Shares of ICN Sink on Lower Expectations

ICN Pharmaceuticals Inc. shares fell 53%, their steepest drop ever, after the Costa Mesa-based drug maker said second-quarter earnings were at least 50% less than forecast.

The company last month changed management when its founder, Milan Panic, retired as chairman and chief executive after losing a proxy fight. Chief Executive Robert W. O’Leary said in a conference call that several distributors would be reducing bloated inventories “well into next year,” and that the company was evaluating its plan to spin off its Ribapharm business.

“We are first and foremost going to review the operations,” O’Leary said. “There is no question [inventories] were above industry norms, and we made the decision to proactively take them down. Perhaps the eye got taken off the ball here, and those levels were allowed to climb higher than they should have.”

Profit before certain costs and gains was 15 cents to 20 cents a share, lower than the 44-cent average estimate of four analysts surveyed by Thomson First Call, ICN said.

Shares of the maker of hepatitis drugs, antibiotics, sedatives and vitamins dropped $10.65 to $9.30 on the New York Stock Exchange in trading of 19.9 million shares, more than 20 times the three-month daily average.

Spokesman David Calef said ICN would not discuss which products are affected by the inventory reduction until it reports complete results Aug. 7.

“The information we’ve been given increases the uncertainty,” said pharmaceutical analyst Richard Stover of Arnhold & S. Bleichroeder. “Even after the call, we still don’t have sufficient information to generate accurate earnings estimates for the balance of this year or next. This market brutally punishes uncertainty.”

ICN said it had net income after a $250-million gain associated with the April initial public stock offering of Ribapharm Inc., a drug maker in which ICN retains a stake of about 80%. The unit makes ribavirin, a hepatitis drug.

ICN said it had about $150 million in expenses related to stock options and other employee compensation, bonuses for the Ribapharm offering, costs for a proxy contest and the write-off of research and development from a recent acquisition. The company also spent about $30 million to repurchase debt.

ICN is involved in a lawsuit related to the $300,000 bonuses it paid to company directors after the Ribapharm offering. The company plans to form an independent committee to review the payments, O’Leary said.

ICN also is reviewing its plan to spin off Ribapharm and its ICN International unit. “Everything is up for review,” O’Leary said. “We won’t be taking any of those moves until we proceed with a complete review of the company.”

Today was O’Leary’s first conference call with analysts since becoming interim chief executive 13 days ago.

Ribapharm said it had about $61 million in royalty revenue from ribavirin, which is marketed by Schering-Plough Corp. The company said it would meet or beat the 17-cent Thomson First Call estimate.

Ribapharm shares fell $1.59, or 21%, to $5.85 on the NYSE. The shares have fallen 42% since the April offering.