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Forest Inks Alzheimer's Drug Deal - Analyst Blog

Thursday, November 15, 2012

Forest Laboratories, Inc. (FRX) is taking steps to extend the lifecycle of its Alzheimer’s disease product, Namenda (memantine HCl). The company recently signed a development and commercialization agreement with Adamas Pharmaceuticals, Inc., an international pharmaceutical company.

Terms of the Deal

The companies will work on the development of a fixed dosed combination of Namenda XR and donepezil HCl for the once-daily treatment of moderate to severe dementia of the Alzheimer’s type. Namenda XR, which is scheduled to launch in mid-2013, is a once-daily extended-release version of Forest Labs’ Alzheimer’s drug, Namenda.

Forest Labs will be solely responsible for the commercialization of the combination treatment in the US and will be responsible for all development and commercialization activities. The combination product will be protected by patents that extend to 2029.

Adamas is entitled to receive an upfront payment of $65 million from Forest Labs and up to $95 million on the achievement of development and FDA approval milestones. Adamas is also entitled to receive royalties on net sales in the US starting from 5 years after the launch of the combination product and any other memantine products for which Adamas has patents listed in the FDA’s Orange Book.

Our Take

The extension of the Namenda life cycle is extremely important for Forest Labs. Namenda, which posted sales of $1.4 billion in fiscal 2012, will be losing exclusivity in 2015. With the Adamas deal, Forest Labs is looking to reduce the impact of the genericization of Namenda. Timing will be of the utmost importance as the company needs to switch patients to the new formulation before Namenda generics enter the market.

Currently, Forest Labs and Adamas expect to be in a position to file for approval in the US in 2014. This means that first-round approval would allow the launch to take place in 2015.

With Namenda generics slated to enter the market in early 2015, Forest Labs will be left with a very narrow time margin for switching patients to the combination therapy. In fact, the company may find it extremely challenging to switch patients to the combination therapy if it is launched after the entry of generics. In our view, the Namenda life-cycle extension plan would have been more effective had it been planned a bit earlier.

We currently have a Neutral recommendation on Forest Labs. The stock carries a Zacks #4 Rank (short-term Sell rating). Forest Labs has been under a lot of pressure following the entry of generic versions of its depression drug, Lexapro, earlier this year. While Mylan (MYL) sells the authorized generic version of Lexapro, companies like Teva (TEVA) have launched their generic versions of the drug.

The company recently cut its guidance for fiscal 2013 again. More than Lexapro’s genericization, the cut in Namenda’s guidance was disappointing as Namenda is currently the main contributor to the company’s top line. Moreover, the performance of new products especially Teflaro, has been below expectations.


 
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