Measured Approach

FOREST LABORATORIES, INC. (NEW YORK: FRX)

Data as of

: 11/06/2009

Industry: Biotechnology and Drugs

Current Data

Current Price $28.67 PEG 1.38XMarket Cap ($M) $8,649.1 EPS TTM ($) $2.41Shares Outstanding (M) 302.9 P/E TTM 11.9XInstitutional Holdings % 92.6 EPS Estimated 2010 ($) $3.46Insider Holdings % 0.7 P/E Est. EPS 8.3XBeta 0.79

MA Value ($) $33.17

Latest Quarter Reported 09/30/09 Price Value Ratio 0.86Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell both branded andgeneric forms of ethical drug products, which require a physician's prescription. The Company'sproducts in the United States consist of branded ethical drug specialties marketed directly ordetailed to physicians by its Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare,Forest Ethicare and Forest Specialty Sales. Its products include Lexapro, the Company'sselective serotonium reuptake inhibitor (SSRI) for the treatment of major depression andgeneralized anxiety disorder (GAD); Namenda, its N-methyl-D-aspartate (NMDA) antagonist forthe treatment of moderate and severe Alzheimer's disease; Bystolic, its beta-blocker for thetreatment of hypertension, and Savella, a dual reuptake inhibitor for the treatment of fibromyalgia.Highlights

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Less debt equals less risk. FRX’s debt to equity ratio of 0.00% is exceptional.

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FRX spends an increasing amount on Research & Development to keep its pipeline full.The company has a Price to Research ratio of 10.7, about right for a company of its size.

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T measure growth rate persistence, we average the 3-year, 5-year and 7-year growthrates. Sales growth is 10.47% and the average EPS growth rate is 8.63%. This producesa current PEG of 1.38X.

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The company is showing promising results with their investigational drug linaclotide intwo Phase 3 trials.

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FRX and their partner, Richter Gedeon Nyrt, will start Phase 3 trials for the schizophrenicdrug cariprazine.Analysis of the Balance Sheet:The schedule below shows the year-end balance sheets for the years between March 31, 2005and March 31, 2009 and for the twelve month period ending September 30, 2009. Short term

investments comprise approximately 70 percent of the business’s current assets.

Other currentassets are primarily composed of accounts receivable (12 percent) and inventory (10 percent.)

Fixed assets include all of the company’s production machinery and equipment (Net Property,

Plant & Equipment.) As of September 30, 2009, Net PP&E made up approximately 23 percent of

FRX’s non

-current assets. Other non-current assets include Long-term investments (37 percent)and Goodwill/Intangibles (34 percent.)

Overall, the company’s assets have increased by approximately 51 percent during the

periodMarch 31, 2005 to September 30, 2009. During the same period, sales increased approximately28 percent.

Other current liabilities comprise the largest segment of current liabilities. Accounts payable makeup the remainder of current liabilities.A

s the business’s earnings steadily increased, so did its equity. The company increased booked

equity during the period shown by approximately 70 percent.

Balance Sheet

(Amounts in Millions)

Assets

TTM09/30/09FYE03/31/09FYE03/31/08FYE03/31/07FYE03/31/06FYE03/31/05Cash 0.4 1.0 0.0 7.1 1.2 1,165.5ST Investments 2,853.7 2,579.9 1,906.1 1,345.5 1,026.2 453.7Accounts Receivable 487.2 449.4 446.0 382.7 366.5 323.1Inventory 419.8 393.5 425.1 434.2 635.7 613.9Other Current Assets 337.7 362.1 259.4 253.3 177.5 151.7Total Current Assets 4,098.8 3,786.0 3,036.6 2,422.7 2,207.2 2,708.0Net Property,Plant & Equip. 340.6 345.9 350.0 361.1 375.7 362.0LT Investments 547.2 449.8 534.5 660.4 295.1 351.6Goodwill/Intangibles 504.2 512.9 542.8 172.0 226.8 278.3Other LT Assets 101.8 102.3 61.4 37.2 15.1 5.0

