Forest: All Eggs in Two Psychiatric Baskets

More from Bloomberg: “Forest Laboratories Inc. said fiscal second-quarter profit increased 18 percent on demand for its two biggest-selling medicines.

Net income for the quarter ended Sept. 30 rose to $241.1 million, or 75 cents a share, from $204.9 million, or 59 cents, a year earlier, reflecting sales of the Lexapro antidepressant and Namenda for Alzheimer's disease, New York-based Forest said today in a statement. The profit beat analysts' estimates.

Sales jumped 12 percent for Lexapro and 26 percent for Namenda, and the two drugs accounted for 80 percent of Forest's revenue for the quarter, the company said. Forest is developing and licensing new drugs to reduce its reliance on Lexapro and Namenda.

``The issue for Forest is, can the company sustain this kind of growth?'' said Timothy Chiang, an analyst at FTN Midwest Securities Corp. in New York, in a telephone interview today. ``Certainly, the company's results were better than my forecasts, but I still have a longer-term view on the stock.'' Chiang rates Forest shares ``neutral'' and doesn't own any.

Second-quarter revenue for Forest increased 15 percent to $847 million from $736.5 million a year earlier. Sales of Lexapro climbed to $522.7 million, while Namenda reached $155.6 million…

“Forest won a federal court ruling in July protecting Lexapro, which it started selling in 2002, from generic competition from Teva Pharmaceutical Industries Ltd., based in Petah Tikva, Israel.

While Teva can't copy Lexapro before 2012, Teva has started selling a generic form of Zoloft, an antidepressant made by New York-based Pfizer Inc., and some drug-industry analysts have said the generic might cut into how many new patients buy Lexapro.

``We have not seen any meaningful change in prescribing patterns for Lexapro at this point,'' Goodman said.

Forest licensed Lexapro from Copenhagen-based H. Lundbeck A/S and acquired rights to Namenda from the Merz Group, based in Frankfurt am Main, Germany. Namenda's patents begin expiring in 2010, and Forest may face generic competition for the drug as early as 2011, Chiang said.

``Around 2011, 2012, the company could be dealing with a cliff, falling off a cliff, in terms of its revenue base,'' Chiang said. ``They're working hard to put together a late-stage pipeline.''

Hey, how about making another SSRI? There are just not enough of those on the market. Or, better yet, try a dual norepinephrine/serotonin reuptake inhibitor and market it very aggressively. That apparently worked for Cymbalta – just ask Lilly. It seems like Forest is overly dependent on these two psych meds, and I would think that given Namenda’s very modest benefits, there couldn’t be more too much more growth for it. Then again, there are many products that offer few benefits which end up being widely used. Take Neurontin, for example.

Link to Bloomberg post here.