Howard Solomon Chairman, Chief Executive Officer & President

Dear Shareholders,

I suppose it is repetitious to say that this last year has been an extraordinary year, but it has really been uniquely eventful, in some ways that we would have preferred to have avoided, and in some ways that we have strived to achieve.

For the first time we had a few adversarial surprises that we were able to satisfactorily resolve. First we had a surprise from the OIG (Office of the Inspector General of the U.S. Department of Health and Human Services) indicating that it was considering whether I should be excluded from the pharmaceutical industry. A few months later they decided I should not be excluded – the obvious decision. But the fact that we were in the spotlight of some government review stimulated another controversy – a proxy battle with Carl Icahn, the well-known activist investor. It was unsuccessful, in part because of the OIG’s timely decision not to consider excluding me. But it was primarily defeated on the merits. There are not any flaws that Icahn or his board nominees could assist in resolving that would benefit shareholders and the shareholders clearly realized it. However the stimulus of the proxy challenge helped us to realize that we now had to display with greater transparency what has been in fact our mission all along – to increase shareholder value by obtaining and successfully marketing more and more fine pharmaceutical products, and confirming that management has no other agenda.

And to increase investor assurance and indeed to add to our available wisdom we sought and found three splendid new directors. And then we strengthened all our appropriate governance procedures to assure shareholders that we are doing and will continue to do just what they have a right to expect. As part of that corporate refreshing two of our virtual founding directors stepped down. Bill Candee was a director years before I ever heard of Forest, and George Cohan, a close friend who responded to a friend’s request and joined the board over thirty years ago when Forest was a very much smaller company. Both made enormous contributions to Forest over the years, for which we are very grateful.

In March of this year we had what is colorfully referred to as a “cliff”. In order to have a pharmaceutical “cliff”, you first have to create a pharmaceutical mountain. And so that means that we were able to develop and successfully market a blockbuster product. It all began with Celexa, a one and a half billion dollar blockbuster. And then we developed one of its enantiomers, more effective than the racemate Celexa, which became Lexapro, a two and a half billion dollar blockbuster. Those products were the result of brilliant science and superb marketing, meaning both products had appropriate uses and advantages that were successfully communicated to the right prescribing physicians based on properly designed and successfully executed clinical studies. Products do not otherwise flourish in the informed physician audience that we deal with. That is, incidentally, why we believe consumer advertising is generally not effective and why we have not attempted to reach physicians by promoting products to their patients.

And then we did it again with Namenda, whose “cliff” – trending towards a two billion dollar “cliff” – plunges in 2015. We are a modest sized company and three cliffs like that broadcast a very promising message. It confirms our ability to select, develop and successfully market our products. Blockbusters, and successful products in general, are not born overnight. They sometimes just patiently grow, like Bystolic, and sometimes it takes time for a novel therapy to become a habitual prescription. I think that may happen with Daliresp, for example, which has a novel mechanism that demonstrably reduces COPD (chronic obstructive pulmonary disease) exacerbations which may further worsen the pulmonary conditions of patients with COPD. And so the ultimate question is whether there are products in Forest’s arsenal which the talent and skills that enabled us to achieve our prior successes will enable us to achieve comparable successes in future years?

And the answer is that there surely are. There are nine new products already that we have recently begun to market, or expect soon to market, products that as they mature, individually and collectively, will create new cliffs that successive products in turn will have to remediate – after 2020 and in some cases long after 2020. First is Bystolic, a beta-blocker for hypertension, almost an ancient category of product, launched in 2008. Bystolic works through a variety of mechanisms including dilating the blood vessels at the same time it slows down the heart. Dilating blood vessels increases blood flow and thereby offsets to some degree the slowing of blood flow caused by reduced heart rate, thereby maintaining adequate distribution of oxygen and nutrients to the patient’s tissues. And so for some patients Bystolic is the correct medication. It has already had sales of $97,000,000 in the last fiscal quarter, a 33% increase over the prior year’s fourth quarter. It also is being developed in combination with valsartan, an angiotensin II receptor-antagonist, a combination which we believe may encourage use of the combination as first line therapy whereas today beta-blockers alone tend to be used as third or fourth line therapy. We expect that combination product, if approved, could itself be another significant product.

Savella is a more modest product, for fibromyalgia, a smaller market, but it is steadily growing. Daliresp is a novel oral – uniquely not inhaled – treatment to reduce COPD exacerbations which not only can worsen lung function in patients with COPD, but which may ultimately be fatal for some patients. In a unique oral tablet and through a different mechanism of action than steroids, Daliresp specifically reduces exacerbations, which are ultimately one of the most serious complications in patients with severe COPD.

