ICN Will Settle Shareholder Suit for $14.5 Million

In an unexpected move, ICN Pharmaceuticals Inc. said Thursday 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 approval by a New York federal judge, the Costa Mesa-based company will pay $10 million in common stock and $4.5 million in cash to an estimated 7,500 shareholders. Plaintiffs originally had sought more than $300 million in damages in the class-action suit.

The settlement surprised Wall Street investors, coming only two months after the company claimed partial victory in a federal trial that ended with a deadlocked jury. Eugene Melnitchenko, an analyst and former ICN executive, 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,” said Melnitchenko.

The settlement is more than double the $6.5 million paid several years ago by ICN’s former underwriter and co-defendant, Paine-Webber Inc. The investment firm admitted no wrongdoing.

ICN stock closed at $18.75 a share in New York Stock Exchange trading Thursday, off 37 1/2 cents for the day.

On Aug. 22, the jury found that the company lied six times about Virazole’s possible use as an AIDS treatment. Virazole, an antiviral drug, is approved to treat severe lower respiratory infections in hospitalized infants.

Jurors deadlocked in favor of the plaintiffs on the question of whether those lies were important to investors. They also threw out seven other claims of securities fraud.

In a press statement on the day the trial ended, Milan Panic, the company’s controversial chairman and chief executive, characterized the verdict as a “vindication.”

Panic added in that statement that ICN’s “strenuous and meritorious defense won the day.” A company lawyer was also 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 it settled the case to avoid pouring more money into defending itself in retrial. A new trial would have focused on whether the false statements were critical to investors.

In making the settlement, the company admitted 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. A company spokesman said Panic was conducting a budget meeting at its corporate headquarters and wasn’t available for comment.

The lawsuit alleged that drug company 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 in public.

Lawyers for both sides interviewed Thursday disagreed slightly on settlement terms.

Dan Berger, the plaintiffs’ lawyer, said his clients agreed to take more than two-thirds of the settlement in stock because it might appreciate in value before the deal closes. He said that while the company will value that stock at $18.50 a share, the stock could increase in value before it’s released to the plaintiffs.

If, however, the stock falls below $18.50 before then, ICN has promised to increase the shares it’ll hand over to make sure the stock’s total value is $10 million, he said.

While Berger maintained that the plaintiffs can sell their shares whenever they want, David Watt, ICN’s general counsel, disagreed, saying restrictions will be placed on the volume of sales.

ICN will pay all settlement expenses for both the company and the individual defendants, Watt said.

Though a settlement would bring an extraordinarily lengthy dispute to a close, ICN and Panic still face other securities investigations and litigation.

Both are targets of investigations by a federal grand jury and the Securities and Exchange Commission, as well as shareholder litigation, involving a November 1994 instance of insider trading by Panic.

Panic sold $1.24 million worth of company stock after the firm allegedly learned that federal regulators wouldn’t approve Virazole as a stand-alone treatment for the liver ailment hepatitis C. But it wasn’t until three months later that the company disclosed the FDA rejection.

Both the company and Panic have denied any wrongdoing.