UPDATE: Forest Labs Discloses Icahn Attempt At Board Shakeup

Forest Laboratories Inc. (FRX) received notice that billionaire activist and investor Carl Icahn plans to nominate four candidates to the drug maker's nine-member board.

It wasn't immediately clear what Icahn's complaints are with the New York drug maker that had $4.4 billion in sales for the year ended March 31. Forest Labs, however, faces increasing generic competition, dissatisfaction from the government over its chief executive and fallout from an investigation into the marketing of its top-selling drug.

Icahn, who wasn't immediately available for comment, owns about 6.5% of Forest's stock through a number of entities. The investor is well-known for aggressively pushing for change at companies, often aiming for their eventual sale. He has played a prominent role in numerous multibillion-dollar takeovers in the drug sector, including those of ImClone Systems, Genzyme Corp. and Medimmune.

Speculation that Icahn's involvement could lead to a takeover of Forest boosted the stock Monday. The stock, recently up 2% to $38.70, hit its highest levels in more than three years earlier in the session, and the company has a market value of more than $11 billion. Overall, shares are up 50% in the past year and 21% in the past three months

Forest hasn't yet met with Icahn, but a spokeswoman confirmed that the company will meet with him to discuss his ideas. All of the board's directors are up for re-election, and Forest will make a recommendation to shareholders before the annual meeting. No meeting date has been disclosed, but it usually takes place in August.

The company didn't specifically address Icahn's move but defended its recent performance and strategy. In a statement, Chief Executive Howard Solomon said the company is on track to launch seven new products over four years. He cited the company's share performance and its return of more than $1.0 billion to shareholders through buybacks since 2010.

J.P. Morgan analyst Chris Schott said Icahn's move would likely spark a debate about theoretical takeovers of Forest, but the analyst noted that the company's structure could pose problems. Forest holds a portfolio of products licensed from other companies, and many of those agreements have change-of-control provisions, Schott said in a note to investors.

Forest has been working to offset looming generic competition for its biggest-selling drugs--antidepressant Lexapro and Alzheimer's disease drug Namenda--which combined to provide 85% of product sales in the fourth quarter ended March 31. Patents for Lexapro expire next year, and Namenda loses similar protection in 2015.

The company bought Clinical Data Inc. for at least $1.2 billion earlier this year to acquire antidepressant Viibryd as part of that strategy.

Forest also has been dealing with government pressure for Solomon to step down, a process that is ongoing. It was reported in April that the Department of Health and Human Services intended to exclude Solomon from doing business with the federal government, which could prevent Forest from selling its drugs to a major industry customer.

The move stemmed from an investigation into the marketing of Lexapro and another antidepressant Celexa. Last year, the company agreed to pay $313 million in criminal and civil penalties over sales-related misconduct.

The directors that Icahn is proposing include regular nominees for his health-care endeavors.

Alexander Denner, a managing director of Icahn Partners LP, was a nominee for Genzyme's board and serves as a director at several Icahn investments: Biogen Idec Inc. (BIIB), Enzon Pharmaceuticals Inc. (ENZN) and Amylin Pharmaceuticals Inc. (AMLN).

Richard Mulligan of Harvard Medical School was also a Genzyme nominee and currently serves on the Biogen and Enzon boards. Both Denner and Mulligan were on the board of ImClone.

Eric Ende is a former biotechnology analyst at Merrill Lynch & Co. who served on Genzyme's board as an Icahn representative. Icahn also plans to propose Lucian Bebchuk, a professor of law, economics and finance at Harvard Law School.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com

--Melodie Warner contributed to this article.

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