Spinoff Accuses ICN of Fraud Over Divestment Plan

The bitter feud between Ribapharm Inc. and its majority owner, ICN Pharmaceuticals Inc., escalated with the smaller firm accusing ICN of defrauding the company and the public with its purported plan to spin off Ribapharm.

Ribapharm formerly was wholly owned by ICN, and both drug companies share headquarters space in Costa Mesa. In April, ICN sold 20% of Ribapharm to the public and said it planned to spin off its remaining 80% stake.

Since then, however, ICN’s management has changed and the new team -- although saying it continues to study the Ribapharm spinoff plan -- has yet to completely divest the company. Instead, ICN has accused Ribapharm’s board of poor oversight of the smaller firm and is trying to oust its chairman and chief executive, Johnson Y.N. Lau, and four other directors.

Ribapharm lashed back by alleging that ICN’s management, led by Chairman and CEO Robert O’Leary, committed fraud by telling the public “it was still considering all of its options, including whether or not to proceed with the spinoff, when it had in fact already decided not to do so.”

In documents filed in Delaware Chancery Court on Thursday, Ribapharm also claimed that ICN’s delay in the complete spinoff enabled ICN to reap a profit of at least $17.3 million from a tax-sharing arrangement between the companies.

“Not only was this tax payment demanded under false pretenses, ... ICN was in clear breach” of the agreement, Ribapharm alleged.

ICN said Sunday that Ribapharm’s claims were without merit and called them “a distraction from the main issue at hand, which is the removal of Ribapharm’s directors. Our previous statements concerning that issue stand.”

Ribapharm also accused ICN of defamation, saying its public statements criticizing Ribapharm’s board were “a smear campaign against the Ribapharm directors who stood up to ICN’s bullying.”

Ribapharm also said ICN and its advisors have looked closely at having ICN buy back the 20% of Ribapharm in public hands, ending its expected independence.

Ribapharm makes only one product, ribavirin, but it is lucrative for both companies. The drug is used for treating the liver disease hepatitis C. Because ICN still owns most of Ribapharm, it receives royalties from ribavirin’s sales.