Maker of AIDS Drug Accused of Securities Fraud : Pharmaceuticals: ICN of Costa Mesa and a subsidiary were sued by the SEC for misleading the public about ribavirin. Without admitting wrongdoing, they signed a decree not to violate statutes.

The Securities and Exchange Commission Monday sued ICN Pharmaceuticals and its Viratek Inc. subsidiary for securities fraud, contending that they knowingly misled the public about a Viratek drug’s effectiveness in fighting the AIDS virus.

Without admitting or denying wrongdoing, the companies settled the suit over the drug ribavirin by signing a consent decree in which they agreed not to violate future securities laws.

“They (ICN officials) felt it was in the best interest of the shareholders and the companies to avoid protracted litigation,” said Clifford Saffron, a New York attorney for the companies.

The complaint also named Milan Panic, chairman of both companies, and ICN board member Weldon B. Jolley. It maintained that the two and the Costa Mesa-based companies used only selected information from clinical trials of ribavirin to support claims that it stopped the progression of AIDS. The officers also agreed to the settlement.

The SEC contended that the companies knew--but failed to disclose--that patients with the HIV virus who were taking ribavirin in clinical trials were by and large healthier than those taking a placebo. The company had reported that none of the patients taking 800 milligrams of ribavirin had contracted AIDS while 10 of those on placebos had died.

In a separate clinical trial of individuals with AIDS-related complex (ARC), the SEC said, the company knowingly withheld preliminary results showing that a disproportionate share of those individuals on ribavirin had died.

The result, according to SEC officials and AIDS activists, was a rush to ribavirin as a medical miracle and a terrific investment.

Viratek Inc.--which is 83% owned by ICN--saw its stock soar, although it has since fallen. ICN’s stock also appreciated, although not as dramatically.

“You can see how much AIDS money was invested in the stock,” said Joy Gaines Thompson, an assistant regional administrator for the SEC and the chief government attorney in the ICN-Viratek case.

While investors cozied up to ICN in the mid-1980s, people with AIDS began making regular trips to Mexico to get the drug, which never received Federal Drug Administration approval. The hope was that it would buy them time.

Some activists and medical officials reacted to the SEC’s accusations Monday with a mixture of sadness and anger.

“I think any time you announce premature results that haven’t been verified, you are doing a disservice not only to people with HIV but to their families and the people who love them by elevating their expectations and then failing to come through,” said Dr. Donald Abrams, assistant director of AIDS activities at San Francisco General Hospital.

The SEC’s case against ICN and Viratek revolved around a series of actions that federal regulators said misled the public about ribavirin. It cited a Jan. 9, 1987, press conference held by Panic and Jolley, in addition to press releases, mailings to investors and a videotape fed to local TV stations via satellite. During the press conference, Panic released the results of the clinical trials.

Thompson said the companies failed to disclose at the press conference that, in the trial involving ribavirin and the placebo, half of the HIV-positive patients in the placebo group were “extremely ill and at extreme high risk of progression to AIDS from the beginning of the study.” She said the company also misled the press and public about whether the results of the ARC trial would be positive or negative.

The SEC contended that the companies knew that, among the ARC patients, the group receiving the highest dose of ribavirin was experiencing a disproportionate number of deaths compared to the group receiving the lowest dose or the group receiving placebos.

Saffron disputed much of the SEC’s contention. The company, he said, was unaware of the health of many patients in the first trial. However, he added, “four independent, world-renowned statisticians found that . . . the results would still have been statistically significant.”

Those four statisticians were paid by ICN, he added.