licensed from

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Although the Food and Drug Administration

granted conditional approval for nebivolol in May, neither Mylan nor Forest has commented on when the drug might receive final approval.

During the second half of 2006, the FDA is expected to receive an application for nebivolol as a treatment for congestive heart failure. Goodman said Forest will launch the product when it receives FDA approval for hypertension rather than waiting for a review of the heart failure application.