Forest Laboratories, Inc. (NYSE: FRX), an international pharmaceutical manufacturer and marketer, announced that diluted earnings per share equaled $1.00 in the second quarter of fiscal 2011. Reported earnings per share in the second quarter of fiscal 2010 were $0.61 and included total net of tax charges of $0.24 per share related to the following: a new product license fee of $100.0 million, related to a product collaboration agreement with Nycomed for Daxas® (roflumilast); a charge of $20.0 million as part of a settlement with Caraco Pharmaceutical Laboratories for the legal proceedings related to Lexapro®; and the receipt of an upfront licensing payment of $40.0 million related to a product collaboration agreement with AstraZeneca for ceftaroline.
Net sales for the quarter increased 7.7% to $1,037.3 million, from $962.7 million in the year-ago period. Sales of Lexapro (escitalopram oxalate), a selective serotonin reuptake inhibitor (SSRI) for the initial and maintenance treatment of major depressive disorder in adults and adolescents and generalized anxiety disorder in adults were $569.3 million during the quarter, essentially unchanged from the second quarter of the prior fiscal year. Namenda® (memantine HCl), an NMDA receptor antagonist for the treatment of moderate and severe Alzheimer's disease, recorded sales of $310.1 million during the quarter, an increase of 12.7% from $275.3 million reported in last year's second quarter. Sales of Bystolic® (nebivolol), a beta-blocker for the treatment of hypertension, launched in January 2008, were $63.7 million, an increase of 56.5% from the year-ago period. The Company's newest product Savella® (milnacipran HCl), a selective serotonin norepinephrine reuptake inhibitor (SNRI) for the management of fibromyalgia, recorded sales of $21.4 million. Savella was launched in late April 2009 and sales in last year's fiscal second quarter were $10.2 million. Contract revenue decreased 16.2% to $42.4 million, principally due to a decrease of 14.5% in Benicar® (olmesartan medoxomil) co-promotion income to $39.9 million, compared to last year's second quarter. Per the agreement with Daiichi Sankyo, active co-promotion of Benicar by Forest ended in the first quarter of fiscal 2009 and the Company now receives a gradually reducing residual royalty until the end of March 2014. Last year's second quarter included other income of $41.2 million resulting from a $40.0 million upfront licensing payment from AstraZeneca. Interest income of $8.5 million decreased from $9.4 million reported in the year-ago period, due to lower interest rates earned on the Company's short duration portfolio.
Cost of sales as a percentage of sales was 23.7% compared with 23.0% in last year's second quarter. Selling, general and administrative expense (SG&A) for the current quarter was $316.4 million, down slightly from the $324.9 million reported in the year-ago quarter, which included the $20 million payment to Caraco. Excluding that charge, SG&A would have increased by 3.8%. The current level of spending reflects the resources and activities required to support our currently marketed products, particularly our newest products, Bystolic and Savella. Research and development spending for the current quarter was $154.5 million as compared to $263.1 million reported in the second quarter of the prior fiscal year. Research and development spending in the prior year quarter included a charge of $100 million for an upfront license payment to Nycomed for the product collaboration agreement for Daxas. Excluding such payment, R&D spending reported in the quarter decreased 5.3% versus the prior year. The current quarter also included product development milestone payments of $3.0 million compared to $29.9 million of milestones in the prior year's quarter.
Income tax expense for the quarter was $84.9 million, reflecting a quarterly effective tax rate of 22.9%. Reported net income for the quarter ended September 30, 2010 was $286.1 million or $1.00 per share compared to $186.7 million or $0.61 in last year's second quarter.
Diluted shares outstanding at September 30, 2010 were 287,491,000, a reduction of approximately 16.0 million shares compared to the year-ago period due mainly to the Company's accelerated share repurchase program.
Six Month Results
Revenues for the six months ended September 30, 2010 increased 4.0% to $2.2 billion from $2.1 billion in the prior year.
Net income for the six months ended September 30, 2010 decreased 10.2% to $403.6 million from $449.6 million reported in the six months of the prior year. Reported diluted earnings per share decreased 7.4% to $1.37 in the current year's six months as compared to diluted earnings per share of $1.48 in last year's six months.
Fiscal 2011 Guidance
The Company now expects that diluted earnings per share for the fiscal year ending March 31, 2011 will be in the range of $3.80 to $3.90, excluding the charges in the June quarter related to the settlement with the United States Department of Justice and the upfront licensing payment to TransTech Pharma and including the impact of the accelerated share repurchase transaction.
Howard Solomon, Chairman and Chief Executive Officer of Forest, said: "We are pleased with the strong financial results of the Company in the just completed quarter and with the continued positive progress of our late-stage product development pipeline. During the quarter the FDA Anti-Infective Drugs Advisory Committee unanimously voted to recommend approval of ceftaroline for the treatment of community acquired bacterial pneumonia (CABP) and for the treatment of acute bacterial skin and skin structure infections (ABSSSI). If ceftaroline is approved, we plan to make this important new anti-infective therapy available to treat patients with severe respiratory and skin infections during the early part of calendar year 2011. We filed a response to the FDA during the quarter addressing topics raised in the complete response letter received from the Agency regarding our New Drug Application (NDA) for Daxas. Daxas is a phosphodiesterase 4 (PDE 4) enzyme inhibitor currently under review by the FDA as a potential treatment to reduce chronic obstructive pulmonary disease (COPD) exacerbations associated with chronic bronchitis in patients at risk for exacerbations. If approved, Daxas would be the first new oral solid dosage formulation for the treatment of COPD. We expect a response from the FDA during the first quarter of calendar year 2011. Later this quarter we expect to receive results from a second ongoing Phase III clinical trial for aclidinium also for the treatment of patients with COPD. Aclidinium is an inhaled long-acting muscarinic antagonist under study for the improvement of lung function in patients with COPD. If the results from the trial are positive, our plan is to submit an NDA to the FDA for aclidinium during 2011.
Lastly, during the quarter we were pleased to announce, along with our partner Ironwood Pharmaceuticals, positive top-line results from the first of two Phase III clinical trials assessing the efficacy and safety of the investigational drug, linaclotide, as a potential treatment in patients with irritable bowel syndrome with constipation (IBS-C). Later this quarter we expect to receive the results from a second Phase III clinical trial for linaclotide for the treatment of IBS-C. If the results from the trial are positive, we plan to submit an NDA for linaclotide during 2011 based on the IBS-C trials, along with the two previously reported positive Phase III clinical trials for linaclotide as a potential treatment in patients with chronic constipation (CC).
We have worked diligently for a number of years to build a solid product development pipeline that will more than replace those currently marketed products that will decline following expiration of their marketing exclusivity over the next four years. We successfully launched Bystolic in 2008 and Savella in 2009; we received approval from the FDA in June for Namenda XR® and have two NDA's currently under review at the FDA for ceftaroline and Daxas. We plan to file two additional NDA's during 2011 for aclidinium and linaclotide and two more NDA's during 2012 for cariprazine and F2695. We are continually reviewing new compounds to add to our portfolio of product development opportunities and we expect to enter into additional development agreements during this and subsequent years. We believe that our business strategy will deliver the sales and earnings necessary to replace and exceed the revenues lost due to the expiry of marketing exclusivity for Lexapro and Namenda."