ICN Pharmaceuticals, Inc.
ICN Pharmaceuticals, Inc.
3300 Hyland Avenue
Costa Mesa, California 92626
Telephone: (714) 545-0100
Toll Free: (800) 548-5100
Fax: (714) 556-0131
Web site: http://www.icnpharm.com
Sales: $858.10 million (2001)
Stock Exchanges: New York
Ticker Symbol: ICN
NAIC: 325412 Pharmaceutical Preparation Manufacturing
ICN Pharmaceuticals, Inc. is a prescription and nonprescription drug developer and manufacturer that distributes its products in more than 100 countries. ICN also operates a biomedical business that accounts for roughly 7 percent of the company’s sales volume. ICN is best known in the medical field for its development of ribavirin, an antiviral compound used to treat hepatitis-C, herpes simplex, influenza, and chicken pox, among other viral infections. The company’s other products treat bacterial infections, diseases of the skin, neuromuscular disorders, cancer, cardiovascular disease, diabetes, and psychiatric disorders.
ICN’s founder, the controversial Milan Panic, left an indelible imprint on the company he started in a Los Angeles garage. Born in Yugoslavia, Panic participated in the resistance against Nazi occupation of his native country during World War II, fighting the first great fight of his embattled life. After the war, Panic’s athletic prowess came to the fore, earning him a place on Yugoslavia’s Olympic cycling team. While on tour with the team in 1956, Panic defected, arriving in the United States with $200. After attending the University of Southern California, Panic started ICN in 1960, using his garage to house the company’s modest operations. For the 30-year-old Panic, an entrepreneurial dream was set to unfold.
During its formative years, ICN grew by acquiring niche pharmaceuticals such as dermatological drugs, but the company scored its greatest success in the research field. With the help of Dr. Roland Robins, and later, Drs. Weldon Jolley and Roberts Smith, Panic’s company developed an extensive collection of nucleoside analogs. Research in this area led, in the late 1970s, to the discovery of the antiviral drug ribavirin, which showed promise in combating the flu as well as other viruses. Panic pinned great hopes on the market opportunities for ribavirin, to the point that the Securities and Exchange Commission (SEC) charged Panic in 1991 with falsely promoting ribavirin as an AIDs cure, which Panic settled without admitting or denying wrongdoing. Before the strengths of ribavirin could be explored, however, the difficult task of clearing regulatory hurdles had to be accomplished.
Because of the differences between viruses and bacteria, shepherding an antiviral drug through the regulatory approval process was decidedly more difficult than bringing an antibacterial to market. Antivirals were charged with a more intricate task than antibacterials, which focused on killing bacteria living outside the cell. Antivirals, on the other hand, were required to eliminate a virus without killing the host cell or harming the host organism. Panic, according to his account, labored arduously to gain a nod of approval from the Food and Drug Administration (FDA). “It was not easy to bring an antiviral drug to market,” he reflected in a 2002 company press release, “because no one believed in it. The regulators constantly denied approval and constantly discouraged our research, once even telling me to stop our studies entirely. I refused to stop. …” Panic eventually prevailed, his success signaled when ribavirin, marketed under the name Virazole, gained approval for the treatment of an often fatal infant respiratory disease called respiratory syncytial virus, or RSV. Eventually, ribavirin was approved in the United States for the treatment of hepatitis-C in combination with another drug, interferon.
International Growth in the Early 1990s
Armed with one of the few antiviral products on the market, a slew of antibacterials, and numerous other ethical (doctor-prescribed) drugs, ICN’s fortunes swelled. Prolific growth did not arrive, however, until Panic decided to transform ICN into an international drug manufacturer and developer. To accomplish this, Panic returned home. In 1991, he acquired a 75 percent interest in Galenika Pharmaceutical, the major drug manufacturer and distributor in Yugoslavia. Renamed ICN Galenika, the acquisition gave ICN new product lines and substantially expanded the company’s sales volume, making ICN one of the first Western pharmaceutical companies to establish a direct investment in Eastern Europe following the fall of Communism. At roughly the same time the investment in Galenika was made, Panic also added facilities in several other former Soviet satellite nations and across the globe, etching a presence in Western Europe, Africa, Asia, and Australia. Between 1993 and 1994, Panic also acquired a 41 percent interest in Oktyabr, a Russian drug company. In 1995, Panic increased ICN’s investment in Oktyabr to 75 percent, eventually developing ICN into the largest pharmaceutical concern in Russia.
