Forest Labs Cutting Costs, Acquiring US Marketing Rights to Saphris from Merck

Andrew Klips |

Pharmaceutical company Forest Laboratories (FRX) announced plans on Monday to streamline operations in a bid to save money, while also saying that it is aiming to bolster sales by buying the U.S. rights to a Merck & Co. (MRK) antipsychotic drug.

"Project Rejuvenate" A Familiar Move for Pharmas Losing Patent Protection

On the restructuring front, New York-based Forest Labs unveiled a plan to leverage its balance sheet by issuing new debt and returning cash to shareholders through a share repurchase program.  The plan, dubbed “Project Rejuvenate,” has a goal of reducing operating expenses by $500 million by the end of 2016 via spending cuts in research and development, marketing and general and administrative costs.  Up to $375 million in annual savings are expected to be realized by the end of 2015.

The move is taking a page out of the playbook of other major pharmas that have lost patent protection on blockbuster drugs (antidepressant Lexipro for Forest) and are looking to trim R&D efforts and staff to save money.  The company noted that R&D staff critical to late-stage drugs in development and associated sales staff are not losing their jobs as part of Project Rejuvenate.  Other than that, Forest didn’t elaborate on how many employees it was letting go.

Forest Labs Also Issuing New Debt

Forest intends to issue $1 billion in long-term debt through 8-year senior unsecured fixed rate notes and use the net proceeds for acquisitions and a share buy-back plan, amongst other things.  The company’s board has approved a $1 billion repurchase plan, including a $400 million accelerated program by the end of 2013.

“Forest has a strong balance sheet with more than $3 billion in cash and investments. By adding some leverage to the balance sheet, we can take advantage of prevailing low interest rates, return capital to shareholders and increase our ability to execute accretive deals in the short term,” said Brent Saunders, president and chief executive at Forest Labs, in a statement today.

Saunders, the former leader of Bausch and Lomb, was named as Forest’s CEO in September.

Merck Divesting from Saphris

Separately, Forest said that it has come to terms with Merck Sharp & Dohme B.V, a wholly-owned subsidiary of Merck, to acquire exclusive rights in the United States for Saphris.  Saphris is an FDA-approved sublingual drug launched in 2009 for treatment of adult patients with schizophrenia or acute bipolar mania.  It can be used as a stand-alone therapy or used in combination with lithium or valproate.  In the 12 months to September, sales of Saphris were $150 million.

Not all of the details of the deal were disclosed, but Forest will make an upfront payment of $240 million and future payments to Merck based upon sales milestones being met.  Merck will be responsible for product supply and Forest will assume responsibility for continued commercialization.  Further, after a transition period, Forest will complete certain post marketing studies of Saphris and will be the marketing authorization holder.

The divesture of Saphris for Merck dovetails with its strategies to streamline its commercial and R&D focus and is a natural fit for Forest Labs. 

“We are pleased to gain access to another commercial product in the CNS category. With Viibryd and our soon to be launched product, Fetzima, Saphris complements our current position in psychiatry and gives us access to the important schizophrenia segment as we continue to work toward registering and commercializing cariprazine with our partner Gedeon Richter," said Saunders about the acquisition.

Forest and Gedeon Richter received a complete response letter from the FDA last month regarding the New Drug Application for cariprazine, a drug also designed for treating adults with schizophrenia and manic or mixed episodes associated with bipolar disorder.  The FDA noted the effectiveness of the drug, but wants additional clinical data before approval can be granted.

Shares of FRX are trading up by 6.5 percent halfway through Monday’s trading session at $54.67.  Shares are ahead about 56 percent in 2013.  MRK stock has edged up 11 cents today to $49.94 and 26 percent this year.

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Companies

Symbol Name Price Change % Volume
MRK Merck & Company Inc. (new) 59.24 -1.04 -1.72 5,454,132
MUEL Mueller Paul Co 28.45 0.00 0.00 0

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