Six months ago, ICN Pharmaceuticals Inc. briefly appeared to be one of the brightest gems on Wall Street.
Trading near its all-time high of nearly $37 a share, the Costa Mesa-based company's stock was blasting skyward in a dizzying buying frenzy that drove ICN's market value up nearly 70% in just a matter of days.
Fueling that frenzy was a bullish research report and "buy" recommendation by Paine-Webber Inc., ICN's investment banker, which claimed that the company's drug Virazole, touted as a potential AIDS and influenza medication, "could become one of the largest selling drugs in the world."
These days ICN still makes headlines. But, increasingly, the company seems to be assuming its old position as a Wall Street outcast, a role it played for many years.
On Friday, for instance, the company was hit with a class-action lawsuit by an irate shareholder accusing the company and three senior officials of fraud.
The Securities and Exchange Commission reportedly is investigating possible illegal trading of ICN stock, and Virazole has become the target of a congressional inquiry spurred by allegations that the drug causes dangerous side effects among infants.
In addition to the allegations of unreported side effects, the House Energy and Commerce Committee, chaired by Rep. John D. Dingell (D-Mich.), is looking into other aspects of ICN's operations, including its heavy use of public relations.
Controversy has always dogged ICN, in part because of the reputation earned by Milan Panic, ICN's founder and chairman, for his aggressive promotion of Virazole. But analysts and others close to the company say the recent string of misfortunes is unusual--even by ICN's standards.
"I've been an analyst for 25 years, and I have never seen so much bad publicity come out at one time about one company," said Eugene Melnitchenko, an analyst with the Dallas investment firm of Eppler, Guerin & Turner Inc.
Not surprisingly, investors who bought into ICN last August when its stock topped out at $34 a share have taken a beating.
Based on ICN'S close Friday of $18.75 a share on the New York Stock Exchange, their investments in ICN have fallen by 45% during the last six months. Investors who bought into ICN's Viratek Inc. subsidiary at its high for the year of $98.50 have seen the value of their holdings fall 59%. On Friday, NASDAQ-listed Viratek closed at $40 a share.
Some analysts who follow ICN think that short sellers--aggressive market players who sell borrowed stock in hopes of buying it back later at a lower price--may have had a hand in the company's latest round of troubles.
Increase in Short Selling
On Feb. 13, when it was first reported that trading in ICN shares was the target of an SEC investigation, the NYSE said ICN's short interest--or the number of shares sold by short sellers--totaled a mammoth 2.99 million shares. Six months earlier, only 369,401 ICN shares had been shorted.
When short sellers are right and the shorted stock drops, they can earn a handsome profit. But if the stock goes up short sellers often get wiped out because they must eventually repurchase the shares at the higher price.
Considering the large number of ICN shares shorted, analyst Melnitchenko says aggressive short sellers may have been the ones who recently told Dingell's committee that several cases of Virazole's causing fluid retention and heart failure in infants went unreported to the Food and Drug Administration.
In addition to the side effects reported to have occurred in infants, the committee and the FDA are investigating allegations that nurses administering Virazole in aerosol form have suffered headaches, asthma and sore throats.
On Feb. 20, when published reports of the investigations appeared, ICN shares plunged $2.50 a share, or 13%, to close at $17 a share. Shares in the Viratek subsidiary fell $12.50 in heavy trading to close at $34 a share.
"I think that it was a set-up," Melnitchenko said last week. "I hope Dingell's committee looks into who made those allegations."
Refuse to Comment
Energy and Commerce Committee staff members won't discuss the investigation or the source of the allegations. FDA officials also declined to comment on the case, and ICN executives flatly refused to be interviewed.
However, the fact that Virazole--known generically as ribavirin--is associated with severe and sometimes fatal side effects is not news at all, said Faye Peterson, an FDA spokeswoman. Approved early last year as a treatment for respiratory syncytial virus--also called RSV--in infants and young children sick enough to require hospitalization, Virazole has been linked in rare instances to fluid in the lungs, cardiac arrest and even death, Peterson said. The drug also may cause birth defects if administered to pregnant women, she added.