Forest Laboratories Inc. will be under the care of a new leader come Oct. 1, when former Bausch & Lomb Inc. CEO and Forest board member Brenton Saunders takes the reins. For some investors, the changing of the guard at the specialty pharma signals a new direction for the company, even if management has yet to announce a change in strategy; meanwhile others see the appointment of an insider as just more of the same.

The way Forest is run has been under scrutiny for the last few years as investors have attempted to oust aging CEO Howard Solomon with little success, even as the top-line was pressured by generic competition to blockbuster antidepressant Lexapro (escitalopram). Pipeline development also has been criticized. Yet, finally, time did what investors could not – 86-year-old Solomon announced his pending retirement in May. Solomon is expected to stay on until the end of 2013 and will continue to hold the role of chairman until Forest’s annual meeting in 2014, when Saunders will move into that position as well.

Saunders joined the Forest board in August 2011, when Carl Icahn failed to secure his own nominees to the board in what would turn out to be just the first round of proxy fights between the activist investor and the company Also see "Forest Holds Off Icahn, But Battle Likely Looms" - Pink Sheet, 18 August, 2011.. At the time, Icahn was questioning Solomon’s succession plans – even accusing him of trying to bring in his own son as his successor.

The billionaire also questioned the company’s strategy for shoring up revenues ahead of the Lexapro patent loss. Forest had been aggressively pursuing a business development strategy that involved adding late-stage or recently approved products to its portfolio, including the acquisition of Clinical Data Inc. in early 2011 to bring in the antidepressant Viibryd (vilazadone) – a drug that has not lived up to expectations Also see "Forest Buys Clinical Data And Extends Its Antidepressant Portfolio" - Pink Sheet, 22 February, 2011..

While on the board at Forest, Saunders chaired its compensation committee and is a member of the compliance committee. He will step down from those roles upon becoming CEO.

Timing Is Everything

The search for Solomon’s replacement has been followed closely by investors who were hoping to see the aging CEO removed years ago. An independent committee from the company’s board had begun looking at both insiders and outsiders earlier in the year, with speculation pegging Saunders as the lead candidate.

The committee consisted of five independent directors: Christopher Coughlin, who has served as a director since 2011 and is chairman of the Audit Committee; Kenneth Goodman, who has served as a director since 1998 and is presiding independent director; Vincent Intrieri, who was appointed to the board in June 2013 from Icahn’s slate; Pierre Legault, who has served as a director since 2012, also an Icahn appointee; and Gerald Lieberman, who has served as a director since 2011 and is chairman of the Nominating and Governance Committee.

The timing for Saunders couldn’t have been better – he recently ended his tenure as CEO of B&L when the company was acquired by M&A-focused Canadian specialty pharma Valeant Pharmaceuticals International Inc. for $8.7 billion in debt and equity in May 2013 ([A#14130528003]).

“We have long thought Brent would be an ideal CEO to succeed Howard when the time came. Over the course of our announced search and rigorous board process, during which we seriously evaluated a number of excellent candidates, this belief became crystal clear. We are delighted that, following the recent sale of Bausch & Lomb, Brent became available at just the right time,” noted Goodman in a statement.

Saunders is credited with transforming the B&L drug and device business, as well as revamping its laboratories; he was known for having a hands-on approach that included ride-alongs with sales reps and discussions with doctors about the company’s offerings ([A#01360120026_b]).

The B&L transformation was overseen by its Chairman Fred Hassan, who also worked alongside Saunders at other positions – Hassan was chairman and CEO of Schering-Plough Corp. until its merger with Merck & Co. Inc. in November 2009. During that time, Saunders served as senior VP and president of Schering-Plough’s consumer health care unit Also see "Who's the Boss? Merck Names Managerial Team As Schering Merger Looms" - Pink Sheet, 7 September, 2009..

To Change Or Not To Change?

While a new CEO clearly means a shift in power, there won’t necessarily be a change of strategy. BMO Capital analyst David Maris doesn’t believe this succession will lead to an overhaul of the specialty pharma’s flailing business, particularly since Saunders already was involved in the company.

“Investors should not expect anything new out of Forest by way of strategy or direction,” he wrote in a Sept. 10 note. “While some would hope that a new CEO would bring on a new direction, remember that Saunders has been a member of the board for some time and other board members include the outgoing CEO, the previous president and the former head of R&D.”

Others are not as skeptical: “There’s been an intent to change out the board for some time. We don’t know what kind of impact Saunders is going to have, but people are going to view this as a good thing and change of tack for the company,” said Lazard Capital Markets analyst Bill Tanner in an interview.

Will Saunders Bring Transformation To Forest?

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