Total Assets 5,592.9 5,196.8 4,525.4 3,653.4 3,119.8 3,705.0Liabilities

Accounts Payable 115.0 117.2 223.7 154.6 140.9 228.0Short Term Debt 0.0 0.0 0.0 0.0 0.0 0.0Other Current Liabilities 765.2 700.6 387.1 473.0 280.1 335.7Total Current Liabilities 880.2 817.8 610.8 627.6 421.0 563.7LT Debt 0.0 0.0 0.0 0.0 0.0 0.0Other LT Liabilities 286.3 264.4 199.2 1.0 1.1 8.9

Total Liabilities 1,166.5 1,082.2 810.1 628.6 422.0 572.6

Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0Common Stock Equity 4,426.4 4,114.6 3,715.3 3,024.8 2,697.8 3,132.4

Total Liabilities & Equity 5,592.9 5,196.8 4,525.4 3,653.4 3,119.8 3,705.0

Analysis of the Income Statement:

As part of my analysis of FRX, I have analyzed the business’s income statements for the years

ended March 31, 2005 through March 31, 2009 and for the twelve month period endingSeptember 30, 2009.Revenues have increased steadily from $3,159.6 million to $4,035.5 million during this period.During this same period, the gross profit margin has remained stable, ranging from 78.2 percentto 79.2 percent. The result is a 29 percent increase in gross margin dollars for the twelve monthperiod ending September 30, 2009 as compared with the year ending March 31, 2005.During the period under consideration, operating expenses have ranged, as a percentage ofsales, from 62.5 percent to 79.4 percent. Pretax income has declined by approximately 22percent between year ending March 31, 2005 and the twelve month period ending September 30,2009.

Income Statement

Amounts in MillionsTTM09/30/09FYE03/31/09FYE03/31/08FYE03/31/07FYE03/31/06FYE03/31/05Sales 4,035.5 3,922.8 3,836.3 3,441.8 2,962.4 3,159.6Cost of Goods Sold 852.2 816.7 800.1 745.6 651.0 687.5Gross Income 3,183.3 3,106.1 3,036.2 2,696.2 2,311.4 2,472.1Depreciation & Amortization n/a n/a n/a n/a n/a n/aResearch/Development 813.0 661.3 671.0 465.0 410.4 293.7Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0Unusual Expenses/(Income) 0.0 0.0 0.0 476.0 0.0 0.0Total Operating Expenses 3,107.1 2,952.2 2,625.9 2,732.9 2,092.9 1,974.9Operating Income 928.5 970.6 1,210.4 708.9 869.5 1,184.7Interest Expense - Non-Op. n/a n/a n/a n/a n/a n/aOther Expenses/(Income) 0.0 0.1 0.0 0.1 0.0(0.1) Pretax Income 928.5 970.5 1,210.4 708.8 869.5 1,184.8Income Taxes 198.2 202.8 242.5 254.7 161.0 346.0Income After Taxes 730.3 767.7 967.9 454.1 708.5 838.8Adjustments to Income 0.0 0.0 0.0 0.0 0.0 0.0Income for Primary EPS 730.3 767.7 967.9 454.1 708.5 838.8Nonrecurring Items 0.0 0.0 0.0 0.0 0.0 0.0Net Income 730.4 767.7 967.9 454.1 708.5 838.8EPS Basic 2.42 2.53 3.08 1.43 2.11 2.30EPS Diluted 2.41 2.52 3.06 1.41 2.08 2.25

Industry Comparative Analysis:The following schedule presents a comparative ratio analysis of FRX and the median company inthe biotechnology and drug industry. Four categories of ratios (profitability, liquidity, debtmanagement and asset management) have been used to compare the operating results of FRXwith that of the industry median.

Liquidity ratios give an indication of the company’s ability to meet its current obligations with theuse of current assets. As indicated by the comparative ratio analysis, FRX’s liquidity ratios are

significantly stronger than those of the industry median company. This indicates that FRX is in amuch better position than the industry median company to meet its current obligations.

The debt management ratios indicate the extent to which the business’

s assets are funded bydebt. As shown in the schedule, FRX has no long term debt.

The profitability ratios measure management’s effectiveness in overseeing the company’s

resources. Compared to the industry median, FRX is more effective than the industry inproducing earnings from its assets.