ICN Returns as a Favorite of Wall Street : Drug Firm’s Stock Is Soaring on Hopes for Wide Use of Virazole
It’s been the darling of investors and a Wall Street outcast, and now it’s back on top again after a deep depression in the early 1970s, when prospects dimmed amid a rising tide of red ink.
ICN Pharmaceuticals of Costa Mesa, whose stock traded for more than $36 a share during the early ‘70s before the drug maker fell from grace, has been on the New York Stock Exchange’s most active list for more than a week. Closing Thursday at $30.75 a share, down $2.62 1/2 on the day, the stock price has been heading toward an all-time high after dropping to as low as $1.25 a share in 1974.
And ICN’s Viratek Inc. and SPI Inc. subsidiaries have racked up impressive gains on Wall Street as well.
ICN stock has soared more than 60% in price since Paine Webber last week issued a report saying the company’s drug Virazole has “the potential to become one of the world’s largest-selling drugs.” The report is believed to be the first research report on the company to be prepared by a major brokerage firm in at least a dozen years.
Despite the new-found attention, however, surprisingly little has changed at ICN: Virazole is still the drug upon which the company banks its future, and the genial Yugoslav immigrant who founded the company in 1959 is still at the helm.
It’s just that, after 16 years of research, a handful of favorable write-ups in medical journals, federal approval of the drug for use as a treatment of one disease and the recent signing of a research deal with the Army, the world may finally be ready for Virazole, says ICN’s founder and chairman, Milan Panic (pronounced Pan-isch).
“Being ahead of everyone doesn’t always give you much of an advantage,” Panic said in his thickly accented English. “We had this drug, but my God, nobody believed us. You’d go home and search your soul and think that maybe they’re right.”
Although ICN has always envisioned Virazole as a treatment for influenza, the deadly acquired immune deficiency syndrome seems to be the biggest reason for the company’s new popularity among investors. And while ICN hasn’t been shy about the AIDS connection--last year, for example, it sponsored an AIDS conference at its headquarters--Panic himself sounds like a skeptic.
“I think AIDS gets more attention than it deserves,” he said. “We have no proof that our drug is effective against AIDS in humans, or else we would have filed a new drug application.”
Impact of Federal Report
The whole thing got started when the federal Centers for Disease Control in Atlanta released a report in late 1984 that indicated that, at least in the test tube, Virazole may be effective against AIDS. “Under pressure of that report,” said Panic, the company began testing the drug, partially with money supplied by Eastman Kodak Co., which owns 5% of ICN and 10% of Viratek.
Clinical trials of Virazole’s effect on about 350 pre-AIDS patients are nearing completion at several medical centers, and the Public Health Service soon will begin independent testing of the drug in a five-year study of AIDS patients’ response to Virazole and several other drugs.
But Panic insists that despite what Wall Street may be expecting, ICN won’t seek FDA approval of Virazole as an AIDS drug if there isn’t enough evidence to support it.
Besides, he said, the market for an influenza drug is much bigger.
Millions of Americans come down with the flu each year, creating a potentially huge market for the drug. With clinical trials of Virazole as a flu medication concluded, Panic said ICN should be able to submit a application for a new drug to the Food and Drug Administration by the end of 1986.
“If you talk to people in the influenza community, you won’t find them falling over backwards with joy at the prospects of using ribavirin (Virazole) to treat influenza,” said Alan Kendal, chief of the influenza section at the Centers for Disease Control.
Although studies among college students have indicated that Virazole can lead to “a small statistical reduction” in flu symptoms when inhaled, Kendal said he would “find it difficult to believe that very many people would want to use it that way.”
The drug is considered most effective when administered in a mist that must be inhaled over a period of several hours so the microscopic particles coat a patient’s lungs--a process that requires a lot of equipment as well as fairly long treatment periods. Using Virazole that way to treat flu would be “impractical for most people,” Kendal said.
Despite Virazole’s long history and its wide availability overseas, where it is used against herpes simplex, viral hepatitis, influenza, measles and chicken pox, it was only last December that the drug became available in the United States when the FDA approved it, but only as a therapy for respiratory syncytial virus, or RSV, a sometimes fatal infant disease.
‘Tomorrow’s Drug’
“It was always tomorrow’s drug,” said Ronald Nordmann, the Paine Webber analyst whose bullish recommendation touched off the buying frenzy of the last week. “It seemed to be an endless process getting it approved,” he said, noting that research of viral diseases was more limited in the early ‘70s than it is now.
During its 1985 fiscal year ended Nov. 30, ICN posted a net loss of $18.3 million, compared to fiscal 1984 net earnings of $871,000. Revenue in ICN’s fiscal 1985 grew 40% to $62.8 million from $44.8 million.
Although Virazole is ICN’s special baby, it is the 350 other compounds that the company produces, mostly prescription dermatological products, that keep it afloat.
Nordmann estimates that during the current year, ICN will post net earnings of $8.8 million and that revenue will grow 40% to $100 million. For 1987, he projects that net earnings will rise 75% to $15.4 million with revenue again up 40% to $140 million.
And, while the market for an RSV treatment is fairly small--sales of Virazole for use in treating the disease will account for only about 16% of revenue this year--ICN hopes the FDA decision last December eventually will lead to wider approval of the drug as a “broad-spectrum” agent against anti-viral diseases.
ICN anticipates seeking FDA blessing for use of Virazole to treat two forms of herpes, hemorrhagic fever and, possibly, AIDS, by the end of next year, the company said.
$230 Million From Offerings
Should Virazole become “the next penicillin” as Panic has hoped in the past, the company still faces a marketing problem. Panic concedes that the company’s sales force isn’t ready yet for worldwide production and sales.
But with more than $230 million in proceeds from recent debt and equity offerings in its war chest, ICN now is on the prowl for an acquisition that will provide it the worldwide distribution network necessary to fully exploit Virazole.
During the late 1960s and early ‘70s, ICN achieved rapid and impressive revenue and earnings growth through worldwide acquisitions of pharmaceutical companies. Earnings and stock price soared, but things began souring after 1972, when some of the acquired companies began to lose money and their lenders started putting the bite on ICN.
Although there was $100 million in debt to retire and angry shareholders waged a proxy battle that nearly unseated him, Panic nevertheless looks back on the company’s near-collapse in the mid-’70s as “great fun.” The restructuring of ICN into little more than a holding company for Viratek and SPI, he said, was a challenge that helped hone his management skills.
And, while ICN has been criticized in the past as being “unreliable in handling the promise” of Virazole, most analysts now following the company believe that the debacle of the ‘70s likely won’t be repeated.
“All of this resulted in a lot of bad publicity, and people who were in the business at that time remember this,” said Eugene Melnitchenko of Rauscher Pierce Refsnes, a Dallas retail brokerage firm. “It’s true that some people who watched it before may be concerned, but the situation today is very different.”
Not only is the management smarter than in the past, but the company has plenty of cash and there is more scientific evidence to support Virazole, added Paine Webber’s Nordmann, who dismisses skeptics as simply not having “done their homework on what has been going on for the last couple of years.”
