By Toni Clarke
(Reuters) - Forest Laboratories Inc, which is bracing for a proxy fight with activist investor Carl Icahn, said on Tuesday quarterly earnings tumbled 79 percent as generic competition ate into sales of its antidepressant Lexapro.
But the company also said efforts to diversify its product portfolio were paying off, with its three newest drugs selling well. New drug sales as well as signs that two new products could be approved by year-end pushed the company's shares up 1.7 percent on Tuesday, an analyst said.
Forest, which also makes the Alzheimer's drug Namenda, said net earnings in the fiscal first quarter ended June 30 fell to $55.3 million, or 21 cents a share, from $258.14 million or 90 cents a sharer a year earlier.
Analysts were expecting 24 cents a share, according to Thomson Reuters I/B/E/S.
The results did nothing to placate Icahn, who launched another broadside against the company in the form of a public letter to the board. In it he defended his nominees against claims by Forest that Icahn's nominees have conflicts of interest.
"Perhaps in your zeal to preserve the status quo at Forest you have failed to recognize that a lack of alignment with management is not a conflict of interest."
A spokeswoman for Forest said in a statement that Icahn's letter is "fraught with inaccuracies" and "a desperate attempt to defend a weak and conflicted slate that simply does not measure up to Forest's incumbent directors."
Net sales fell 31.9 percent to $751.8 million, hurt by competition from cheaper generics for Lexapro, which lost patent protection in March. Total revenue fell to $821.1 million from $1.15 billion.
The company last month cut its forecast for the year, saying it expects earnings of 65 to 80 cents a share, which would represent a decline of about 80 percent from 2012.
Icahn, Forest's second-largest shareholder, is seeking four seats on Forest's board. The annual meeting is set for August 15. Icahn failed to get his nominees elected to the board in 2011, but warned that his failure last year should not make the board complacent.
"Forest has underperformed your self-chosen peer companies by 21 percent since last year's meeting," he said. "Given that underperformance, it wouldn't surprise me if many shareholders vote differently this time around."
NAMENDA SALES RISE
Net sales of Namenda rose 15.2 percent to $368.4 million, missing the consensus estimate of $388 million.
While sales of blood pressure drug Bystolic rose 38.2 percent to $107.8 million, sales of the older drug Lexapro fell to $110 million from $585.7 million.
The company launched two new products last August: Daliresp, a drug to reduce the risk of exacerbations in patients with chronic obstructive pulmonary disease (COPD), and Viibryd for depression. Daliresp posted sales of $17.8 million in the first quarter, and Viibryd had sales of $37.4 million.
"The new products are the bright side, in particular the growth of Bystolic and Viibryd," said Aaron (Ronny) Gal, an analyst at Sanford C. Bernstein. "These are very nice numbers in largely generic markets."
He noted that management's long-term compensation is tied to the growth of the recently launched products.
Sales of Teflaro, a broad-spectrum antibiotic to treat community-acquired bacterial pneumonia, generated sales of $9.4 million. Teflaro was launched in March 2011.
Howard Solomon, Forest's chief executive, said in a statement that the company has "deliberately and strategically" diversified its product portfolio so that it will not be dependent on any single product or therapeutic area.
"We are pleased with the performance this quarter of three of our most recent product launches, Teflaro, Daliresp and Viibryd," he said. "It is still early days for these products but they are performing well in line with our expectations."
The company said it expects to hear from the U.S. Food and Drug Administration in the coming weeks on the approval status of its drug aclidinium for the long-term maintenance treatment of COPD, and later this summer it expects to hear whether the agency will approve its drug linaclotide for the treatment of irritable bowel syndrome with constipation and chronic constipation.
Assuming approval for both products, the company expects to launch them during fiscal 2013.
Forest shares were up 1.7 percent at $35.78 on Tuesday afternoon, just off the day's high at $35.82.
(Reporting by Toni Clarke in Boston; Editing by John Wallace, Sofina Mirza-Reid, Matthew Lewis and Carol Bishopric)