Although the physical and financial growth achieved during the first half of the 1990s were of an unprecedented scale in ICN’s history, the achievements were overshadowed by the drama surrounding Panic. In what must have been one of the signal highlights of his career, Panic returned to his Balkan homeland in July 1992 to serve as Prime Minister of Yugoslavia. Once in power, Panic began to grapple with Slobodan Milosevic in an attempt to usurp his power. Panic lost a fraudulent presidential election against Milosevic on December 20, 1992. Before the end of the month, Panic was ousted as Prime Minister, a loss of personal stature that had a reverberative effect on ICN’s stature.
Panic Embroiled in Controversy During the 1990s
In opposing Milosevic, Panic had not shied from leveling his criticism loudly and frequently. After Panic’s removal from office, the Yugoslav government took its revenge, making ICN pay for Panic’s words. The Yugoslav government reneged on payment for pharmaceuticals purchased from ICN, leading to sizable losses for the Costa Mesa-based company, but the losses only represented part of ICN’s problems as they related to Panic’s conduct. The SEC first began to take extraordinary interest in Panic in 1977, when the regulatory body charged ICN’s chairman and chief executive officer with reporting false financial papers. Panic’s alleged promotion of ribavirin as an AIDS cure in 1991 again prompted the SEC s intervention. In early 1993, not long after Panic was deposed as Prime Minister of Yugoslavia, a Beverly Hills stockbroker, Rafi M. Kahn, launched a shareholder fight, aiming to oust Panic. Kahn, who had invested $2 million of his own money, took exception with the considerable salary and bonuses awarded to Panic while ICN’s stock languished. In 1992, ICN’s stock plummeted from $20.37 per share to $6.50 per share. Meanwhile, Panic had received $619,000 in salary—money received, to Kahn’s ire, while Panic was serving as the Prime Minister of Yugoslavia. Further angering Kahn, Panic received a bonus in April 1992 worth an estimated $5.3 million, a sum received while ICN suffered from anemic financial performance and sharply declining stock value. ICN responded by filing a lawsuit against Kahn in April 1993, accusing Kahn of using insider information obtained while he was employed by his brokerage firm as the basis for his shareholder revolt. A week later, Kahn countered, filing a lawsuit against Panic for defamation of character. “I intend to sue him for $50 million,” Kahn told the Los Angeles Business Journal on April 12, 1993.
Panic withstood the attack to his chairmanship, but his troubles were far from over. In 1994, Panic sold $1.2 million worth of ICN stock, which in 1996 led to the formation of a grand jury to investigate whether Panic had used unfavorable information not shared with shareholders to prompt his disposition of ICN stock. Panic’s litigious exposure was e ver-widening, rife with shareholder disdain and the increasingly skeptical eye of the SEC. Beyond that, Panic’s troubles ran deeper. During the first half of the 1990s, Panic’s time spent helping to manage ICN and Yugoslavia was pocked by a flurry of sexual harassment accusations. The tolls for the allegations made against Panic were paid by ICN, ultimately levied against an increasingly restless body of shareholders.
Charges of groping and propositions for sex were lodged one after another during the 1990s. Dating back to at least 1990, female employees began to question Panic’s motives. When the concerns were made legally manifest, Panic faced the allegations of at least six ICN employees, between 1993 and 1998, charging that Panic had propositioned them for sex, groped them, or either punished or rewarded them, their promotion or demotion determined by whether they had complied or complained. By 1998, five of the employees had filed discrimination charges with the Department of Fair Employment and Housing of California; four of the accusers sued ICN, costing the company millions of dollars in settlement fees. ICN’s general counsel told the U.S. News & World Report on July 6, 1998, “The courts are being abused by these silly cases.” In the same article, Panic’s perception of the events was offered, as quoted from the deposition of ICN’s board of directors, “Panic said: The complaints are bullshit. They loved me.’ ”
ICN is a global pharmaceutical company dedicated to research and innovation in healthcare. ICN Pharmaceuticals is committed to developing, producing and distributing the highest-quality products for the patients, consumers and healthcare partners we serve; attracting and sustaining workers who take pride in themselves, their work and their company; delivering a fair return to our investors; and to improving the communities in which we live and work in the United States and around the world.
