Forest Laboratories, Inc. Reports Fiscal Year Second Quarter 2014 Diluted Earnings Per Share Of $0.26 Including Effect Of $0.10 Per Share Of Acquisition Amortization

Forest Laboratories, Inc. (NYSE:FRX), an international pharmaceutical manufacturer and marketer, today announced that reported diluted earnings per share equaled $0.26 in the second quarter of fiscal 2014. Reported diluted earnings per share in the second quarter of fiscal 2013 were $0.08. Excluding acquisition related amortization and specified items, non-GAAP EPS in the second fiscal quarter of 2014 equaled $0.36 compared with $0.15 per share in the second quarter of fiscal 2013.

Chief Executive Officer and President

"There is rejuvenation underway at Forest as we return to growth. We have a motivated and talented workforce, we are launching new products and we are developing new drugs to drive future growth. This quarter sales increased 17% and non-GAAP earnings per share more than doubled," said Brent Saunders, CEO & President. "To make Forest more relevant to all of our key stakeholders - customers & patients; owners; partners and colleagues - we are conducting a thorough review of our business operations and evaluating changes to our strategy."

Product Sales Performance

Net sales for the quarter increased 17.3% to $811.4 million, from $692.0 million in the prior year quarter. The increase in sales was driven by sales of the Company’s next generation products which totaled $303.0 million, an increase of 49.9% compared with the second quarter of fiscal 2013. Namenda franchise sales increased $40.3 million or 11.0% compared with the second quarter of fiscal 2013.

Central Nervous System Franchise
  • Namenda® (memantine HCl), an NMDA receptor antagonist for the treatment of moderate to severe Alzheimer’s disease, recorded sales of $396.3 million during the quarter, an increase of 7.8% from last year’s second quarter. Namenda XR™ (once-daily memantine HCl), recorded sales of $11.5 million during the quarter. Namenda XR was launched in June 2013 and recorded sales of $14.0 million during the fiscal 2014 first quarter. Pursuant to the requirements of a Pediatric Written Request from the FDA, the Company has conducted clinical studies to evaluate the safety and effectiveness of memantine in the treatment of autism.
  • Viibryd® (vilazodone HCl), a selective serotonin reuptake inhibitor (SSRI) and a partial agonist at serotonergic 5-HT 1A receptors for the treatment of adults with major depressive disorder, recorded sales of $47.4 million during the quarter, an increase of 18.9% from last year’s second quarter.

Respiratory Franchise
  • Daliresp® (roflumilast), a PDE4 enzyme inhibitor for the treatment to reduce the risk of exacerbations in patients with chronic obstructive pulmonary disease (COPD), recorded sales of $24.5 million for the quarter, an increase of 25.4% from last year’s second quarter.
  • Tudorza® (aclidinium bromide inhalation powder), an anticholinergic indicated for the long-term maintenance treatment of bronchospasm associated with COPD, recorded sales of $16.7 million during the quarter. Tudorza was launched in December 2012 and recorded sales of $15.9 million during the fiscal 2014 first quarter.

Bystolic® (nebivolol), a beta-blocker for the treatment of hypertension, recorded sales of $130.0 million, an increase of 22.1% over the year-ago period.

Linzess ® (linaclotide), a guanylate cyclase agonist for the treatment of both irritable bowel syndrome with constipation and chronic idiopathic constipation in adults, recorded sales of $34.4 million during the quarter. Linzess was launched in December 2012 and recorded sales of $28.8 million during the fiscal 2014 first quarter.

Savella® (milnacipran HCl), a selective serotonin norepinephrine dual reuptake inhibitor for the management of fibromyalgia, recorded sales of $23.5 million, a decrease of 10.4% from last year’s second quarter.

Teflaro® (ceftaroline fosamil), a broad-spectrum bactericidal cephalosporin antibiotic for the treatment of adults with community-acquired bacterial pneumonia and with acute bacterial skin and skin structure infections, recorded sales of $14.9 million, an increase of 48.9% over last year’s second quarter.

Contract Revenue was $36.0 million in the current quarter compared to $54.3 million in the prior year second quarter. Benicar® (olmesartan medoxomil) co-promotion income totaled $35.0 million, an increase of $4.8 million, compared to $30.2 million in last year’s second quarter. Per the agreement with Daichi Sankyo, Forest’s active co-promotion of Benicar ended in the first quarter of fiscal 2009 and the Company receives a residual royalty until the end of March 2014. Last year’s second quarter also included $22.7 million in royalties from Mylan, Inc. on its sales of generic Lexapro.

Cost of Sales as a percentage of sales was 20.2% compared with 21.6% in last year’s second quarter.

Selling, General and Administrative expense for the current quarter was $408.6 million as compared to $374.9 million in the year-ago quarter. The current level of spending reflects the resources and activities required to support our currently marketed products, particularly our newest products: Namenda XR, Linzess, Tudorza, Viibryd, Daliresp and Teflaro.

