Forest Laboratories, Inc. (NYSE:FRX), a leading, fully integrated, specialty pharmaceutical company largely focused on the United States market, announced that reported diluted earnings per share equaled $0.07 in the third quarter of fiscal 2014, compared to a reported loss per share of ($0.58) in the third quarter of fiscal 2013. The third quarter of fiscal 2014 included a $45 million charge ($28.2 million net of tax) related to Project Rejuvenate. Excluding acquisition related amortization and specified items, non-GAAP EPS for the third quarter of fiscal 2014 equaled $0.27 compared with a loss of ($0.21) per share in the third quarter of fiscal 2013. In December 2013, the Company announced Project Rejuvenate, a cost savings initiative with a goal of streamlining operations and reducing $500 million in operating expenses by fiscal 2016.
Chief Executive Officer and President
"We just completed a highly productive quarter led by significant growth in sales and earnings. In my first 100 days at Forest we have accomplished a great deal, challenging the conventional wisdom," said Brent Saunders, CEO & President. "We took very important strategic actions that have jump-started the rejuvenation of Forest, including acquiring Saphris for $240 million, commencing Project Rejuvenate to reduce our cost base by $500 million, raising $1.2 billion through a bond offering, and announcing plans to acquire Aptalis for $2.9 billion. We accomplished a lot but I am most proud of the way our teams responded to the challenges set for them. This renewed sense of enthusiasm and motivation on the part of our team is contributing to the strong results we had this quarter."
Product Sales Performance
Net sales for the quarter increased 24.9% to $846.8 million, from $678.0 million in the prior year quarter. The increase in sales was driven by sales of the Company's next generation products which totaled $375.4 million, an increase of 59.4% compared with the third quarter of fiscal 2013.
Central Nervous System Franchise
Namenda® (memantine HCl), an NMDA receptor antagonist for the treatment of moderate to severe Alzheimer's disease, recorded sales of $363.7 million during the quarter, an increase of 5.2% from last year's third quarter. Namenda XR® (once-daily memantine HCl), recorded sales of $37.8 million during the quarter. Namenda XR was launched in June 2013 and recorded sales of $11.5 million during the fiscal 2014 second quarter.
Viibryd® (vilazodone HCl), a selective serotonin reuptake inhibitor (SSRI) and a partial agonist at serotonergic 5-HT1A receptors for the treatment of adults with MDD, recorded sales of $52.7 million during the quarter, an increase of 29.7% from last year's third quarter.
Fetzima™ (levomilnacipran extended release capsules), a once-daily serotonin norepinephrine reuptake inhibitor (SNRI) for the treatment of adults with major depressive disorder (MDD), was commercially launched in December 2013 and recorded initial trade stocking of $8.0 million.
Daliresp® (roflumilast), a PDE4 enzyme inhibitor for the treatment to reduce the risk of exacerbations in patients with chronic obstructive pulmonary disease (COPD), recorded sales of $26.8 million for the quarter, an increase of 53.4% from last year's third quarter.
Tudorza® (aclidinium bromide inhalation powder), an anticholinergic indicated for the long-term maintenance treatment of bronchospasm associated with COPD, recorded sales of $20.4 million during the quarter. Tudorza was launched in December 2012 and recorded initial trade stocking of $12.2 million during the fiscal 2013 third quarter.
Bystolic® (nebivolol), a beta-blocker for the treatment of hypertension, recorded sales of $130.7 million, an increase of 20.1% over the year-ago period.
Linzess® (linaclotide), a guanylate cyclase agonist for the treatment of both irritable bowel syndrome with constipation and chronic idiopathic constipation in adults, recorded sales of $51.0 million during the quarter. Linzess was launched in December 2012 and recorded initial trade stocking of $19.2 million during the fiscal 2013 third quarter.
Savella® (milnacipran HCl), a selective serotonin norepinephrine dual reuptake inhibitor for the management of fibromyalgia, recorded sales of $25.6 million, an increase of 0.2% from last year's third quarter.
