Pretend you're the CEO of a drug company approaching the
dreaded "patent cliff." Products yielding significant sales
will soon face generic competition, but you don't know if
your home-grown drugs can pick up the slack.
If you're the CEO of
Pfizer (NYSE: PFE),
you buy Wyeth. If you're the CEO of
Forest Laboratories (NYSE: FRX), you have
fewer, less dramatic choices even though
your patent clifflooks more like a black hole.
Forest relies on two products for nearly 90% of its
revenue -- the antidepressant Lexapro and the Alzheimer's
disease drug Namenda. Lexapro brought in $566 million and
Namenda $275 million in second-quarter revenue, for 58.8% and
28.6% of total sales.
Lexapro loses U.S. patent protection in 2012, while
Namenda is covered until 2015. Given that those two are such
a huge part of revenue, it really needs to get cracking.
Keeping to its strategy
Except, it actually has been. To a casual observer,
Forest looks like it might feel pressure to make a big buy --
just like Pfizer did with Wyeth or like
Merck (NYSE: MRK)
is doingto
Schering-Plough (NYSE: SGP).
However, Forest specializes in licensing products or
collaborating with companies on marketing and development,
and it shows no signs of changing its approach. (Lexapro came
from Denmark's H. Lundbeck and Namenda from Germany's Merz.)
Forest's newest drug,
Savella, to treat fibromyalgia, was launched in April in
conjunction with
Cypress Bioscience (Nasdaq: CYPB) and Pierre
Fabre.
Forest continues to cast a wide net. Among its major
deals:
AstraZeneca (NYSE: AZN) to co-develop and
commercialize a Forest antibiotic outside the U.S., Canada,
and Japan. Forest acquired the experimental drug via its
2007 purchase of a small, private biotech company. Forest
plans to seek approval from the Food and Drug
Administration by year-end.
In recent years, Forest has signed agreements with
companies covering experimental treatments for diabetes,
depression, irritable bowel syndrome, and
schizophrenia.
Protecting its shares
Larry Olanoff, the chief operating officer, said
Tuesday that a best-case scenario could produce "several
billion dollars" in sales, or enough to replace the revenue
when Lexapro and Namenda lose patent protection. He noted
that some compounds may not be approved and some may not
reach peak sales estimates, so the company will continue with
its strategy.
Investors would argue that Forest needs these drugs as a
treatment for its shares. If you stuck with Forest during a
sustained growth period -- mid-April 1988 to mid-April 2004
-- your investment rose about 65-fold. If you kept the stock
since then, you've been stuck. Continued... |