Research and Development for the current quarter was $191.4 million compared with $202.8 million in last year’s second quarter. The current quarter included $10.0 million in development milestone expenses. There were no development milestone payments in the prior year quarter.

Income Tax Expense for the quarter was $21.6 million, reflecting a quarterly effective tax rate of 23.6%.

Reported Net Income for the quarter ended September 30, 2013 was $70.0 million or $0.26 per diluted share compared to $20.8 million or $0.08 per diluted share reported for last year’s second quarter.

Diluted Weighted Average Shares Outstanding at September 30, 2013 were approximately 270,825,000.

Six Month Results

Revenues for the six months ended September 30, 2013 increased 6.7% to $1,688.2 million compared to $1,581.8 million in the prior year.

Net income for the six months ended September 30, 2013 increased 22.6% to $93.3 million compared to $76.1 million in the prior year six month period. Reported diluted GAAP earnings per share increased 25.0% to $0.35 per share in the current year’s six months as compared to diluted earnings per share of $0.28 per share in last year’s six months.

Fiscal 2014 Guidance

The Company now expects that Non-GAAP earnings per share for the fiscal year ending March 31, 2014 will be in the range of $0.95 to $1.15. Research and development spend is now expected to be approximately $800 million for the year.

Use of Non-GAAP Financial Information

Forest provides non-GAAP financial measures as alternative views of the Company’s performance. These measures exclude certain items (including costs, expenses, gains/(losses) and other specified items) due to their significant and/or unusual individual nature and the impact they have on the analysis of underlying business performance and trends. Management reviews these items individually and believes excluding these items provides information that enhances investors’ understanding of the Company’s financial performance. Non-GAAP financial measures should be considered in addition to, but not in lieu of, net income and EPS prepared in accordance with accounting principles generally accepted in the United States (GAAP). Non-GAAP financial measures have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, Non-GAAP adjusted income and its components and EPS (unlike GAAP net income and its components and EPS) may not be comparable to the calculation of similar measures of other companies. Non-GAAP adjusted income and its components and EPS are presented solely to permit investors to more fully understand how management assesses performance. A reconciliation between GAAP financial measures and non-GAAP financial measures is as follows:
 

FOREST LABORATORIES, INC. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION
 
Forest Laboratories, Inc.
Specified Items
For the Three and Six Months Ended September 30, 2013 and 2012

 
           
Three Months Ended Six Months Ended
September 30, September 30,
(In thousands) 2013       2012 2013       2012
 

Amortization arising from business combinations and

acquisitions of product rights
$11,701 $8,926 $23,747 $17,784
Impact of specified items on Cost of goods sold 11,701 8,926 23,747 17,784
 

Amortization arising from business combinations and

acquisitions of product rights
14,913 10,966 28,937 21,905
Write-off of Nabriva note receivable -- -- 26,182 --

Impact of specified items on Selling, general and

administrative
14,913 10,966 55,119 21,905
 
Increase to pre-tax income 26,614 19,892 78,866 39,689
 
Income tax impact of specified items -- -- -- --
 
Increase to net earnings $26,614 $19,892 $78,866 $39,689
 
 
Forest Laboratories, Inc.
Reconciliation of Certain GAAP Line Items to Non-GAAP Line Items
For the Three and Six Months Ended September 30, 2013 and 2012
                 
Three Months Ended
September 30, 2013
(In thousands)

GAAP Reported
     

Specified Items
     

Non-GAAP Adjusted
 
Gross profit $ 691,537 $ 11,701 $ 703,238
Selling, general and administrative 408,564 14,913 393,651
Research and development 191,358 191,358
Earnings before provision for taxes 91,615 26,614 118,229
Provision for taxes 21,628 21,628
Earnings after provision for taxes $ 69,987 $ 26,614 $ 96,601
Weighted average number of shares outstanding: 270,825 270,825
 

 

Three Months Ended
September 30, 2012
(In thousands)

GAAP Reported

Specified Items

Non-GAAP Adjusted
 
Gross profit $ 610,914 $ 8,926 $ 619,840
Selling, general and administrative 374,889 10,966 363,923
Research and development 202,839 202,839
Earnings before provision for taxes 33,186 19,892 53,078
Provision for taxes 12,409 12,409
Earnings after provision for taxes $ 20,777 $ 19,892 $ 40,669
Weighted average number of shares outstanding: 267,169 267,169
 

 

 

Six Months Ended
September 30, 2013
(In thousands)

