Things are looking up for Forest Laboratories ($FRX). In the first full quarter under new chief Brent Saunders, the company raised its full-year guidance and swung back to profit after posting big losses in the year-ago quarter. But with a recent FDA thumbs-down for a new antipsychotic and patent expirations on other key drugs looming, the company still has some hurdles to clear.
After a rocky 2013 that absorbed much of the shock from Lexapro's 2012 patent expiration, Forest reported net income of about $18 million, or 7 cents per share, for the quarter; that's up from a loss of $153.6 million, or 58 cents per share, this time last year. The company also hiked its 2014 guidance, setting it at $1.25 to $1.35 per share after forecasting earnings of 95 cents to $1.15 per share in October.
A "renewed sense of enthusiasm and motivation on the part of our team is contributing to the strong results we had this quarter," Saunders said on a call with investors. "Now we need to continue our focus on execution."
Part of that execution means keeping its promise to investors that its new drugs will deliver--and so far, they have. Quarterly sales grew 24.9% to $846.8 million, with next-generation products driving that increase; sales of those drugs spiked 59.4% to hit $375.4 million. For the second straight quarter, Alzheimer's drug Namenda put up notable growth, with its revenues increasing 5.2% over the year-ago period to reach $363.7 million. New antidepressant Viibryd, too, continued its gains, jumping 29.7% to record $52.7 million in revenue. "We are starting to the see the nimbleness and flexibility that will be the hallmark of Forest for years to come," Saunders told investors.
Decreasing R&D expenses will help toward that goal, and they dropped more than 25% to $219.5 million in the third quarter. The savings come thanks to Project Rejuvenate, a restructuring plan announced in December that Forest expects will generate $500 million in cost savings by the end of the 2016 fiscal year; R&D realigning and streamlining will be responsible for $270 million of that, the company said in December.
The cost-savings plan is just one of the changes Saunders has made in his first few months on the job. Forest also recently picked up Aptalis Pharma for $2.9 billion, a move Saunders said will yield about 78 cents per share in fiscal 2015, and nabbed Saphris, a former Merck ($MRK) antipsychotic that the company plans to relaunch in February with two sales forces.
With Namenda currently slated to lose patent exclusivity in April of 2015 and its new antipsychotic, cariprazine, recently turned down by the FDA, Forest will welcome any boost those acquisitions can provide. But while Saunders said M&A is an "accelerator that we will use to continue to employ to drive growth," Forest won't be relying too heavily on deals to get back on track.
"We have a core competency in drug development, and we intend to fully capitalize on this strength to bring new drugs to market," he said.
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