Another quarter, another disappointment for Forest Laboratories. Last year was a difficult one for the New York group, with patent expiry for its biggest seller, Lexapro, and a restive investor minority agitating for a sale, and the final three months of 2012 did little to improve the picture.
Mainstay franchises of Namenda and Bystolic missed sales forecasts in part as a result of Medicare rebates that took effect only in the last stages of the year. December launches of Linzess and Tudorza Pressair were bright spots in the picture, and scored a combined $31m in sales thanks to trade stocking. Trends of both will be closely watched, along with the regulatory progress for cariprazine; any signs of a stumble could reignite the calls for Forest to drop its R&D-based strategy in favour of M&A.
Approvals of the COPD product Tudorza Pressair and IBS pill Linzess were certainly viewed as a positive potential catalysts for Forest as it was fighting a proxy battle this year from the activist investor Carl Icahn (After proxy battle Forest has questions to answer, August 17, 2012). Wins on both were validation of an R&D strategy that has cost the company $937m in calendar 2012 – although regulatory approvals are no guarantee of strong sales particularly, as is so often the case in pharma, if new products fail to differentiate themselves from existing ones.
In the case of Tudorza, this drug is up against a big product in Boehringer Ingelheim’s Spiriva, and has the disadvantage of more frequent dosing; moreover, superior combination therapies such as Novartis’s QVA149 could be on the market in the next couple of years (Forest begins long slog back with COPD drug approval, July 24, 2012). Hence, modest sales of $360m in 2018 are forecast for Tudorza in an indication thought to be worth $13.2bn, according to EvaluatePharma data.
Greater hopes rest on Linzess, which has clearer differentiation – it treats irritable bowel syndrome with constipation (IBS-C) in both men and women, compared with just women in the case of Takeda and Sucampo Pharmaceuticals' Amitiza. A hopeful-looking 2018 consensus forecast of $981m has been placed on Linzess, putting it well on a trajectory to blockbuster sales and becoming the company’s top seller.
It would be hard to understate, then, the importance of Linzess to Forest. Although it is early days, prescription and sales trends will have a huge effect on its fortunes and share price in the coming year, and indeed the threat of Synergy Pharmaceuticals’ plecanatide sometime in the next three years cannot be ignored (Phase III data position plecanatide for grudge match with Linzess, January 3, 2013).
With trade stocking of Linzess accounting for $19.2m in just 15 days of availability, there is reason to be hopeful, although that figure cannot be seen as an accurate reflection of actual sales. The big upfront bump in sales does not suggest that either Forest or its partner Ironwood Pharmaceuticals are making money from the product; indeed, Forest disclosed that Ironwood’s loss so far amounts to $8.3m, implying that Forest has lost a similar amount.
It is telling that UBS analysts downgraded their rating on Ironwood to sell, and cut its 2013 sales forecast to $80m, compared with EvaluatePharma’s $192m. Ironwood’s shares are down 8% to $13.53 in early trading on the downgrade.
The Forest proxy battle is fresh in the minds of investors and analysts alike, and it would not be surprising to see a fresh row emerge by summer if sales numbers come in below expectations. Following initial trade stocking, it will take careful management of those expectations to keep investors from fleeing or have more of them throw their support behind Mr Icahn and his representative.
Asked in an analyst call about the potential for another M&A push, finance chief Frank Perier said, “I do believe we need at least a year to certainly get directional trend of where (sales are) going and how big we can expect them to be.”
If sales disappoint, Mr Perier said a strategic review of options including a trade sale would be “fair”.
While its R&D and regulatory divisions succeeded in getting two new products to market in 2012, they have yet to prove themselves commercially. Forest is not out of the woods yet.