Thursday, January 22, 2009
(Cont'd from above)...

Jim (cont'd):   

Jim:      The Goldman guy he can’t see the forest thru the trees… he chainsaw down grade just doesn’t make sense to me… so what was Goldman’s reasoning… they sited their lack of confidence in Forest Labs pipeline… it’s high R&D in marketing costs going forward… along with it’s super sized exposure to patent expirations… by 2015, they warned us drugs that should generate something like 59% of the companies revenue net of new products will go off patent… compared to just 15% to the average big pharma company… and on top of this… FRX has no dividend protection… doesn’t sound to great… but none of this is new news… the patent expirations are well known, and I think already baked into the estimates… and while Forest Labs does indeed pay no dividends… it does have roughly $9.50 in cash… 38% of the market cap for heaven’s sake… and no debt… which gives it the ability to do in licensing deals and build up its pipeline… and even though the companies two biggest drugs, the blockbuster anti-depressant Lexapro… and Amenda, for Alzheimers… go off patent in 2012 and 2013 respectively… these two franchises can generate another $9.50 in cash per share…. until they go generic...

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Plus, Forest Labs knows how to deal with patent expirations, Lexapro it’s biggest drug… is basically a patent extender of Selecxa… when Selecxa went generic Forest Labs successfully transitioned sales from the generic drug to the patent protected Lexapro… even though I don’t think there is really that much of a difference between the two… I have been thinking… perhaps Goldman and Sachs is confusing Forest Labs with Cramer fave Forest Gump, or even Forest Tucker, from the T.V. classic the Shakespearian derived F-Troop… there was only one new point the Goldman brought up in its down grade of Forest Labs… that the company’s recently approved Fibromyalgia drug Savella won’t do as well as expected… because not enough doctors Fibromyalgia is a real disease… Goldman had expected the total market for all Fibromyalgia drugs to be about a $2B plus opportunity… now they have brought that estimate down to between $1B and $1.5B… a market that I think is going to be dominated by Pfizer and Eli Lily… both of which have large established Fibromyalgia franchises… so Savella wasn’t going to be a block buster anyway.

But, even though Goldman down graded the Forest Labs over this, it expects Savella to do $10 million in sales of Forest Labs fiscal 2009 as it is being launched at the end of their fiscal year… and $75 million in 2010 fiscal year, higher than the $8 million estimate for 2009, and $50 million estimate for 2010 from Stanford Bernstein… and it’s quizzical isn’t it because they are the ones rate Forest Labs as a out performer… as the analyst at Stanford Bernstein, Forest Labs is a cheap stock… it is trading at just 7 times earnings, with a lot of catalysts ahead… in March they have that Savella launch I just mentioned… along with the FDA’s decision on whether to extend Lexapro’s indication for major depressive disorders in adolescents… in the second quarter of 2009, we will see phase 3 results for Sevtraline… that is the drug for complicated skin and skin structure infections… phase 2 data releases coming initiation of two phase 3 trials three positional FDA submissions… I just don’t see how Goldman thinks Forest Labs has a weak pipeline… the company has 5 novel products in phase 3 development… two in advanced in phase 2 development… the pipeline is so good and the cash is so bountiful… that you have to imagine that this company could have a hard time staying independent… if it trades down much below $19... the 52 week low… just 6 points from here… I am thinking, yes, only Bernstein can prevent Goldman’s Forest Labs fires.

But what I think the Goldman analyst really doesn’t understand… is that Forest Labs is a different kind of drug company with an entrepreneurial business model… instead of using large research labs… the company tends to rely on scientists and doctors to figure out what drugs from smaller or even larger drug companies could be attractive if Forest Labs develops or co-develops them with the originator… management has got a great track record of moving fast on deals… as well as a good reputation with the companies partners… they have made 14 strategically alliances in the past two years.

Here is the bottom line…

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The Bottom Line!:     In the old days, you know what I have done… I would have called this Goldman analyst a joker, a smoker, a midnight toker… but now I am lovey dovey lovey dovey lovey dovey all the time and I don’t want to hurt no one… so just say the Goldman‘s downgrade of Forest Labs seems misguided… and the guys at Stanford Bernstein were right to keep on liking it… yes, there are negatives… but I think that they are more than accounted for with Forest Labs trading at 7 times earnings… or 4 times earnings when you back out the cash on the balance sheet… extremely cheap for a well managed drug company with a solid pipeline.

We just played Break The Analyst, Goldman’s downgrade was misguided, I say Forest Labs is a buy… and I say let’s bring back some Steve Miller...

[verbatim recap]

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Jim went on after this segment to take questions from callers, and responded with his comments...

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Q:    Recently you recommended Eli Lilly & Co. (LLY), Johnson & Johnson (JNJ*), and Bristol-Myers Squibb Co. (BMY*) as great pharmaceutical stocks. If you could pick one to start investing in right now, which one would it be and why?

Jim:    Lilly has a bit of a move, I still like the dividend… we absolutely endorse Bristol-Myers which I own for my charitable trust, ActionAlertsPlus.com, but I have to say that it is a little high, I would like to come in before I buy any more… which leaves it with the much hated, much disputed, much disliked, Johnson and Johnson… I say the bear should go take a Tylenol or put a Band-Aid on it… I think JNJ should be bought… and bought aggressively… pull the trigger right now.

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Q:    I am calling about the Sunrise Senior Living Inc. (SRZ), would that be a good growth area? And which ticker should I be watching?

Jim:    No, I don’t like to see your living stocks… by the way… I had recommended selling that Sunrise Senior Living, holy cow, that was in the sell block… I mean like wow… I don’t like those stocks because you have got to sale your home… well, obviously you have got to sale your home in order to be able to move into them…and right now home sales they are not so hot… I do believe that housing will bottom later in the year… but it is too early to pull the trigger for any of those stocks.

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[verbatim recap]

[end of segment]

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