Forest Labs CEO's God Complex: "We Were There at Creation," He Tells Investors
Forest Labs (FRX) CEO Howard Solomon began his fightback against investor Carl Icahn's attempt to install four of his own directors on the company's nine-person board with a rambling letter to stockholders today that is by turns sarcastic, heartfelt, delusional and cheeky.
Forest has suffered Icahn's slings and arrows since early June, largely without response. Icahn has accused Solomon of looting the company of $300 million while its stock withered; of hiding information about a government attempt to exclude him from the drug business; and of stocking his board with a bunch of lifers whose compensation keeps them in thrall to Forest's imperial CEO, chairman and president.
The letter feels like a stream of consciousness from Solomon about his feelings for the company, polished only slightly by his PR and legal re-writers. It begins not by mentioning Icahn's bid, but with hyperbole. By amazing coincidence, Icahn's proxy fight has come during:
... the most remarkable year in Forest's history, or maybe in the history of any pharmaceutical company, ...Solomon says that's because the company is about to launch three new products in the next six months, but it's more remarkable because the Department of Health and Human Services has pledged to oust Solomon from the business following his company's $313 million settlement of an illegal drug marketing probe.
47 years is not enough
He then pleads for more time -- "a few years certainly" -- for the new drugs to fill the sales gap left by patent expiries on the antidepressant Lexapro in 2012 and the Alzheimer's treatment Namenda in 2015. Solomon is 83. He's been at the company since 1964. How much more time does he need? (How much does he have left?)
Forest's main glories -- Lexapro and Celexa, another antidepressant -- are in its past, and Solomon pours sarcasm on those who don't understand what he went through to get them:
Celexa was turned down by three major pharmaceutical companies in the United States before Forest was able to persuade its Danish innovator, who was reluctant to waste time with yet another American company, particularly one he had never heard of, to license it to Forest. ...And which quisling was this "faint-hearted" reference intended for?
We have done our best to protect our patents, and in the case of Lexapro, we defended the patent through trial and appeal, even though the faint-hearted thought we should settle.
"We must all be law abiding"
Then Solomon turns to the HHS exclusion, which is the most damning part of the case against him as CEO. His denial is couched with as many qualifications as his lawyers could get into one sentence:
I believe that this use of the exclusion remedy is unprecedented in that at no time have I been charged with or accused of any wrongdoing in the matters that were the subject of an extensive investigation by the U.S. Government which resulted in a negotiated resolution by a subsidiary of our Company.
... We absolutely believe that drugs should not be marketed without FDA approval or for uses not specifically approved by the FDA, and that physicians should not be enticed or rewarded for prescribing our products.This is a tough sell, because the FDA accused Solomon personally in 2003 of marketing Levothroid, a thyroid drug, without approval. The FDA's warning letter said Solomon "made a deliberate decision not to follow the agency's gradual phase-out plan" for Levothroid. Forest wrapped the Levothroid charges into the $313 million settlement. Yet Solomon insists he's as pure as the driven snow:
... we must all be law abiding in all that we do. That is how I have lived my life. It is how Forest has been administered and it is a message I have often communicated to our employees and shareholders.("All" is a flexible noun. The SEC publicly reprimanded the company today for not disclosing when its annual shareholders meeting is scheduled.)
Not God, but close
Next, Solomon comes as close as he can to comparing himself to God without actually doing so:
Neither Forest nor I have just joined the choir; we were there at the creation, and we want everyone in the choir to carry the tune as flawlessly as humanly possible.The letter does not mention Icahn until after Solomon's encomium to his employees ("their ardor and skill and loyalty are our priceless treasure"). He does so as an afterthought, suggesting that Icahn is the least of his problems when in fact he could be the death of the company (Icahn likes to strip and sell distressed assets):
P.S. As you may know, we received a notice from Carl Icahn that while reporting "beneficial ownership" of 6.5% of our stock, he is seeking the election of four members to our Board of nine ...In all, Icahn may still ahead on points, but Solomon is showing some enthusiasm for the battle and may yet land some blows on his nemesis.
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