Zacks_Analysts' Blog : Forest Inks Deal for Pain Drugs - Analyst Blog

Forest Labs (FRX) recently entered into an agreement with Gruenenthal GmbH for the development and commercialization of two pain management candidates. The license agreement covers GRT 6005, a novel oral small molecule analgesic and its follow-on compound, GRT 6006.

Terms of the Deal

Per the terms of the deal, Forest Labs will make an undisclosed upfront license payment to Gruenenthal. Besides this, Forest Labs will make payments on the achievement of development and commercialization milestones. The company will also pay royalties on product sales. The companies will share development costs.

While Forest Labs will have exclusive rights in the US and Canada, the company may execute the option to co-promote in Europe. Similarly, Gruenenthal has exclusive rights in Europe and the option to co-promote in the US and Canada.

Deal in-line with Forest Labs' Strategy

This agreement is in-line with Forest Labs' goal of strengthening its pipeline through in-licensing and partnership deals. Forest Labs has been very active on the in-licensing and product acquisition front and has deals with companies like AstraZeneca (AZN), Cypress Bioscience, Inc. (CYPB), Gedeon Richter, and Nycomed among others.

With Lexapro and Namenda slated to lose patent protection over the next few years, Forest Labs is looking to grow its pipeline so as to make up for the loss of revenues that will take place once these products start facing generics.

The pain management market represents significant commercial opportunity. Forest Labs’ pain management portfolio faced a setback earlier this year when a mid-stage pain drug candidate, radiprodil, failed to achieve the primary endpoint in a phase II study.

GRT 6005 and GRT 6006 could be suitable candidates for the treatment of moderate to severe chronic pain. GRT 6005 is scheduled to enter into additional phase II studies. The candidate has successfully completed proof-of-concept studies in nociceptive and neuropathic pain.

Neutral on Forest Labs

We currently have a Neutral recommendation on Forest Labs, which is supported by a Zacks #3 Rank (short-term “Hold” recommendation). We are concerned about long-term growth at Forest Labs, especially from 2012 when Lexapro is exposed to generic competition. That puts a lot of pressure on the pipeline to come through.