Buying Forest Labs` Stocks

Forest Labs is a pharmaceutical company that develops, manufacture and sell branded forms of ethical drug products most of which require a physician’s prescription. Most of the drags are marketed directly, to physicians with a mission that a CEO and President of Forest Labs Howard Solomon in his letter to shareholders defines as “to increase shareholder value by obtaining and successfully marketing more and more fine pharmaceutical products”.

Forest`s product pipeline highly depends on the licensing and acquisition of new product opportunities, currently covering a wide range of therapeutic products, helping with cardiovascular disease, chronic obstructive pulmonary disease, major depressive disorder, diabetes, infectious disease, and pain management.

Among products are: BYSTOLIC® (nebivolol), DALIRESP® (roflumilast), FETZIMA™ (levomilnacipran extended-release capsules), LINZESS® (linaclotide), NAMENDA® (memantine HCl), NAMENDA XR™ (memantine HCl), SAVELLA® (milnacipran HCl), TEFLARO® (ceftaroline fosamil) for injection, TUDORZA® PRESSAIR® (aclidinium bromide inhalation powder), and VIIBRYD® (vilazodone HCl). Competitors include but not limited to Amgen, Genentech, Biogen, Genzyne Coproration, Merck Serono, Gilead Sciences, Medimmune, Life Technologies Corporation, Teva Pharmacetical Industries Limited and Sandoz International GmbH.

Company was founded in 1956 as a small laboratory service and by 60s quickly shifted from Lab Service to Generic Drug development business. In Mid-1980 Forest Labs started to focus on licensed brand-name drugs, and experienced a rapid revenue growth in early 1990s, as its income leapt to $40 million. Growth in late 90s was fueled by Celexa sales. Forest went public in 1967, started trading at $17. 25, slowly and steadily went up to $55. 38 per share in February of 1991 and did 2:1 stock split in March of the same year, next day trading started with opening price of $30.

50 and closing price going up to $40. 13. Forest did second 2:1 split in January of 2001 when its stock price reached $134. After second split stocks continued to trade at $66. 96. Another 2:1 split occurred in two years when stock price reached $98. 82 per share, it continued to trade at 51. 75 per share and grow till 2007. In 2001 stock prices dropped its market price to its historical minimum. The Department of Justice alleged the company offered kickbacks to doctors for prescribing the antidepressants Celexa and Lexapro and for pushing their use on children.

The government, in its complaint, has said the drug developer offered cash payments, expensive meals and entertainment to induce doctors and others to prescribe the drugs. In trading just after the opening bell, Forest Labs shares fell 77 cents, or 3. 4 percent, to $21. 62. Among major individual shareholders are Carl Icahn (corporate raider specializing on leverage buyouts), Solomon Howard (CEO of Forest Labs), Stafford Raymond (Chief Executive Officer of Forest Laboratories), Solomon David (Senior Vice President – Corporate Development and Strategic Planning of Forest Laboratories), Hochberg Elaine (?

Executive Vice President, Marketing and Chief Commercial Officer at Forest Laboratories). It is worth pointing out that Icahn is Forest’s second largest shareholder, currently owning about 11. 5 percent of the drugmaker’s outstanding shares. Icahn has started the buyout in 2009 when companies stock reached its minimum and currently target at least six other drug companies in the industry. Icahn has been highly critical of Forest leadership in recent years, arguing that the company has been badly managed and underperforms industry peers.

He claimed the company was ill-prepared for the patent expirations of its top-selling medicines – the antidepressant Lexapro and Alzheimer’s treatment Namenda – and for not having a succession planning for longtime Chief Executive Howard Solomon. As of today company is making 3. 11B in revenues, and holds 1. 67B in cash and zero dollars in debt on its Balance Sheet. Mr. Icahn does not like the fact that company is seating on too much cash and has a passive capital structure. CEO and CFO Report Howard Solomon joined Forest as outside counsel and director and secretary in 1964.

Accusations against the company’s X chairman, Hans Lowey had been raised by the mid-1970s. Howard Solomon, who at the time was serving as outside counsel for Forest, was asked to investigate the charges. He found evidence to support the allegations, and Lowey has been resigned. Solomon took over as CEO of the company in 1977, became chairman in 1998, and a president in 2010. Solomon sold off Forest’s lagging food businesses and dropped out of the vitamin business to focus on the pharmaceutical market. Solomon has been with Forest for almost 50 years now. He led the company

through an important transition from a lab service firm to a company that actually manufactured and sold its own brand name pharmaceuticals. At the moment Solomon is planning to retire and the end of 2013 at the age of 85. During Solomon`s leadership time stock price has archived a steadily growth rate. During the period January 1999 to January 2003, Forest Laboratories’ stock price increased each year, shifting from $12 to $50. Based on the financial statements for fiscal year end March 2002, Forest Laboratories Inc. had four main drugs, two of which accounted for 81. 5% of its sales revenues.

In April 2006, company entered into an agreement with Almirall, S. A. (Almirall) for the U. S. rights to aclidinium a novel long-acting muscarinic antagonist which is being developed as an inhaled therapy for the treatment of COPD. In September 2007, Forest entered into a partnership with Ironwood Pharmaceuticals, Inc. (Ironwood) to co-develop and co-market the proprietary compound linaclotide in North America. In December 2008, company entered into an agreement with Pierre Fabre Medicament to develop and commercialize levomilnacipran (F2695) in the United States and Canada.

In November 2004, Forest Labs entered into an agreement with Gedeon Richter Ltd. (Richter) for the North American rights to cariprazine, an oral D2/D3 partial agonist, and related compounds, being developed as an atypical antipsychotic for the treatment of schizophrenia, acute mania associated with bipolar depression. All of it without doubt had a positive effect on company’s stock price, which is currently trading at $43. 27 per share. Based on our calculations this price is set quite higher than intrinsic price of $36. 48.

The discrepancy of $6. 79 can be explained by overall positive trends in the industry and Mr. Icahn being involved (since he started stock purchase prices went up). In comparison Baxter`s intrinsic price per share came down to $32. 87, while being traded at $72. 10 per share. It is crucial to remember value and price of a stock are two different things and while traders are more concerned with price, long term investors should be more concerned with value. Financial Statement Report Current key wholesale customers, Cardinal Health Inc.

, McKesson Corporation, and AmerisourceBergen Corporation, in aggregate, accounted for 87% of Forest Labs total consolidated gross sales. Undiversified set of customers and products puts the company in quite a dependable situation. The information in the table below shows percentage of net sales accounted by principal customers and suggests that if the company is unable to protect the technology, trade secrets or proprietary know-how, enforce patents, or fail to collect account receivables due to financial difficulties of one major customer, results of operations, financial condition and cash flows will suffer immediately.