New Forest CEO slashing jobs, buying shares to right the ship

Analysts two weeks ago predicted Forest Laboratories' ($FRX) new CEO was going to have to do something dramatic after the FDA gave a thumbs down to the antipsychotic drug cariprazine. The drug was supposed to help make up for Lexapro falling off the patent cliff. The company didn't disappoint on Monday, rolling out a $500 million job-whacking and cost-saving plan along with a $400 million share buyback program.

The U.S. drugmaker, which has been limping along for several years, wouldn't say how many employees will be cut but said it would pick up about $110 million in "headcount savings." It said sales staff and employees involved in late-stage R&D would be exempt from the cuts, although those two departments won't be left unscathed. The drugmaker intends to squeeze $270 million out of its research and development arm by streamlining and realigning, while picking up $150 million by cutting marketing expenses. The rest, $80 million, will come from stomping down on general, administrative and other expenses.

"After an extensive review of Forest's operations and strategy, we are taking significant actions to make the company more competitive, enable future growth through acquisitions and return cash to shareholders," said Brent Saunders, who only became CEO Oct. 1.

Forest said it expects to reach 65% to 75% of the cost savings by 2015 and the rest in fiscal 2016. It also said it would issue $1 billion in debt, using $400 million for an accelerated stock repurchase program yet this year and the remaining $600 million for mergers and acquisitions, as well as licensing deals.

The company dubbed the streamlining program "Project Rejuvenate," and there is no question the drugmaker is in need of rejuvenation. The FDA last month issued a complete response letter to Forest and its Budapest-based partner Gedeon Richter saying it believed they needed to work some more on cariprazine dosing to help avoid side effects. That news came after another delay on filing for approval of the respiratory drug aclidinium/formoterol.

Saunders took over from the 86-year-old Howard Solomon, who has been with the company for 50 years and served as CEO for 37. Saunders had been CEO of Bausch + Lomb, which was sold this year. He was famililar with the company, and it with him, since he has been on the Forest board since 2011. He takes the top executive role after a couple of really tough years for Solomon and Forest.

The company's sales were largely built on Lexapro, the blockbuster antidepressant, and the company has been scrambling to prepare for large-scale generic erosion. It posted a loss in its fourth quarter last year as generics ate Lexapro market share. Forest also was under investigation by the U.S. government for off-label marketing and ultimately agreed to pay $313 million to settle the probe. The Department of Health and Human Services even wanted Solomon excluded from the pharma industry, although he beat back that attempt. But issues built up and the company found itself in a two-year running battle with investor Carl Icahn, who managed to get one of his board picks elected.

Saunders said today that his "objective is to drive long-term sustainable growth by focusing on the things we do very well and increasing our relevance to our stakeholders, including customers, colleagues, investors and partners."

- here's the release