Teflaro (ceftaroline) is our antibiotic against skin and skin structure infections including MRSA (methicillin-resistant Staphylococcus aureus), and community-acquired bacterial pneumonia caused by Streptococcus pneumoniae. It is an injectable product for hospital use and we have appropriately organized a hospital sales force to market Teflaro. We acquired worldwide rights to Teflaro, excluding Japan, several years ago. We have retained the rights in the United States and Canada and licensed it to AstraZeneca for the rest of the world. Together with AstraZeneca we acquired avibactam, a novel broad-spectrum beta-lactamase inhibitor which inhibits the most common defense that certain categories of bacteria have developed to frustrate some of our most effective antibiotics. And so we have under development, together with AstraZeneca, ceftaroline/avibactam and ceftazidime/avibactam. We will receive royalties from AstraZeneca on sales of ceftaroline and ceftaroline/avibactam, and we will share development expenses for all three products with AstraZeneca. We expect that the combination of these two antibiotics with avibactam will result in drugs that could be highly effective against both the most serious Gram-negative hospital infections, including pseudomonas, as well as Gram-positive infections, including MRSA.

These three antibiotic products will put Forest at the forefront of antibiotic development. Antibiotics take longer to gain acceptance and use, which depends on the rigors of hospital and formulary acceptance. But obviously effective drugs with lifesaving potential are highly important for patients and valuable franchises for their developers.

Viibryd is an antidepressant which has demonstrated efficacy and good tolerability with a relatively low incidence of side effects compared to placebo. It is growing steadily, having achieved sales of $25,000,000 in the last quarter after having been just launched in 2011.

That is five products recently approved and already being successfully marketed (Bystolic, Savella, Daliresp, Teflaro and Viibryd), as well as three related products under development: the Bystolic combination and two antibiotics. And then we have two products presently at the FDA which we expect will be approved this year, aclidinium, a long-acting muscarinic agent, also for the treatment of COPD through a wholly different mechanism than Daliresp, and linaclotide for chronic constipation and irritable bowel syndrome with constipation. There is only one competitor on the market for aclidinium with sales of approximately two billion dollars. And linaclotide has a unique mode of action for these widespread and inadequately treated conditions.

And finally we have two additional products for which the necessary clinical studies have been completed and which we expect to file with the FDA this year: levomilnacipran, which appears to be effective for serious depression and cariprazine for acute mania and schizophrenia and which is being tested for bipolar depression and as adjunctive treatment for major depressive disorder.

That is a total of nine products which have recently reached or which we expect to reach the marketplace and which we have been developing some as far back as ten years ago to assure that our fall off the cliffs would be gentle and temporary. And there are more we have in development and more we are evaluating, and more we don’t have yet, and more we undoubtedly will have because that is precisely what we have successfully been doing for years.

And all of those products were selected from hundreds that we have reviewed and not selected, some eliminated after extensive research and some more quickly eliminated. And there were some that we wanted that eluded us and unfortunately some we unwisely rejected. All these products, which compare favorably or even surpass the pipelines of much larger companies in our industry, have been assiduously identified and skillfully developed because that is our day-to-day business. We have never hesitated to enter new therapeutic areas, confident that our scientists and our sales forces would become proficient and indeed stimulated by new challenges. We also obtain product opportunities from companies outside the United States that want U.S. partners. Some of them need companies like us to take their early discoveries and test and develop and market them into validated, useful products that improve our lives.

We do not do discovery research; we do not create or discover new molecules. Discovery research is the vital basic research that uncovers some of the mysteries of our biological functioning – most of which is still mysterious. That very important work is done by much larger pharmaceutical companies, by the U.S. Government and by laboratories funded by the government, by universities, by small private companies, often funded by venture capital.

We do not do discovery research because it is too risky, too costly and too long-term. Basic research is certainly challenging and clearly indispensable if we are to make progress, but for the present it is not our mission. Right now our mission is the fastest way to increase earnings per share with fine and enduring products.

And so far we are finding that after discovery, there are many opportunities available. It astonished me when we first started looking how many opportunities there are including companies with products that had completed Phase II or IIb or even Phase III, and sometimes perhaps even particularly intriguing Phase I products that are seeking the partnership of companies like Forest with the skills and the resources to take on, develop and market the final approved product. Obviously we are not the only company fishing in these waters, but we are well known, have a premiere business development group, and are highly regarded for our skill, our proven results, and our fairness and integrity – not universal characteristics. The products we have and will have we expect will enable us to far exceed our current cliffs. Perhaps they will create new cliffs with longevity into the next decade.

All these past and future accomplishments depend on the talent and dedication of our employees in finding, developing and marketing important pharmaceutical products. I believe we have the right tactical plan at the present time. It has been proven to be successful for us. If there were a better strategy, we would seize it. We are busily exploring other scientific and geographical growth opportunities in which we can exploit still further the skills we have and which have become more and more polished over the years, and to utilize both our liquidity and, if appropriate, our credit. Those skills, the Company’s culture – always fragile and precious – derive from our employees, truly a family, small enough to communicate internally, diligent, experienced, hard, hard working – all of whom have made Forest a successful company and will keep it that way. We, as shareholders, are the fortunate beneficiaries of their efforts.