UPDATE: Forest Labs Reports Strong 1Q Amid Executive Challenges

Forest Laboratories Inc. (FRX) reported better-than-expected fiscal first-quarter results and again voiced support for its board and chief executive amid challenges to both.

The New York-based drug maker is facing a government attempt to oust its Chairman and Chief Executive Howard Solomon and a challenge from billionaire investor Carl Icahn, who is attempting to get four nominees on Forest's nine-member board at an Aug. 18 shareholder meeting. On Tuesday, Forest backed its earnings outlook for the next two years, a critical time when it loses sales exclusivity of its top selling the antidepressant Lexapro.

Shares of Forest recently rose 1.5% to $38.50.

Icahn argues that change is needed on the board as key products lose patent protection and the government involvement continues. He wasn't immediately available for comment Tuesday.

On a conference call Tuesday, Chief Financial Officer Frank Perier said there hasn't been much communication with Icahn aside from two meetings, which he described as "substanitive but short."

Forest has argued that the investor's four nominees are "less qualified" than its own slate, also citing a lack of operational experience and potential conflicts of interest from other boards on which they serve.

"Icahn has offered no plan or strategy for the company that would justify installing his four hand-picked nominees to our board," Solomon wrote in a letter to shareholders on Monday.

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.

On Tuesday, Perier said that Solomon has responded to the government and is waiting to hear their reaction. Perier wouldn't detail the company's succession plan if Solomon were to leave his position, but said that the board has a plan in place.

Forest Labs reported a profit of $258.1 million, or 90 cents a share, for the three months ended June 30, up from $117.5 million, or 39 cents a share, a year earlier. Excluding items, per-share earnings rose to $1.04 from 95 cents a year ago, beating analyst expectations of 97 cents, according to Thomson Reuters.

Revenue rose 8% to $1.15 billion, above an estimate of $1.13 billion.

Forest has been working to offset looming generic competition for its biggest-selling drugs--Lexapro and Alzheimer's disease drug Namenda--which provided 79% of total revenue in the first quarter.

Patents for Lexapro expire next year, and Namenda loses similar protection in 2015. Sales of Lexapro rose 3.6% in the quarter to $585.7 million, while Namenda sales increased 3.9% to $319.9 million.

The company backed its per-share earnings projection for fiscal 2012 of $3.60 to $3.70, and reiterated that 2013 earnings won't fall below $1.20 a share. Analysts currently estimate per-share earnings of $3.68 for 2012 and $1.21 in 2013.

Wall Street is watching the company's newest products to see how much they will offset the generic competition.

The company bought Clinical Data Inc. for at least $1.2 billion earlier this year to acquire antidepressant Viibryd as part of that strategy. In the quarter, Viibryd had sales of $7.3 million.

Daliresp, a chronic obstructive pulmonary disease treatment that became available in June, had sales of $8.5 million in the quarter.

Forest plans to begin sales efforts for both drugs next month.

In a statement, Solomon said it would take "a few years" for new product sales to increase and for products in development to surpass sales of Lexapro and Namenda.

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

(Melodie Warner contributed to this story.)

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