ICN Agrees to Settle Suit for $14.5 Million
In an unexpected move, ICN Pharmaceuticals Inc. said Thursday that it agreed to pay $14.5 million to settle a 9-year-old shareholder lawsuit accusing the drug maker of falsely hyping prospects for its drug Virazole as a treatment for AIDS.
Under the agreement, which is subject to the approval of a New York federal judge, the Costa Mesa-based company would pay $10 million in common stock and $4.5 million in cash to an estimated 7,500 shareholders. Plaintiffs had originally sought more than $300 million in damages in the class-action suit.
News of the settlement agreement surprised Wall Street, coming only two months after the company had claimed partial victory in a federal trial of the case that ended inconclusively. Eugene Melnitchenko, a former ICN executive who is now senior vice president at brokerage Principal Financial Securities Inc. in Dallas, said about 10 managers of big stock funds called him Thursday to express their displeasure.
The fund managers “are saying that ICN made so much noise about winning this case and then they settle it for $14.5 million,” Melnitchenko said.
The settlement amount would be more than double the $6.5 million paid several years ago by ICN’s former underwriter and co-defendant, PaineWebber Inc. The investment firm admitted no wrongdoing.
ICN stock closed at $18.75 in New York Stock Exchange trading Thursday, off 37.5 cents for the day.
On Aug. 22, the jury found that the company lied six times about the possibility of Virazole’s use as an AIDS treatment. Virazole is an anti-viral drug approved to treat severe lower respiratory infections in hospitalized infants in the U.S. ICN has abandoned its effort to secure federal approval for it as an AIDS treatment.
Jurors deadlocked 8-1 in favor of the plaintiffs on the question of whether those lies were important to investors. They also acquitted the company of seven other claims of securities fraud.
In a press statement on Aug. 22, Milan Panic, the company’s controversial chairman and chief executive, characterized the trial’s outcome as a “vindication” and said that ICN’s “strenuous and meritorious defense won the day.”
A company lawyer was quoted as saying, “We are confident that we will ultimately prevail on all the remaining claims if plaintiffs choose to pursue them and will continue to fight.”
But the drug maker said Thursday that it agreed to settle the case to avoid pouring more money into mounting a defense for a retrial. In agreeing to settle, the company admits no wrongdoing.
“The effort to prevail on the seven claims over the summer took enormous time and resources,” Panic stated in a company release Thursday. Panic was unavailable for further comment.
The lawsuit alleged that ICN insiders, including Panic, pocketed millions of dollars from sales of its stock before acknowledging that Virazole’s prospects weren’t as rosy as they had been claiming to the public.
ICN will pay all settlement expenses for both the company and the defendants, ICN general counsel David Watt said.
ICN and Panic face other securities investigations and litigation in connection with insider trading allegations.
