Icahn to Nominate Directors in Second Effort at Forest

Billionaire Investor Carl Icahn
Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP. Photographer: Scott Eells/Bloomberg

Billionaire investor Carl Icahn said he plans a second proxy battle at Forest Laboratories Inc. after failing last year to install directors on the drugmaker’s board.

Icahn didn’t specify how many candidates he intends to nominate, though his slate won’t make up a majority of the board, the investor said today in a regulatory filing. He appointed Eric Ende, president of Ende BioMedical Consulting Group and a former biotechnology analyst at Merrill Lynch, to run the proxy contest.

Icahn, who is New York-based Forest’s second-largest shareholder with 26.4 million shares, or 9.9 percent of the stock, failed last August to get his directors elected. He nominated four candidates, including Ende, arguing the board had been in place too long and had let the stock falter more than 50 percent from a 2004 high of $77.59.

“There is probably some unrecognized value at Forest,” Les Funtleyder, a portfolio manager at Miller Tabak & Co. whose fund holds Forest shares, said today in a telephone interview. “They could probably better leverage some of their existing assets.”

Icahn hasn’t provided the names of his proposed nominees to the company, Forest said in a statement.

‘Puzzled’ By Action

“We always value constructive input from our shareholders, but we are puzzled and disappointed that Mr. Icahn’s first chosen method of engagement since last year is the threat of yet another proxy contest,” Howard Solomon, chairman and chief executive officer of Forest, said in the statement.

The company added three new directors to its 10-member board at its August annual meeting last year. All of the board members are up for re-election at this year’s annual meeting, Forest said in its statement.

Forest’s shares gained less than 1 percent to $33.66 at the close in New York, and have lost 5.9 percent in the past 12 months.

Forest lost patent protection for the antidepressant Lexapro, its best-selling medicine, in March, and the company in April forecast a 26 percent decline in fiscal 2013 revenue, to $3.4 billion.

The drugmaker and partner Ironwood Pharmaceuticals Inc. have applied for U.S. approval of an experimental medicine, called linaclotide, for irritable bowel syndrome and chronic constipation, which could draw as much as $3 billion in annual worldwide revenue, according to Graig Suvannavejh, an analyst with Jefferies & Co. in New York.

September Decision

The Food and Drug Administration in April said a decision on the medicine would be delayed by three months, until September, so the agency could complete its review.

“A lot is riding on the outcome of linaclotide,” Funtleyder said. “Another delay in linaclotide gives activists the opportunity to ask the question: ‘What’s going on? Why can’t you get this approved?’”

Suvannavejh, who recommends holding Ironwood shares, said he views the three-month delay as a “non-event,” noting linaclotide “has shown to be remarkably and consistently safe and effective” in trials. He anticipates approval in the U.S. in early September, he wrote in a May 14 research note.

Icahn lost at Forest last year after proxy adviser Institutional Shareholder Services recommended investors vote for the drugmaker’s slate, saying the billionaire’s case wasn’t compelling enough for change at the board level.

“Activism, especially in biotech, usually takes longer than you believe it will,” Icahn wrote in a statement after the annual meeting last year. He cited experience at ImClone Systems Inc., Genzyme Corp. and Biogen Idec Inc. as recent examples.

The investor was involved with the sales of ImClone to Eli Lilly & Co. in 2008 for $6.5 billion and Genzyme to Sanofi in February 2011 for $20.1 billion. Ende was an Icahn-backed director at Genzyme. At Biogen, Icahn gained three seats on the board after a three-year battle, and oversaw a restructuring and appointment of a new chief executive.

Icahn didn’t immediately return a call seeking comment.

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