Forest Labs Off 12%: Lazard, Piper Cut Ratings, Targets

Shares of Forest Labs (FRX) are off $3.91, or 12%, at $28.55 followingreports late yesterday that a Food & Drug Advisory panel had recommended against approval of the company’s “Daxas” drug for a some forms of lung ailment.

Digging into the vote this morning, Lazard Capital Markets analyst William Tanner downgrades the stock to “Hold” from “Buy” and cut his price target to $32 from $34.

The 15-member panel apparently split down the middle, with 6 members voting against the efficacy of the drug and another six voting against its safety, writes Tanner.

With no clear path forward for Daxas, negative sentiment is likely to hang on the stock given Forest is now exposed more than before to the coming expiration of patent protection for its chief revenue generator, the anti-anxiety drug Lexapro.

The next ray of hope investors may turn to is something called “Linaclotide,” which is for treating irritable bowl syndrome, writes Tanner. That drug already has convincing data from Phase III trials, he notes.

As for Daxas, he doesn’t expect the FDA to go against the recommendation of its advisory board:

Serevent may be example of FDA disagreeing with PADAC but we aren�t holding our breath. We note that the FDA did not abide by a 2008 PADAC recommendation regarding use of the LABA Serevent for treating asthma. We believe it possible that the Agency may be faced with a similar decision as it relates to the medical necessity and risk/benefit balance of Daxas.

I should note that Piper Jaffray analyst David Amsellem also cut the stock today from “Neutral” to “Underweight” and reduced his target to $26 from $27.

Oppenheimer & Co. analyst John Newman cut his price target to $39 from $40 while writing that like Tanner, he is still holding out hope regarding other things in the pipeline, such as Linaclotide.