New Subpoena Says It All: It's Time for Forest Labs CEO to Go
Has the Department of Justice's new subpoena for information on Forest Labs' (FRX) Benicar and Azor hypertension drugs gotten the attention of CEO Howard Solomon yet? The octogenarian executive is already fighting a decision by the Department of Health and Human Services to exclude him from doing business with the federal government in a previous, separate case to do with Forest's illegal marketing of Levothroid, a thyroid drug, and other products.
The new subpoeana is either an attempt to leverage the HHS exclusion case against Solomon or a legitimate new line of inquiry into suspected wrongdoing. Either way, it's embarrassing. Solomon is fast becoming a distraction to the company, its board and investors.
It's time for him to go.
Solomon, 83, knows this because the only reason he became Forest's CEO back in 1977 was through a similar set of circumstances: Forest's founding CEO was also investigated by the feds -- and by Solomon himself, who was Forest's outside counsel at the time -- before he was forced out of the corner office.
First, let's examine the messages the Obama Administration has sent pharmaceutical executives recently:
- This month, Novartis (NVS) CEO Joe Jiminez fired "several senior managers" following a tour of foreign markets after he didn't like their ethical conduct. The firings follow a foreign corrupt practices investigation by the SEC and other agencies against several drug companies.
- Also in May, Lauren Stevens, a former vp/associate counsel at GlaxoSmithKline (GSK), is standing trial for allegedly making false statements to the FDA about the marketing of the antidepressant Wellbutrin.
- And Eli Lilly (LLY) said it was on the verge of settling a bribery probe of its Polish operations.
- In April, Medicare and Medicaid sought to stop Forest's Solomon doing any further business with its programs after he ignored a 2003 warning to stop marketing Levothroid.
- In April, W. Scott Harkonen, former CEO of InterMune, was sentenced to three years' probation and six months' house arrest for wire fraud in connection with false and misleading statements about clinical trial results.
- Also in April, Johnson & Johnson (JNJ) paid a $70 million fine and one executive was convicted in a foreign bribery scandal.
In March, Marc Hermelin, the biblically bearded former CEO of KV Pharmaceutical, was jailed for 30 days after pleading guilty to illegally selling over-sized morphine tablets.- In December 2010, a federal court upheld an HHS ban on former Purdue Pharma CEO Michael Friedman after he pleaded guilty to misdemeanors connected with the mismarketing of OxyContin.
- Prior to that, Stryker (SYK) president Mark Philip and three of his lieutenants were indicted for selling bone-growth products off-label.
- And Abtox CEO Ross Caputo and regulatory affairs chief Robert M. Riley were convicted of selling misbranded sterilization equipment.
If Solomon resigns now, he will leave with a clean slate. Technically he hasn't yet been banned by the HHS. If he stays and fights, the litigation could take so long that he may die before it ends. At that point, his obituary will focus on the central irony of his long Forest career, which is that Solomon himself investigated Forest founder Hans Lowey in the mid-1970s for inflating the company's profits. The SEC brought charges. Lowey resigned. Solomon succeeded him as CEO, and eventually modernized Forest into a $4.2 billion business with 5,000 employees, most famous for manufacturing the antidepressants Lexapro and Celexa.
Unless Solomon wants to meet the same fate as Lowey, he should step down now.