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  • Eggplant101 Eggplant101 Jun 2, 2000 10:25 AM Flag

    A question and three cents worth

    I know Celexa is a successful drug, but I decided
    to short FRX after seeing a huge insider stock
    registration: CEO 1.3m shares, Pres.: 300k shares. In dollars,
    that's about $140m of stock. When does Celexa go off
    patent? Won't that event essentially crush the
    profitability as FRX loses share AND prices decline? Also, when
    does Prozac go off patent? None of the SSRI drugs have
    faced generic substitution or generic competition
    before. When that happens, won't the historical levels of
    profitability decline dramatically as the drug firms engage in
    expensive battles for market share? FRX should be
    over-valued based on a 45 p/e, especially if the earnings
    growth goes into reverse after Celexa, Prozac, and
    perhaps others go off patent.
    I acknowledge that my
    research is incomplete and I jumped in perhaps
    prematurely. Am I missing something?

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    • Selling by insiders doesn't always mean that the
      stock is headed lower. Howard Solomon, the head of FRX
      sold 260,000 shares in November, 1999 at around 51-52
      and now six months later the shares are significantly
      higher. Sometimes when one holds allot of shares earned
      through options, profits are taken periodically. So as an
      indicator I don't think its thats strong. Celexa is set to
      go off patent in a few years but the company is
      working on extending its franchise with an improved
      version of the drug to take its place. Because of its
      favorable side effect and drug interaction profile versus
      other SSRI's physicians may not
      jump at prescribing
      modestly lower priced generics if they are available.
      Additionally, patients who are having success on Celexa will
      not be switched to other brands for obvious
      Presently, the sales trends are strong. Also, the break-up
      of the Warner Lambert co-marketing agreement should
      increase the bottom line flow of profits for FRX. This
      cash can be plowed into other new products and
      collaborations to extend its pipeline. Shorting stocks, in my
      opinion, is gambling. Like the weather, there are too many
      variables and extraneous unknowns to make a reliably sound
      decision and put your money on it.

      • 3 Replies to Ricardouno
      • Multex Staff reported on updated ABN Amro views concerning Pharma Scripts.
        FRX gains 20 basis points

      • Normally I would agree with you that insider
        selling, even massive selling, is not necessarily a
        meaningful signal. However, in the case of FRX's President
        (and former CFO) Kenneth Goodman, it appears that he
        had to exersize options to sell the 300k shares he
        registered. Accoring to the Proxy Stmt from last June, he
        held only 43,400 shares outright, and 1.175m shares
        via options. He registered to sell 300k shares.
        Either approx. 22% of the options he was awarded with
        his 18 years at the Company were due to expire during
        the past 12 months (possible, but not very likely),
        or he is a seller who has voluntarily taken a tax
        hit to unload $25 million of stock. Let's check for
        other insider selling: I happen to notice a bunch of
        other 144 forms filed recently.
        Re: generic
        substitution. The payors now control the healthcare system, not
        the docs and not the patients. If a generic is
        available at a lower price, guess what the insurer's
        computer system tells the doc to replace his brand name
        prescription with?
        I do not question that Celexa is a
        successful product--clearly it is. I question the valuation
        put on FRX. Ultimately it is non-sustainable and more
        than vulnerable. I expect that insiders know they must
        start peeling out now because they own so much that
        more significant sales will really hurt the

        We will see. I could be wrong, but I believe their
        is a lot more downside than upside in the coming
        12-24 months.

      • All management at Forest are granted Stock
        Options each year (types:ISO and Non-Qualified)on a
        certain day. Assuming it is a profitable year, Options
        are granted, but if no profit, no Options Granted.

        The Option Price is determined by the Stock Exchange
        price of FRX at the end of that particular business
        day. When these Vested Options reach the Expiration
        Date (which may be 5 years for example), the Option
        Shares must be Exercised (purchased from FRX at Option
        Price or Sold) or the person will forfit the Stock
        Options and receive nothing. That would be the ultimate
        in stupidity. It is a most common practice to
        Exercise the Stock Options by selling; paying back FRX the
        Option Price and take the profit.

        So, bottom
        line; selling by insiders of Stock Options is a normal,
        common practice and expected and even anticipated by
        some in the company.

    • time gates and dell sold their company shares - that was a buy signal if there ever was one