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Forest Labs CEO to challenge HHS move

Wed, 04/13/2011 - 4:17pm
The Associated Press

Forest Laboratories Inc. said Wednesday that Chairman, President and CEO Howard Solomon will challenge a Health and Human Services move to exclude him from participating in federal health care programs.

The drugmaker said Solomon was notified of the potential action in a Tuesday letter from HHS' Office of the Inspector General. The move stems from a 2010 settlement deal between Forest and the Justice Department in which Forest paid $313 million to settle criminal and civil allegations that it gave kickbacks to doctors who prescribed its antidepressants Lexapro and Celexa and promoted Celexa for use in children.

On Wednesday, Forest noted that the settlement was reached last year with no finding of knowledge or wrongdoing by Solomon, and the only basis given in the letter notifying Solomon of the potential action is that he is "associated with" Forest.

Solomon has 30 days to respond to the HHS letter and say why he should not be excluded. If the agency moves forward with the action, Solomon would be required to step down from his present executive positions. Forest said Solomon plans to begin immediate litigation to prevent exclusion from taking effect if HHS-OIG decides to proceed.

"It would be completely unwarranted to exclude a senior executive against whom there has never been any allegation of wrongdoing whatsoever," said Forest director William J. Candee III on behalf of the board. "At Mr. Solomon's direction, the company has significantly enhanced its sales force monitoring and compliance procedures. We believe the potential HHS-OIG action may well be beyond its legal authority."

Forest's board said it continues to work on a succession plan and is confident that its team would be able to transition to new leadership if Solomon had to step aside temporarily pending the outcome of litigation.

Separately, the company said it has completed its $1.2 billion acquisition of Clinical Data Inc., a deal designed to give the company access to a new antidepressant. Wednesday was the last day for trading Clinical Data shares on the Nasdaq.

New York-based Forest paid $30 per share, a discount of nearly 12 percent from Clinical Data's closing price before the deal was announced Feb. 22. Forest also will pay an extra $6 per share if sales of the recently approved antidepressant, Viibryd, achieve certain milestones.

The Food and Drug Administration approved Viibryd in January. Clinical Data, based in Newton, Mass., held exclusive worldwide rights to the drug from Germany's Merck KGaA. The drug is expected to be available in U.S. pharmacies in the by the end of June. Forest expects the deal will reduce earnings for the next three years due to integration and other costs.

Forest Laboratories shares fell a penny to close Wednesday at $33.89, and slipped 18 cents in after-hours trading following the HHS news.

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