(By Balaseshan) Forest Laboratories Inc. (NYSE:FRX), a maker of branded forms of ethical drug products, said it has lowered earnings guidance for the fiscal 2013 due primarily to evolving and unanticipated conditions in the Lexapro/escitalopram market, sending its shares down 4.54% in premarket.
Separately, the manufacturer of Levothroid, a synthetic levothyroxine product for the treatment of hypothyroidism, has notified Forest Labs, the distributor of the product, that the FDA has indicated it has regulatory and quality concerns with respect to the facility where the product is manufactured.
The manufacturer has stopped manufacturing and shipping Levothroid product from its facility. At this time, Forest understands that the manufacturer is continuing to work with the FDA to address the FDA's concerns.
Pending further details Forest has discontinued shipping Levothroid to its customers and does not know how long the product will be unavailable. Forest's annual sales of Levothroid are approximately $17 million.
The company reduced its 2013 earnings outlook to range of $0.65 to $0.80 per share from previous forecast of $0.90 to $1.05 per share. It also cut 2013 adjusted earnings guidance to range of $0.95 to $1.10 per share from previous estimate of $1.20 to $1.35 per share, while Street predicts $0.98 per share.
In addition, sales of branded Lexapro are now expected to be about $215 million for the fiscal year compared to the previous estimate of $250 million.
Based on current market data and given the greater than expected discounting, the company estimates that the generic substitution rate is 88% versus the 84% originally anticipated, with lower than expected pharmacy demand and a higher proportion of units sold through government healthcare programs at lower prices.
Royalty income earned on sales of the company's authorized generic version of Lexapro is now expected to be $60 million, down from the previous forecast of $115 million. The reduction is driven by a significant variance in two principal assumptions: the brand price discount rate and the authorized generic distributor's share of the market, particularly during the six-month period of Hatch-Waxman exclusivity.
The company lowered forecasts for both branded Lexapro sales and royalty income earned on sales of the escitalopram authorized generic distributed by an independent third party, due to the rapidly evolving and unanticipated conditions in the Lexapro / escitalopram market after the expiration of Lexapro's patent exclusivity in March 2012.
The combined impact is a reduction in projected fiscal 2013 earnings of about $0.25 per share for the fiscal year.
If the manufacturing disruption goes on for an extended period of time, or if the Levothroid product is subject to a recall, the loss of Levothroid sales and associated costs could reduce earnings by about $0.03 per share for the fiscal year.
FRX closed Friday's regular session at $35.69. The stock has been trading between $28.47 and $40.52 for the past 52 weeks.