GAAP Reported

Specified Items

Non-GAAP Adjusted
 
Gross profit $ 1,359,105 $ 23,747 $ 1,382,852
Selling, general and administrative 852,427 55,119 797,308
Research and development 376,782 376,782
Earnings before provision for taxes 129,896 78,866 208,762
Provision for taxes 36,631 36,631
Earnings after provision for taxes $ 93,265 $ 78,866 $ 172,131
Weighted average number of shares outstanding: 269,634 269,364

 
Six Months Ended
September 30, 2012
(In thousands)

GAAP Reported

Specified Items

Non-GAAP Adjusted
 
Gross profit $ 1,263,818 $ 17,784 $ 1,281,602
Selling, general and administrative 757,198 21,905 735,293
Research and development 398,005 398,005
Earnings before provision for taxes 108,615 39,689 148,304
Provision for taxes 32,553 32,553
Earnings after provision for taxes $ 76,062 $ 39,689 $ 115,751
Weighted average number of shares outstanding: 268,092 268,092
 
 
Forest Laboratories, Inc.
Reconciliation of GAAP EPS to Non-GAAP EPS
For the Three and Six Months Ended September 30, 2013 and 2012
 
        Three Months Ended       Six Months Ended
September 30, September 30,
(In thousands, except per share amounts) 2013       2012 2013       2012
 
Reported Net income: $ 69,987 $ 20,777 $ 93,265 $ 76,062
Specified items net of tax:

Amortization arising from business

combinations and acquisitions of product rights
Recorded in Cost of sales 11,701 8,926 23,747 17,784
Recorded in Selling, general and administrative 14,913 10,966 28,937 21,905
 
Write-off of Nabriva note receivable 26,182
 

Impact of specified items on provision for

income taxes
               
Adjusted Non-GAAP earnings: $ 96,601 $ 40,669 $ 172,131 $ 115,751
 
Reported Diluted earnings per share: $ 0.26 $ 0.08 $ 0.35 $ 0.28
Specified items net of tax:

Amortization arising from business combinations
and acquisitions of product rights
Recorded in Cost of sales 0.04 0.03 0.09 0.07
Recorded in Selling, general and administrative 0.06 0.04 0.11 0.08
 
Write-off of Nabriva note receivable 0.10
 

Impact of specified items on provision for

income taxes
 
Rounding       (0.01)  
Adjusted Non-GAAP earnings per share $ 0.36 $ 0.15 $ 0.64 $

0.43
 
 

FOREST LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
           
Three Months Ended Six Months Ended
(In thousands, except per share amounts) September 30, September 30,
2013       2012 2013       2012
 
Revenues:
Net sales $ 811,429 $ 692,017 $ 1,608,282 $ 1,443,783
Contract revenue 36,025 54,277 67,943 120,112
Interest and other income   7,801   14,343   11,965   17,869
Net revenues   855,255   760,637   1,688,190   1,581,764
 
 
Costs and expenses:
Cost of sales 163,718 149,723 329,085 317,946
Selling, general and administrative 408,564 374,889 852,427 757,198
Research and development   191,358   202,839   376,782   398,005
  763,640   727,451   1,558,294   1,473,149
 
Income before income tax expense 91,615 33,186 129,896 108,615
Income tax expense   21,628   12,409   36,631   32,553
Net income $ 69,987 $ 20,777 $ 93,265 $ 76,062
 
Net income per common share:
 
Basic $ 0.26 $ 0.08 $ 0.35 $ 0.28
Diluted $ 0.26 $ 0.08 $ 0.35 $ 0.28
 
Weighted average number of common
shares outstanding:
 
Basic 268,540 266,503 267,831 267,447
Diluted 270,825 267,169 269,634 268,092
 

Forest will host a conference call at 10:00 AM EST today to discuss the results. The conference call will be webcast live beginning at 10:00 AM EST on the Company’s website at www.frx.com. Please log on to the website at least fifteen minutes prior to the conference call as it may be necessary to download software to access the call. A replay of the conference call will be available until November 22, 2013 and also by dialing (800) 283-8183 (US or Canada) or +1 (402) 220-0867 (international), Conference ID: FRXQ214.

About Forest Laboratories and Its Products

Forest Laboratories' (NYSE:FRX) longstanding global partnerships and track record developing and marketing pharmaceutical products in the United States have yielded its well-established central nervous system and cardiovascular franchises and innovations in anti-infective, respiratory, gastrointestinal and pain management medicine. Forest’s pipeline, the most robust in its history, includes product candidates in all stages of development across a wide range of therapeutic areas. The Company is headquartered in New York, NY. To learn more, visit www.FRX.com.

Except for the historical information contained herein, this release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks and uncertainties, including the difficulty of predicting FDA approvals, the acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, the timely development and launch of new products, and the risk factors listed from time to time in Forest Laboratories’ Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and any subsequent SEC filings. Forest assumes no obligation to update forward-looking statements contained in this release to reflect new information or future events or developments.

Copyright Business Wire 2010

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