Drug Firm Reports New Settlement of Investor Lawsuits

Newport Pharmaceuticals International Inc. said Wednesday that it has negotiated a new settlement of shareholder lawsuits accusing the company of having misled investors about the prospects for a drug as a treatment for AIDS-related symptoms.

Earlier this month, the Laguna Hills-based company disclosed that it had been forced to withdraw another settlement plan because of opposition by company bondholders. The company said the revised settlement will not require bondholder approval because, unlike the previous proposal, the amount to be paid is less than $2 million.

Newport sold $6.7 million worth of bonds in 1987 with the stipulation that the company not agree to pay more than $2 million to settle pending shareholder suits without approval from purchasers of the bonds.

The settlement calls for Newport to make a $1.8-million payment to shareholders represented in the lawsuits, of which $1.2 million will be paid in cash. The remainder would be paid in company stock with a market value of about $625,000.

Newport has also agreed to pay interest on the settlement amount totaling $952,000, to be payable in company stock. Judith Archbold, Newport’s general counsel, said the terms under which Newport sold its bonds clearly excluded such interest from the $2-million settlement ceiling.

Under the previous settlement proposal, the company would have paid $1 million in cash plus shares of common stock valued between $1.7 million and $2.1 million.

“Although the new settlement requires that the company use more cash than was required under an earlier settlement proposal, the total settlement paid is significantly less than the earlier proposal,” J. Roberts Fosberg, Newport’s president and chief executive, said in a statement.

He added that the settlement “eliminates a significant distraction to achieving the company’s business goals and improves our chances of meeting our goal of profitability in 1991.”

Archbold said the company is able to record the cost of the settlement in its 1990 financial reporting, which will increase the company’s loss for that year to $5.4 million from $2.5 million.

“It allows us to start off 1991 with a clean slate,” she added.

She said the settlement closes a chapter in the company’s history when it had high hopes for its Isoprinosine drug as a medication for people with symptoms of the early stages of acquired immune deficiency syndrome.

The settlement addressed lawsuits filed in federal and state courts in 1986 that accused 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’s stock rose more than 50% in the six-month period before the company filed in 1985 for federal approval to market Isoprinosine for AIDS-related symptoms. During that period, the suits allege, Newport insiders manipulated the company’s stock price by issuing false and misleading statements about the drug’s potential and reaped large profits for themselves by selling their stock.

Newport’s stock then plunged more than 50% on Feb. 21, 1986, on news that the U.S. Food and Drug Administration had rejected Isoprinosine as a pre-AIDS treatment. The company later said it did not have the money to continue testing the drug. The company has since switched its focus from AIDS drug research to its pharmaceutical mail-order business.

In announcing the settlement, the company said that it “continues to deny any fault, wrongdoing or legal liability on its part in the circumstance cited in the lawsuits.”