SEC Moves to Oust Panic as ICN Chief
Capping years of regulatory clashes with one of Orange County’s most flamboyant corporate executives, the U.S. Securities and Exchange Commission took the unusual step Wednesday of moving to oust ICN Pharmaceuticals Inc. Chairman Milan Panic and bar him from ever again running a publicly traded company.
The government’s long-anticipated fraud lawsuit--filed in federal district court in Los Angeles--accuses Panic, his Costa Mesa-based drug company and two other executives of fraudulently misleading investors in 1994 about ICN’s progress in winning federal approval for a new hepatitis drug.
Although ICN learned in November 1994 that the drug, called ribavirin, would not be approved by the Food and Drug Administration, Panic and other executives waited four months to disclose the news and continued to express optimism about the drug’s prospects, the government’s complaint alleges.
After ICN revealed the FDA rejection on Feb. 17, 1995, the company’s stock dived 34% in two days.
ICN officials denied any wrongdoing Wednesday and said they would vigorously defend themselves. They said the company’s optimism about ribavirin was justified by the fact that the FDA eventually approved its use last year in combination with another drug.
The Culmination of a Long Legal Skirmish
“The effort to bar Mr. Panic from serving as an officer or director of a public company has no basis in law or fact,” said the company’s attorney, Arnold Burns. “To suggest that Mr. Panic is unfit to serve in a public company is a blatant example of the SEC’s overreaching.”
Company officials said there were no plans to ask Panic, 69, to retire or step down. Panic, who lives in Newport Beach, was on vacation and unavailable for comment, a spokesman said.
But in an April interview with The Times, the chairman balked at the prospect of retiring. “I will work as long as I believe that I’m contributing,” he said.
The government’s case represents the culmination of a series of legal skirmishes with the hard-charging Panic, who served as prime minister of Yugoslavia for eight months in 1992 and 1993.
The SEC brought two previous cases against ICN and Panic, one in 1977 and another in 1991, for allegedly releasing inaccurate financial information and making misleading statements about a drug trial, according to Merri Jo Gillette, the SEC attorney who is handling the case from the agency’s Philadelphia office.
“From our perspective, we are now on the third go-around,” Gillette said. “That tends to show a pattern of conduct.”
Gillette said Panic’s past problems contributed to the SEC’s decision to resort to harsher penalties for the executive, including the effort to bar him from serving as an officer or director of a publicly traded company.
Such an enforcement effort is relatively uncommon for a company as large as ICN, which had annual sales last year of more than $800 million, analysts said.
The SEC action also names Nils O. Johannesson, 54, a former ICN executive vice president, and David C. Watt, 46, the company’s general counsel. Johannesson is accused of making misleading statements in company press releases and Watt is alleged to have helped keep the FDA rejection letter a secret. Attorneys for the men did not return phone calls.
The suit seeks civil fines up to $100,000 per violation against each of the men and $500,000 per violation against the company. The SEC would not say how many total violations are alleged in the case.
In 1997, ICN paid $15 million to settle a shareholder lawsuit regarding Panic’s stock sales.
At one time, the government had considered filing insider trading charges against Panic, who sold nearly 80,000 shares of ICN stock--worth about $1.7 million--in the days after he learned about the FDA rejection. Panic has said he was planning to sell the stock long before he learned of the FDA decision.
Last fall, ICN announced that the SEC had dropped the insider trading case. But Panic’s stock trades are still the target of a federal grand jury probe in Los Angeles, where the U.S. attorney has launched a criminal investigation into ICN, Panic and other current and former employees, according to a recent ICN filing with the SEC.
In addition to the stock trading, the grand jury is looking into possible violations of the U.S. economic embargo on Yugoslavia through alleged stock sales by ICN and Panic. The grand jury also is looking into Panic’s sales of assets associated with Yugoslavia and possible misstatements on his federal tax filings. Panic has denied any wrongdoing.
On Wall Street, ICN’s stock price rose 6% Wednesday, suggesting that a growing number of investors believe the drug company might be better off without its chairman. The stock closed Wednesday at $19.31, up $1.13.
“Some investors would like to see him retire,” said Robert Wasserman, analyst at Ryan, Beck, Southeast Research.
From Panic’s political battles in his Eastern European homeland to allegations of sexual harassment by several former ICN employees, the hot-tempered Panic has been a lightning rod for controversy, occasionally to the detriment of his company’s stock.
Some analysts said the SEC lawsuit might increase the chances that the company will be sold.
“It would be difficult for ICN to replace Panic,” said Eugene Melnitchenko, analyst at Sutro & Co. in Los Angeles. “One of the best ways to maximize the value for investors would be to sell the company.”
Shares of ICN stock have dropped about 30% this month, largely because of the company’s disappointing second-quarter earnings.
Ribavirin’s Rocky Road
1985:
* December: FDA approves ribavirin for treatment of respiratory syncytial virus, the most prevalent cause of infant lung infections.
1986:
* Investor confidence in ribavirin triples ICN’s share price to $34.
1987:
* January: ICN says tests indicate ribavirin may delay AIDS onset in people infected with HIV.
* February: Securities and Exchange Commission begins investigation of unusual trading activity in stock of ICN and subsidiary, Viratek.
* May: Shareholders group files class-action suit contending that ICN and Viratek overstated value of ribavirin and that ICN officers made millions on insider trading.
* October: FDA says it can find no evidence ribavirin is effective against AIDS but gives company permission to begin clinical tests.
1990
* March: After investing $20 million, ICN drops effort to win FDA approval to market ribavirin as AIDS treatment in U.S.; stock price drops to $3.63.
1991
* May: ICN agrees to pay $600,000 to settle civil charges that it violated federal law by promoting ribavirin as an AIDS treatment.
* October: SEC sues ICN and Viratek for alleged securities fraud, saying they knowingly misled public about ribavirin’s effectiveness against AIDS. Without admitting or denying wrongdoing, companies settle suit by consent decree.
1994
*November: ICN, which had been hoping to get FDA approval to use ribavirin for hepatitis, is notified that its application will be rejected. Shortly after, ICN Chairman Milan Panic sells nearly 80,000 shares of stock.
1995
* February: ICN stock drops by more than one-third after it announces FDA will not approve ribavirin.
* August: ICN reaches a $23-million licensing agreement with Schering-Plough Corp. to direct clinical efforts testing ribavirin as an effective treatment against hepatitis C when used in combination with Schering-Plough Corp.’s drug alpha interferon.
1997
* September: Schering-Plough says human trials show ribavirin-alpha interferon combination is effective against hepatitis C. Schering says it will seek FDA approval to market the drug combination in the U.S.
1998
* January: ICN warns that federal regulators might seek to oust Panic as an officer and director in connection with alleged trading violations involving ICN stock.
* June: Schering-Plough and ICN win FDA approval to sell their combination treatment for hepatitis C patients who suffer a relapse. The combination includes Intron-A and ICN’s ribavirin.
* August: U.S. attorney’s office in Los Angeles subpoenas ICN employees to testify in a grand jury investigation into several areas, including alleged insider trading by Panic.
*September: ICN lawyers said the SEC was dropping its investigation into alleged insider trading by ICN and Panic.
*December: FDA approves Schering-Plough and ICN’s combination therapy to treat a wider group of patients with hepatitis C.
1999
*August: SEC sues Panic and ICN for misleading investors in 1994 and seeks to bar Panic from being an officer with any publicly traded company.
SOURCE: Times reports, Bloomberg News.
