ICN Pharmaceuticals, the embattled Costa Mesa drug maker, filed an $800-million suit Thursday against a New York securities firm for allegedly campaigning to drive down the company's stock price by circulating "false, slanderous and malicious" information about ICN's anti-viral compound, ribavirin.
The complaint, filed in U.S. District Court in New York City, alleges that Gilford Securities systematically urged its customers to sell their shares of ICN and its partially owned subsidiary, Viratek, in order to force down the price of the stock so that Gilford and its clients would profit from "shorting" the stock.
In short selling a stock, an investor sells shares he does not yet own in the belief that the price will fall before the stock is to be delivered to the buyer. The investor profits by pocketing the difference between the price at which he actually buys the shares and the price at which he has sold them.
Gilford Chairman Ralph Worthington declined to comment.
Rumors of short selling have been swirling around ICN and Viratek for the last nine months as their stock prices, after soaring to repeated highs on speculation about ribavirin's potential use in AIDS treatment, fell dramatically.
Since hitting a high of $34 last August, ICN shares have plunged to a current trading price of $11.50. Viratek, even more volatile, hit $98.50 last fall before plummeting to its current price of $12 per share.
The downward spiral of the two stocks had attracted plenty of interest at the end of 1986 from "short" investors who bet that the stocks would continue to fall. According to the New York Stock Exchange, by January more than 2.5 million of the company's 19.7 million shares were held by so- called "short sellers," 10 times higher than in June, 1986.
The ICN suit alleges that Gilford, a securities firm known for identifying stocks for their potential to fall, aided the drop in the prices of ICN and Viratek shares by spreading false information about the company and its ribavirin drug.
The suit charges that Gilford told some shareholders that it had access to confidential information that substantiated claims that "ribavirin was, at best, ineffective and in fact had caused serious and even fatal side effects."
The suit says that Gilford agents also called ribavirin a "killer drug" and claimed to know that the U.S. Food and Drug Administration would soon announce that the drug does not work.
In an interview with The Times two months ago, Gilford President Robert Holmens admitted that his company had advised clients to sell its ICN and Viratek stock, but dismissed suggestions that the advice was improper.
"We feel that the stock was rather dramatically overpriced relative to its earnings outlook," Holmes said, adding the stock price had increased in part because of ICN's own "penchant for telling an overly optimistic story."
ICN itself is the subject of at least four suits by shareholders claiming that the company improperly inflated the value of it stock.
ICN's suit was filed just days after the company's attempts to promote ribavirin were criticized in congressional testimony.