Embattled Forest Labs Gives First Hint Its 83-Year-Old CEO Could Step Down
Forest Labs (FRX) hinted for the first time yesterday that it is contemplating the exit of CEO Howard Solomon. The admission came in response to a lawsuit filed by billionaire activist Carl Icahn, who owns 6 percent of the company and has launched a proxy fight to replace four directors on the company's board.
Solomon, 83, has been CEO since 1977. For Forest employees, Solomon's retirement will feel the same way the death of Ramses the Great did to the ancient Egyptians -- the unthinkable departure of an immortal. Forest employees have never known the company without Solomon atop its pyramid. It is thus amazing that a Forest official would even suggest that the company might get along without him.
Icahn's suit seeks access to letters exchanged between Solomon and the Department of Health and Human Services, which warned the company in April that it would seek to "exclude" Solomon from doing business with the federal government. No company can accept Medicare reimbursement -- the financial lifeblood of most drug companies -- if its CEO is excluded from business with HHS.
The exclusion attempt came after Forest settled an investigation by the Department of Justice over its illegal marketing of Levothroid and other drugs for $313 million settlement. Forest has not released copies of its correspondence with the HHS, and Icahn alleges the company may have known of the exclusion before it told investors on April 13.
In a statement to Bloomberg, Forest spokesperson Hugh Burns said Icahn's claims were "entirely without merit," and added:
But whatever the outcome, the company will take appropriate steps to make sure it is not precluded from participation in federal health-care programs.If Solomon is excluded, there is only one way that Forest can continue to do business with Medicare and Medicaid: Solomon must leave the company. The phrase "whatever the outcome" suggests Forest is thinking about what might happen if Solomon's legal bid to prevent his exclusion fails; the phrase "make sure it is not precluded" likewise suggests that the company will soldier on even if Solomon isn't present to lead it.
In November, Forest announced a management reorganization under Solomon. That reorg was later described as a "succession plan" in the April statement on the HHS exclusion, but the statement insisted that Solomon might only step aside "temporarily" while the litigation was ongoing*:
The Board continues to work on a succession plan consistent with the management reorganization announced last November. The Board is confident that Forest Labs has the right team, structure and plan in place to ensure a seamless transition ... should Mr. Solomon step aside temporarily pending the outcome of litigation."This is all chatter, of course. It's a proxy fight and mud is flying. Nonetheless, Forest has been on the defensive since Icahn launched his first squib against the company on June 13. If Forest is to repel Icahn -- a victory that also requires Solomon to win his case against the HHS -- it must get into attack mode before Solomon's image becomes too tarnished by the battle.
*Correction: This item did not originally mention that April's statement contemplated the "succession" after Solomon. Apologies for the error.
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