Aside from the personal notoriety gained by Panic, ICN stood as a solid, mid-sized pharmaceutical company during the mid-1990s. In May 1995, the company paid Becton, Dickinson for its radioimmunoassay product line, which was used for anemia and thyroid diagnostic testing. Under Becton, Dickinson’s control, the diagnostic testing product had been distributed primarily in North America and Western Europe, but ICN, able to flex a more comprehensive distribution muscle, intended to extend distribution into Latin America, Asia, Eastern Europe, and the Middle East. In December 1996, the company purchased a 40 percent stake in SeaLite Sciences, Inc., which owned a patented diagnostics technology that could be used to produce extremely sensitive test kits, such as a thyroid test kit.
By the end of 1996, when annual sales exceeded the $500 billion mark, ICN was distributing its prescription and nonprescription products in more than 60 countries. Ribavirin, marketed as Virazole in North America and in most European countries (as Vilona and Virazid in Latin America, and as Virazid in Spain), was approved for commercial sale in more than 40 countries. Although the antiviral agent was approved in the United States only for restricted use in the treatment of RSV, ribavirin was approved for use across the globe for a variety of viral infections, including RSV, herpes simplex, influenza, chicken pox, hepatitis, and HIV. One of fewer than ten antiviral agents marketed worldwide, ribavirin accounted for 10 percent of ICN’s sales in 1995. By contrast, the company’s numerous antibacterial drugs accounted for roughly one-fifth of 1995’s sales volume. The bulk of the company’s sales were derived from what the company termed “other ethical drugs,” a large collection of prescription analgesics, antirheumatics, hormonals, and psychotropics, among other drugs. These products accounted for 40 percent of sales in 1995. The balance was derived from a collection of ancillary, over-the-counter products that were sold through the company’s extensive distribution network.
A Battle for Control in the 21st Century
While the scope of ICN’s business expanded, Panic continued to face a host of legal troubles, both in the form of sexual harassment charges and ongoing investigations undertaken by the SEC. The legal problems were costing ICN millions of dollars, exacerbating the animosity felt by a number of agitated shareholders. Proxy battles lodged by shareholders had become an almost annual event, but Panic continued to thwart attempts for his removal. In 2000, royalties from ribavirin, which had become increasingly popular in the treatment of hepatitis-C, were expected to reach $162 million, a fourfold increase since 1998. Despite, or perhaps because of, the exponential gain in ribavirin sales, some shareholders were becoming increasingly frustrated by the company’s lackluster stock performance. “Most shareholders are tired of waiting for value to be created,” Michael Yellen remarked in the September 4, 2000 issue of Business Week. Yellen served as a senior portfolio manager of the AIM Global Health Care fund, which owned two million ICN shares.
In 2000, while the SEC was seeking to bar Panic from ever again running a publicly traded company, the embattled chairman announced in mid-June a restructuring plan for ICN. According to the plan, ICN was to be split into three companies, with Panic slated to control each business. The news caused ICN’s stock value to fall further. At roughly the same time the reorganization was announced, several shareholders pitted forces and began a proxy battle, its aim to remove Panic from his chairmanship. The shareholder revolt persisted for two years, dragging on as the plan to restructure the company never materialized in any action made by Panic. When the company’s research and development arm, including the rights to its antiviral franchise, was spun off in April 2002, angry shareholders found another issue to fuel their revolt. The spinoff created Ribapharm, a New York Stock Exchange-traded company whose initial public offering raised nearly $300 million for ICN and netted Panic a $33 million bonus, infuriating already agitated shareholders.
Leading the charge against Panic were two shareholder groups, Franklin Mutual Advisers LLC and Iridian Asset Management LLC, who together owned 10 percent of ICN’s stock. In their filing with the SEC, as quoted in the May 6, 2002 issue of the Los Angeles Business Journal, the two groups were frank with their assessment: “We believe (Panic’s) presence at the helm of (ICN), his dismissive attitude toward shareholders, and his controversial reputation are among the chief reasons ICN’s market valuation lags those of its peers and fails to adequately reflect (ICN’s) fundamentals.” On June 12, 2002, the dissident shareholders prevailed, celebrating Panic’s announcement that he was retiring as ICN’s chairman and chief executive officer.
