ICN Takes a Charge of $2.7 Million Against Setbacks
ICN Pharmaceuticals Inc. said Wednesday that it took a charge of $2.7 million to set up reserves for two major setbacks--the loss of a breach-of-contract lawsuit and a fine for overcharging Canadian hospitals for its main drug, Virazole.
The charge reduced its second-quarter earnings to $14.9 million, which still was 7% higher than last year’s $13.9-million second-quarter profit.
Even so, investors weren’t pleased: ICN stock fell $2 a share to close Wednesday at $21 on the New York Stock Exchange.
The special charge didn’t faze investors, said Norm Oremland, a broker at Baltimore’s Legg Mason brokerage. Instead, he said, they were disappointed that ICN’s pretax operating earnings were 50 cents a share, down at least a nickel from analysts’ estimates.
A spokeswoman for the drug company said that two-thirds of the money being set aside in reserve would cover a judgment and costs totaling $4.5 million in the contract dispute. An appeal by ICN is pending in the California Supreme Court.
The rest of the reserve would cover part of a fine and penalties totaling $1.8 million that a Canadian agency ordered after finding that ICN “excessively” overcharged for Virazole, a treatment for severe respiratory infection in infants. The spokeswoman says the company will appeal that order in Canadian federal court.
Both actions were brought against ICN’s Canadian subsidiary.
Last Friday, Canada’s Patented Medicine Prices Review Board ordered the company to pay a $900,000 fine for overcharging hospitals for Virazole and to reduce the cost dramatically until the hospitals recoup $900,000 more through future purchases of Virazole.
ICN had jacked up the price of a 12-hour dose of the drug to $1,540 (Canadian) from $400. The board ordered that the price be slashed to $200 a dose. The company has not yet made a financial provision for the discounts.
Separately, the contract dispute arose in 1992 when a start-up Dallas company, Gencon Pharmaceuticals Inc., sued ICN’s Canadian company in Orange County Superior Court for allegedly reneging on an agreement to manufacture a birth-control pill for sale by Gencon.
The court agreed with Gencon and granted $2.75 million in damages and costs. Additional costs have since pushed up ICN’s potential payment.
A company spokeswoman said ICN hopes to recover some of the $2.7-million charge through its appeals.
While ICN’s quarterly profits increased, its earnings per share fell to 42 cents from 44 cents in last year’s second quarter, the result of a more shares outstanding over the past 12 months. Quarterly sales rose 11.5% to $143.7 million from $128.8 million.
For the first six months, ICN earned $36.9 million, an increase of 19% over net income of $30.9 million for last year’s first half. Revenue rose 7% to $281.9 million for the period from $261 million.
