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Executive Summary

FOREST ADDING 71-MEMBER U.S. DETAIL FORCE THROUGH ACQUISITION OF O'NEAL Jones & Feldman, the St. Louis-based mfr. and distributor of generic drugs. Commenting Nov. 13 on Forest's agreement in principal to acquire O'Neal, Jones & Feldman, President Howard Solomon said that "Forest will now be a fully intergrated pharmaceutical company with the ability to develop new products and market them domestically as well as internationally. For several years we have sought an opportunity to acquire domestic marketing ability without earnings dilution and this transaction fulfills that objective." Lacking an in-house marketing arm, Forest has relied on product development and licensing agreements for the commercialization of its controlled release drug delivery systems.For example, Merrell Dow currently markets Susadrin, a controlled release form of nitroglycerin developed by Forest.The firm also has product development agreements with Upjohn for a controlled release form of Motrin (ibuprofen), with McNeil for controlled release lithium, and with Sandoz for controlled release thioridazine. In addition, McNeil licensed rights to Forest's controlled release form of theophylline, but the two companies are in litigation over the unsuccessful launch of the product last spring. Several development projects currently ongoing could yield the first products from Forest R&D to become available for detailing by its new marketing staff. The firm is working on controlled release forms of propranolol, aspirin, and morphine. The latter two could be especially good products for the O'Neal, Jones & Feldman sales force, which is strong in the analgesic field. A Forest spokesman indicated that it will continue to license some of its products to other firms when such arrangements are more favorable to the company than self-marketing. A Nov. 13 press release noted that Forest is getting O'Neal, Jones & Feldman for $8.3 mil. of preferred Forest stock convertible into common stock at $14 per share. However, Forest will not be assuming any liability for E-Ferol, the intravenous vitamin E product distributed by O'Neal, Jones & Feldman which last spring was linked to fatalities among some premature infants given the product. While stressing the "important long range benefits of acquiring an existing domestic sales force," Forest's Solomon noted the "immediate beneficial effect" on his firm's earnings from the acquisition of the O'Neal, Jones & Feldman business, O'Neal, Jones & Feldman has annual sales of about $10 mil. and is "consistently profitable," according to Solomon. The firm previously was owned by privately held Northwestern Management. About 50% of O'Neal, Jones & Feldman volume is from products manufactured at two facilities in St. Louis and Cincinnati. O'Neal, Jones & Feldman's management team, headed by President Larry Hiland, is expected to stay in place. The profitability of O'Neal, Jones & Feldman is particularly attractive at this time to Forest, which has experienced earnings difficulties this year. For the three months ended Sept. 30, the firm's net earnings dropped 21.3% compared to the same period last year, from $701,069 to $551,426. Earnings for the six months were off 1.8%, to $1.40 mil. from $1.43 mil. a year ago. Net revenues were off 14.4% in the second quarter to $4.3 mil. from $5.1 mil. last year, while six months revenue fell 4.2% to $10.1 mil. from $10.5 mil. In the same press release, Forest noted that the company expects "to conclude shortly a research and development financing arrangement in the amount of $5.25 mil. that would substantially reduce the impact on Forest's reported earnings of its large and steadily increasing product development expenses." The financing will be in the form of a limited partnership R&D tax shelter.

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