UPDATED: Forest Labs takes aim at R&D in $500M cost-cutting blitz

The new CEO at Forest Laboratories ($FRX) is committing to what has become a common ritual in the industry, gearing up for a major reorganization with a special focus on slashing research costs. Forest Laboratories expects to find more than half of a sought-after $500 million in savings in R&D, with plans to carve $270 million out of its research budget over the next three years with the rest coming out of marketing and administration.

Forest Laboratories CEO Brent Saunders

About $110 million of that cut will come through layoffs, Forest added, though it is creating a protective space for the development and marketing staffers working on late-stage projects. And CEO Brent Saunders--who took the helm a little more than two months ago--emphasized in his call with analysts this morning that the money saved would be used to fund a new wave of acquisitions and licensing pacts for new drugs.

The purpose of the restructuring--dubbed Project Rejuvenate--is to create a more "focused, nimble" organization through streamlining, Saunders told analysts this morning. It will also likely cut deep into R&D, which accounted for $797 million in costs in 2012. A $270 million cut is close to one-third of that amount. 

At the same time that Forest announced its reorganization plans, the company also unveiled a deal to buy the schizophrenia drug Saphris from Merck ($MRK), paying $240 million for the drug while committing to a slate of unspecified sales milestones. Saunders emphasized that the company still plans to get its schizophrenia drug cariprazine to the market.

A few days ago the FDA set up a potentially serious roadblock for Forest Laboratories and its partner Gedeon Richter, rejecting their application for cariprazine and delaying any possible approval until the agency gets additional clinical trial data.

Forest is also raising $1 billion in new debt and said it is repurchasing $400 million in an accelerated buyback program.

"Because our top priorities are maximizing the potential of our launch brands and key products in our portfolio, as well as delivering the late-stage pipeline, we have specifically ring-fenced the sales force and colleagues with key responsibilities for submission of certain late-stage R&D programs from Project Rejuvenate to minimize disruption of these critical growth-driving activities," said Saunders in a statement.

Most of the cuts are expected to come over the next year, says the company, which revealed few details of what will be cut--or added--in Project Rejuvenate.

- here's the press release on the reorganization
- and the release on Saphris