Buying Forest Labs` Stocks

Topics: Stock, Weighted average cost of capital, Stock market Pages: 18 (3549 words) Published: February 4, 2014

Introduction
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...
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