(Reuters) - Institutional Shareholder Services is backing two of billionaire investor Carl Icahn’s nominees to the board of U.S. drugmaker Forest Laboratories Inc FRX.N, the influential proxy advisory firm said in a research report.
Icahn is waging a proxy fight to elect four directors to Forest’s 10-member board at its annual meeting on August 15 after failing in a similar effort last year. ISS recommended that Forest shareholders vote for Icahn nominees Daniel Ninivaggi and Pierre Legault.
“As the dissidents have demonstrated a compelling case that change at the board level is needed, votes ... for dissident nominees Ninivaggi and Legault, whose experience appears well fitted to the challenges at hand, are warranted,” the ISI report, dated July 31, said.
Icahn, Forest’s second-largest shareholder with about a 10 percent stake in the company, said in a statement, “The fact that this very well respected proxy advisory firm concluded, and recommended, that the best path forward for Forest Labs includes a board with shareholder-nominated directors is very good news for all shareholders.”
Forest on Wednesday urged shareholders to vote for its entire slate of proposed directors and said in a statement that the ISS recommendation was “based on a flawed analysis that adopts Icahn’s fundamental misunderstandings of the company’s business model and strategic focus in support of a reckless, cost-cutting strategy with the potential to destroy value for shareholders.”
Icahn has argued that Forest, maker of the antidepressant Lexapro, has been badly managed and has underperformed industry peers. Icahn has also taken aim at Forest’s long-time chief executive, Howard Solomon, and accused him of planning to install his son as a successor without a proper review.
ISS appeared to agree with much of Icahn’s assessment, saying that based on total return to shareholders, Forest has underperformed peers over the three-, five- and 10-year periods leading up to this contest, with the underperformance more pronounced in the last three years as patent expirations on key products approached.
Forest executives have said the company has a diverse pipeline of new drugs to replace revenue it will lose to generic versions of Lexapro and its Alzheimer’s drug Namenda. It has described Icahn’s nominees as “a weak and conflicted slate that simply does not measure up to Forest’s incumbent directors.”
ISS, however, said Ninivaggi and Legault possess skills needed to help Forest meet the challenge of trying to bring a diverse portfolio of experimental drugs to market while facing steep declines in sales of its flagship products.
“What Ninivaggi does bring to the table is considerable experience as an operating executive in a similarly challenged industry, broad board-room experience across a number of business models and challenges, and the perspective of a large shareholder — his employer — anxious to see things improve,” the ISS report said.
Former OSI Pharma Chief Financial Officer Pierre Legault would also bring a much-needed skill set and business discipline to the board, ISS said in urging shareholders to back two of the four dissident nominees.
Forest, in its response, challenged the qualifications of Ninivaggi and Legault to sit on its board.
“Mr. Ninivaggi has never served on a healthcare board - even as an Icahn nominee - and we believe he is over-boarded due to his role as the chief executive and president of Icahn Enterprises and service as an Icahn nominee on five public company boards, compromising his ability to serve in the best interest of all shareholders,” Forest said.
It added that Legault’s “operational track record is questionable and he has no experience related to launching multiple products in a short time frame.”
Ninivaggi is a president of Icahn Enterprises and holds a MBA degree from the University of Chicago and a law degree from Stanford University. Legault has served as an executive at several big drug companies and small biotechs.
Forest Labs shares were down 46 cents, or 1.4 percent, at $33.09 in afternoon trade on the New York Stock Exchange.
Reporting by Michele Gershberg and Bill Berkrot in New York; Editing by Dale Hudson, John Wallace and Leslie Gevirtz