The removal of Panic ushered in a new management team. Gone were Panic’s personal connections that had been instrumental to ICN’s development into an Eastern European powerhouse. Gone too was the stigma of Panic’s presence at the company’s helm. Into the void created by Panic’s departure stepped Robert W. O’Leary, appointed ICN’s chairman and chief executive officer on June 20, 2002. The founding chairman and chief executive officer of Premier Inc., a strategic alliance of healthcare and hospital systems, O’Leary took on the difficult task of sparking ICN’s turnaround. In a July 29, 2002 interview with the Los Angeles Business Journal, O’Leary admitted that ICN’s condition was worse than the incoming team had expected. Looking ahead, O’Leary said: “All options are on the table with one exception—the sale of the company. The challenge for us as board members was—and still is—to instill investor confidence in what is basically a sound business.”
- Milan Panic founds ICN in his garage.
- Late 1970s:
- Ribavirin is developed by ICN.
- A 75 percent stake in Galenika Pharmaceutical is acquired.
- The company begins building a presence in Russia.
- Panic resigns as chairman and chief executive officer.
ICN Canada, Limited; Alpha Pharmaceutical, Inc. (Panama); ICN Farmaceutica, S.A. de C.V. (Mexico); Laboratorios Grossman, S.A. (Mexico); ICN Pharmaceuticals, Holland, B.V.; ICN Biomedicals, Inc.; ICN Pharmaceuticals Germany GmbH; ICN Pharmaceuticals Australasia Pty Ltd. (Australia); ICN Pharmaceuticals Japan, K.K.; ICN Biomedicals B.V. (Netherlands); ICN Iberica S.A. (Spain); ICN Pharmaceuticals, Ltd. (U.K.); ICN Biomedicals, GmbH (Germany); ICN Pharmaceuticals France S.A.; ICN Biomedicals S.R.L. (Italy); ICN Biomedicals N.V. (Belgium); ICN Oktyabr (Russia; 95%); ICN Polypharm (Russia; 96%); ICN Leksredstva (Russia; 97%); ICN Hungary Company, Ltd. (96%); Fuzio-Pharma Rt. (Hungary; 97%); ICN Polfa Rzeszow (Poland; 98%); AO Tomsk Chemical Pharmaceutical Plant (Russia; 90%); Marbiopharm (Russia; 93%); ICN Dutch Holdings B.V. (Netherlands); ICN Czech Republic; ICN Solco AG (Switzerland); Draig Ltd. (U.K.; 75%).
GlaxoSmithKline pic; Merck & Co. Inc.; No varus AG.
Cecil, Mark, “ICN Is Frozen with Panic Against Heartland,” Mergers & Acquisitions, July 31, 2000, p. 42.
Cole, Benjamin Mark, “LA. Cast Gets Swept Up in New Round of ICN Turmoil,” Los Angeles Business Journal, May 7, 2001, p. 33.
“ICN May Rework Restructuring Plan Again,” Daily Deal, August 2, 2001, p. 5.
Lubove, Seth, “Panic Attack,” Forbes, September 30, 2002, p. 52.
Palmeri, Christopher, “The End for ICN’s Milan Panic?,” Business Week Online, May 30, 2002, p. 3.
Reed, Vita, “Investors Gird for Second Attempt to Split Drug Maker,” Los Angeles Business Journal, May 6, 2002, p. 8.
——, “Panic Gone, New ICN Team Finds Finances in Disarray,” Los Angeles Business Journal, July 29, 2002, p. 28.
“Ribavarin vs. AIDS,” Fortune, January 21, 1985, p. 11.
Vrana, Debora, “Shareholder Threatens Defamation Suit in ICN Dispute,” Los Angeles Business Journal, April 12, 1993, p. 3.
“Will Investors Pull the Plug on Milan Panic?,” Business Week, September 4, 2000, p. 108.
—Jeffrey L. Covell