Forest Laboratories Inc won its showdown with activist investor Carl Icahn on Thursday, saying shareholders backed the company's slate of 10 board members over nominees proposed by the billionaire.

Forest was in a strong position to garner support for its entire slate after it won backing last week from influential proxy advisory firm ISS, although some company-watchers had said Icahn could secure a seat for one of his four nominees.

Shares of Forest were down 4.1 percent at $33.05 in afternoon trading, in line with the decline for the broader market.

Icahn has built up the second-largest stake in Forest, according to Thomson Reuters data. The investor, who has won representation at several biotechnology companies, has criticized Forest's governance practices and preparation for patent expirations for its biggest medicines.

Forest's slate included three new board members nominated after Icahn announced his challenge. Two longtime directors did not stand for re-election.

Alexander Denner, one of Icahn's nominees, said at the meeting that the alternate slate would have brought something to the table and that the investor had been able to work with other companies to help bring value.

Forest Chief Executive and Chairman Howard Solomon, who presided over the event, responded by saying the company would be in touch to set up a meeting.

The board sweep represents a new victory for Solomon, who has led the company since 1977. Earlier this month, the U.S. government dropped plans to bar Solomon from doing business with federal healthcare programs, weakening a key plank in Icahn's argument for change.

The preliminary margin in favor of Forest's nominees ranged from three-to-one to five-to-one, excluding Icahn's shares, according to a source familiar with the situation. A final count was expected by next week.

Icahn reported last week a stake of 9.2 percent, from about 7 percent in June. He ranks second behind Wellington Management, which has a 12.5 percent stake, according to data compiled by Thomson Reuters.


Even with the proxy fight behind it, Forest still faces challenges. Analysts expect revenue at the New York-based company to drop by about one-fourth after its Lexapro antidepressant loses patent protection early next year. Its Namenda Alzheimer's drug will lose patent protection in 2015.

Forest has a market value of about $10 billion. Its shares are worth less than half of what they were at their height in 2004 and about 40 percent less than peak 2007 levels.

Susquehanna Financial Group analyst Gary Nachman said Forest is now less likely to change its strategy dramatically.

Shareholders are concerned about the patent cliffs that are coming up and they want to see the company get more aggressive in different ways, but I don't think Icahn was really offering a good solution at this point, Nachman said.

ISS and another proxy adviser, Egan-Jones, backed Forest's entire slate. Glass Lewis recommended Icahn nominee Richard Mulligan, a Harvard Medical School genetics professor who sits on the boards of biotech companies Biogen Idec Inc and Enzon Pharmaceuticals Inc.

Denner, a managing director at Icahn Partners, said that the ISS recommendation made it very difficult to win.

But he said Icahn's challenge was responsible for the three new board members nominated by Forest and that any time you run a proxy fight ... it puts pressure on the companies to think about their shareholders a little bit more clearly.

He also compared the Forest outcome to that of Biogen. It took Icahn three years to win three seats on the board of the biotechnology company. In 2007, on his first try, he won none.

In a statement, Icahn said that activism, especially in biotech, usually takes longer than you believe it will. He cited Genzyme and ImClone -- two companies that were eventually sold after Icahn's involvement -- as well as Biogen.

To replace its revenue declines, Forest has been licensing or buying rights to products in late-stage development -- its long-held strategy under Solomon -- touting the group of experimental and newly approved drugs as its Next Nine.

There's going to be a significant drop in earnings next year and the company is going to continue to spend at pretty high levels through it, Nachman said. So you have to have a lot of confidence that these new products are going to turn out to be pretty meaningful.

(Reporting by Lewis Krauskopf; Editing by Michele Gershberg, Lisa Von Ahn and Matthew Lewis)