Bondholders Scuttle Plan to Settle Suits : Litigation: Newport Pharmaceuticals withdraws the settlement, citing investors’ opposition to it.

Newport Pharmaceuticals International Inc. said Tuesday that its bondholders have scuttled a plan to settle shareholder lawsuits that have been plaguing the drug research and mail order firm for five years. The suits allege that the Laguna Hills company misled investors in promoting a drug as a possible treatment for the symptoms of AIDS in its early stages.

Judith Archbold, Newport’s general counsel, said the company must withdraw a settlement reached last October because “a significant number” of bondholders oppose it.

She said the company now has $6.7 million in bonds outstanding and would be required to buy out any bondholders who disagreed with the settlement proposal in order to proceed with it.

“We finished the solicitation of bondholders yesterday, tallied the results and determined the percent that had not consented was so great we couldn’t go ahead with the settlement because we couldn’t afford it,” she said. She declined to say exactly how many bondholders objected.

The bondholders wield significant influence, Archbold said, because the bonds they bought in 1987 specified that the company would not pay more than $2 million to settle the shareholder suits.

Under the proposed settlement, however, those who bought Newport common stock between May 15, 1985, and Feb. 21, 1986, would have been paid $1 million in cash plus shares of common stock valued between $1.75 million and $2.1 million. The plaintiffs also would have received payments of $2.9 million from a company insurance policy. The lawsuits filed in federal and state courts in 1986 accuse Newport and several of its officers and directors--among them founder and former chief executive Alvin Glasky--of fraud and securities law violations.

The price of Newport stock rose more than 50% in the six-month period before the company filed in 1985 for federal approval to market its drug Isoprinosine as a medication for people with symptoms of the early stages of acquired immune deficiency syndrome.

During that period, the suits allege, Newport insiders manipulated the company’s stock price by issuing false and misleading statements about the drug’s prospects and reaped large profits for themselves by selling their stock.

The company has denied the allegations.

Newport’s stock plunged more than 50% on Feb. 21, 1986, on news that the U.S. Food and Drug Administration had rejected Isoprinosine as a treatment for the early stages of AIDS. The company has said it does not have the money to continue testing the drug.

Archbold said she understood that some bondholders want to receive a cash bonus in exchange for waiving the $2-million limit on settlement of the lawsuits but, she said, the company cannot afford to provide that kind of incentive.

Archbold said Newport will be “assessing several alternatives” to deal with the lawsuits. “It is important that we put the lawsuits behind us,” she said, noting that efforts to negotiate a settlement have been distracting the company’s management and costing the firm $300,000 a year in legal fees.