Forest Laboratories' Globe-Trotting Profits

With a swipe of his debit card in a Phoenix pharmacy, Tyler Hurst bought a $99 bottle of Lexapro and kicked off a 9,400-mile odyssey of international corporate tax avoidance. Each stop along the way—an industrial park in Dublin, a skyscraper in Amsterdam, a palm-shaded law office in Bermuda—helps the medicine's maker, Forest Laboratories (FRX), cut its income tax bill. Although all of Forest's Lexapro sales are in the U.S., the company moves profits generated by the world's third-best-selling antidepressant from subsidiary to subsidiary overseas, exploiting tax advantages in multiple countries. The technique, known as transfer pricing, reduced Forest's net U.S. tax bill by more than a third in 2009, according to the company's annual report.

Forest declined to discuss its transfer-pricing techniques. Nor would it say how much it made from the $99 that the Phoenix customer paid for his month's supply of Lexapro. For top-selling prescription drugs, the retailer would keep about $12, and $2 would go to a wholesaler, says Helene Wolk, an analyst at Sanford C. Bernstein in New York. The remaining $85, she says, would go to Forest. Since its debut in 2002, Lexapro has generated $13.8 billion in sales for Forest, according to analyst Gary Nachman of Leerink Swann in New York. The drug accounted for 58 percent of Forest's sales for the fiscal year that ended on Mar. 31.