Pharmaceutical company Forest Laboratories Inc. (FRX) reported Tuesday a sharp decline in profit for the first quarter, hurt mainly by charges related to settlement with US Department of Justice as well as a charge for new product licensing fee. On an adjusted basis, earnings increased from last year and topped market projections on strong sales growth. Further, the company raised its full fiscal year earnings forecast.
The New York-based company's first-quarter net income fell to $117.48 million or $0.39 per share from $262.90 million or $0.87 per share in the prior-year quarter.
The latest quarter results included an additional reserve of $148.4 million or $0.39 per share in connection with an agreement in principle with the United States Department of Justice or DOJ to resolve all aspects of the investigations led by the DOJ and the U.S. Attorney's Office for the District of Massachusetts. The results also included a charge of $50 million or $0.17 per share for a new product licensing fee related to the previously announced agreement with TransTech Pharma, Inc.
Excluding special items, earnings for the quarter were $0.95 per share, higher than prior year's $0.87 per share. On average, 27 analysts polled by Thomson Reuters expected the company to report earnings of $0.86 per share for the quarter. Analysts' estimates typically exclude special items.
First-quarter net revenues increased to $1.07 billion from $1.01 billion a year ago, beating seventeen Wall Street analysts' consensus estimate of $1.06 billion.
Net sales for the quarter increased 7.6% to $1.02 billion from $948.2 million in the year-ago period.
By products, sales of Lexapro, a selective serotonin reuptake inhibitor for treating major depressive disorder, remained unchanged at $565.2 million. Sales of Namenda for Alzheimer's disease grew 18.7% year-over-year to $307.8 million, and sales of Bystolic for hypertension went up 58% to $59.5 million.
The company's newest product Savella, for fibromyalgia, recorded sales of $20.5 million. Savella was launched in late April 2009 and sales in last year's fiscal first quarter were $9.6 million.
Meanwhile, contract revenue declined 16.6% to $39.80 million from $47.71 million a year earlier, mainly due to a 17% fall in Benicar co-promotion income to $37.1 million.
In the quarter, the company's selling, general and administrative expense climbed to $448.4 million from $311.8 million last year, mainly due to charge related to the agreement in principle with the DOJ. Research and development spending increased to $219.7 million from $147.1 million in the prior year.
In the sequential fourth quarter, Forest Labs reported a net income of $22.59 million or $0.07 per share and adjusted net earnings of $0.83 per share. Net revenues in the fourth quarter were $1.06 billion and net sales were $995.6 million.
Among peers, Indianapolis, Indiana-based Eli Lilly & Co. (LLY) is slated to release second-quarter results on Thursday, July 22. Analysts anticipate quarterly earnings of $1.10 per share on revenues of $5.58 billion. A year before, the company earned $1.12 per share on revenues of $5.29 billion.
Looking forward, for the full fiscal year, Forest Labs now expects earnings in the range of $3.67 to $3.77 per share, excluding the charges in the current quarter of $0.56 per share and including the impact of an accelerated share repurchase transaction. Previously, the company estimated earnings in a range of $3.50 per share to $3.60 per share.
During the first quarter, the company's Board approved a new share repurchase program for up to 50 million shares of its common stock. Under this program, the company has entered into an agreement with Morgan Stanley & Co. to repurchase $500 million of its common shares utilizing an accelerated share repurchase transaction. Morgan Stanley has delivered to the company 16.9 million shares in the quarter.
Street analysts expect earnings of $3.64 per share for the fiscal year, with estimates ranging between $3.52 and $3.90 per share.
Regarding its agreement in principle with the DOJ, the company noted that the total reserve in connection with the proposed resolution is now $313 million, plus accrued interest. The proposed resolution remains subject to several conditions, including the completion of all required documentation and court approval. The investigations by the DOJ and the U.S. Attorney's Office for the District of Massachusetts relate to certain marketing, promotional and other activities primarily in connection with Lexapro, Celexa and Levothroid.
FRX is currently trading at $28.22, down $0.10 or 0.35%, on a volume of 430 thousand shares. In the past 52 weeks, shares have traded in a range of $24.17 to $33.10.
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