DISEASE CHARACTERISTICS:

• Histologically confirmed invasive breast cancer meeting one of the following criteria:

  • Locally advanced or inflammatory disease

    • Clinical stage T4a-d, any N, M0 OR any clinical stage T, N2-3 (ipsilateral supraclavicular nodes), M0 disease
    • OR cT3cN0,1 any estrogen receptor (ER)
    • OR cT2cN1 any ER
    • Or cT2cN0 ER-negative
• HER2-positive disease by immunohistochemistry, fluorescent in situ hybridization, and/or chromogenic in situ hybridization
• Bilateral breast cancer is allowed in phase I

• No bone, liver, or other extensive metastases

  • Minimal lung, skin, or nodal metastases may be allowed at the discretion of the investigator (phase I only)
• No CNS involvement

• Hormone receptor status:

  • Estrogen receptor- and/or progesterone receptor-positive or negative tumor

PATIENT CHARACTERISTICS:

• Female
• WHO performance status 0-2
• Hemoglobin > 10.0 g/dL
• Absolute neutrophil count > 1,500/mm^3
• Platelet count > 100,000/mm^3
• Bilirubin < 1.5 times upper limit of normal (ULN)
• AST and ALT < 3 times ULN
• Creatinine < 1.5 times ULN
• No other malignancies within the past 3 years except basal cell or squamous cell carcinoma of the skin or carcinoma in situ of the cervix (phase II)
• LVEF normal by MUGA or ECHO
• ECG normal
• No current active hepatic or biliary disease (with exception of patients with Gilbert's syndrome, asymptomatic gallstones, liver metastases, or stable chronic liver disease)

• No serious cardiac illness or medical condition within the past 6 months including, but not limited to, the following:

  • History of documented congestive heart failure
  • High-risk uncontrolled arrhythmias
  • Angina pectoris requiring antianginal medication
  • Clinically significant valvular heart disease
  • Evidence of transmural infarction on ECG
  • Poorly controlled hypertension, defined as systolic blood pressure (BP) > 180 mm Hg or diastolic BP > 100 mm Hg
• Able to swallow and retain oral medication
• No active or uncontrolled infection
• No other serious illness
• No malabsorption syndrome
• No other medical condition (i.e., history of chronic alcohol abuse, hepatitis, HIV, and/or cirrhosis)
• No psychological, familial, sociological, or geographical condition that would preclude study participation
• Not pregnant or nursing
• Negative pregnancy test
• Fertile patients must use effective contraception 2 weeks prior to, during, and for 1 month after completion of study treatment

PRIOR CONCURRENT THERAPY:

• No prior therapy for any cancer, including chemotherapy, radiotherapy, or hormonal therapy for breast cancer (phase I)
• No prior epidermal growth factor receptor- or HER2-targeted therapy or antibody therapy (phase I)
• More than 10 days since prior and no concurrent CYP3A4 inducers or inhibitors
• More than 14 days since prior and no concurrent herbal or dietary supplements
• No antacids 1 hour before or after lapatinib ditosylate administration
• No other concurrent investigational therapy or anticancer therapy
• No concurrent prophylactic antibiotics