A couple of months after taking up the position of Chief
Executive Officer (CEO) and President at
Forest Laboratories, Inc.'s
), Brenton L. Saunders revealed his plans for the company. He
said that the company is undertaking several initiatives to
streamline operations and cut down costs.
$500 Million Cost Savings By End of Fiscal
Saunders announced Project Rejuvenate, which will make Forest
Labs a nimbler and more streamlined organization. Project
Rejuvenate is targeted towards cutting operating costs by $500
million by the end of fiscal 2016 compared to the fiscal 2014
About 65%-75% of these cost savings will be achieved by the
end of fiscal 2015 with the balance being achieved a year later.
Of the $500 million savings, $270 million will be realized from
the streamlining and realignment of the research and development
While another $150 million of the savings will be realized
through the marketing expenses line, the balance ($80 million)
will come from lower general, administrative and other expenses.
Job cuts will account for about 22% of the entire $500 million
savings. The sales force and people responsible for the
submission of important late-stage pipeline candidates will be
spared from the impact of this restructuring program.
Share Buybacks to Boost Bottom-Line
In addition to announcing Project Rejuvenate, Forest Labs
announced its plans of leveraging the balance sheet through the
issuance of new debt. The company will issue $1 billion in new
long-term debt (senior unsecured fixed rate notes due 2021) and
the net proceeds will be used for share repurchases, bolt-on
acquisitions and general corporate purposes.
The Board has authorized a new share buyback program worth up
to $1 billion with the earlier program being terminated. By year
end, Forest Labs will enter into a $400 million accelerated share
buyback program. The company currently has more than $3 billion
in cash and investments.
Announces Accretive Deal
Forest Labs also announced an agreement with
) for the acquisition of exclusive rights to Saphris in the U.S.
Saphris, approved for the treatment of schizophrenia and acute
bipolar mania in adults, generated sales of $150 million for
Merck during the 12 months ended Sep 2013.
The deal terms include an upfront payment of $240 million to
Merck plus sales milestones. While Merck will supply the product,
Forest Labs will be responsible for commercialization including
the completion of post marketing studies, and will be the
marketing authorization holder. The deal, which will be
immediately accretive for Forest Labs, is slated to close in
The strategic initiative announced by the new CEO represents a
step in the right direction. We are positive on the cost-cutting
initiative as well as the accretive Saphris deal. Saphris should
be a good fit in Forest Labs' central nervous system franchise.
Meanwhile, share buybacks should boost the bottom-line. We expect
a significant increase in earnings estimates. Investors reacted
positively to the company's strategic initiative with shares
moving up 9.76%.
Forest Labs is a Zacks Rank #2 (Buy) stock. Some better-ranked
). Both carry a Zacks Rank #1 (Strong Buy).
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