Teflaro® (ceftaroline fosamil), a broad-spectrum bactericidal cephalosporin antibiotic for the treatment of adults with community-acquired bacterial pneumonia and with acute bacterial skin and skin structure infections, recorded sales of $22.3 million, an increase of 93.2% over last year's third quarter.
Contract Revenue was $31.6 million in the current quarter compared to $38.3 million in the prior year third quarter. Benicar® (olmesartan medoxomil) co-promotion income totaled $30.2 million, a decrease of $5.8 million, compared to $36.0 million in last year's third quarter. Per the agreement with Daichi Sankyo, Forest's active co-promotion of Benicar ended in the first quarter of fiscal 2009 and the Company receives a residual royalty until the end of March 2014.
Cost of Sales as a percentage of revenue was 20.8% compared with 21.4% in last year's third quarter.
Selling, General and Administrative expense for the current quarter was $455.0 million as compared to $428.4 million in the year-ago quarter. Selling, general and administrative (SG&A) expenses for the three months ended December 31, 2013 included $18 million of expenses related to Project Rejuvenate for post-employment benefits. Excluding this expense, total SG&A was $437.0 million, an increase of 2.0% over last year's third quarter. The current level of spending reflects the resources and activities required to support our currently marketed products, particularly our newest products: Fetzima, Namenda XR, Linzess, Tudorza, Viibryd, Daliresp and Teflaro.
Research and Development for the current quarter was $219.5 million compared with $325.3 million in last year's third quarter. The current quarter included $40.0 million in development milestone expenses, no upfront payments, and $27 million in expenses related to Project Rejuvenate for post-employment benefits. The prior year quarter included $44.5 million of milestone payments and $76 million in upfront licensing payments. Excluding the impact from milestone payments, Project Rejuvenate, and upfront licensing payments, R&D expense decreased 25.5% for the current quarter.
Income Tax Expense for the quarter was $4.4 million, reflecting a quarterly effective tax rate of 19.5%.
Reported Net Income for the quarter ended December 31, 2013 was $18.0 million or $0.07 per diluted share compared to a loss of $153.6 million or $0.58 per diluted share reported for last year's third quarter.
Diluted Weighted Average Shares Outstanding at December 31, 2013 was approximately 272,901,000.
Nine Month Results
Revenues for the nine months ended December 31, 2013 increased 12.0% to $2,554.6 million compared to $2,280.2 million in the prior year.
Net income for the nine months ended December 31, 2013 increased $188.8 million to $111.2 million compared to a loss of $77.5 million in the prior year nine-month period. Reported diluted GAAP earnings per share increased $0.70 to $0.41 per share in the current year's nine months as compared to a loss of $0.29 per share in last year's nine months.
Fiscal 2014 Guidance
The Company now expects that Non-GAAP earnings per share for the fiscal year ending March 31, 2014 will be in the range of $1.25 to $1.35.
In December the Company announced Project Rejuvenate, a series of significant strategic actions to streamline operations and reduce costs. The goals of Project Rejuvenate are to make the Company more nimble in responding to a changing environment and to reduce operating expenses by $500 million by the end of FY2016 relative to the FY2014 cost base.
The Board of Directors authorized the repurchase of up to $1 billion of common stock, and the Company also announced that it issued $1.2 billion in new long-term debt through an offering of 8-year senior unsecured 5% fixed rate notes.
The Company announced the acquisition of exclusive rights in the United States for Saphris® (asenapine) sublingual tablets, a treatment for adult patients with schizophrenia or acute bipolar mania, for $240 million in cash, from a of wholly owned subsidiary of Merck & Co., Inc. Saphris is an atypical antipsychotic approved by the US Food and Drug Administration (FDA) and launched in 2009. The agreement closed on January 17th following regulatory review and satisfaction of all closing conditions.
On January 8th the Company announced that it has entered into a definitive agreement to acquire Aptalis, a privately held U.S. based specialty Gastrointestinal (GI) and Cystic Fibrosis company, for $2.9 billion in cash from its shareholders, including TPG, the global private investment firm. The acquisition, which is under review by anti-trust authorities in the US, is expected to add approximately $700 million in sales, and be accretive to Non-GAAP EPS by approximately $0.78 in fiscal year 2015.