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ICN Offers to Buy Back 20% Stake in Ribapharm

In a move considered part of its restructuring, it offers $168 million for the 20% of the biotech firm spun off last year.

June 03, 2003|Ronald D. White | Times Staff Writer

ICN Pharmaceuticals Inc. offered Monday to buy back for $5.60 a share the 20% of Ribapharm Inc. it sold last year for $10 a share.

Investors paid the higher price in an April 2002 initial public offering. The buyback offer is "despicable," said Bill Nasgovitz of Heartland Advisors Inc., a Milwaukee investment firm that holds 5.7 million Ribapharm shares and 3.7 million ICN shares. "I think it's a disgrace to the board of directors of ICN to have management steal this company from public investors at $5.60."

Ribapharm's shares jumped 22% on Monday to $6.22, up $1.14. ICN's shares closed at $14.68, down 32 cents. Both stocks trade on the New York Stock Exchange.

Adam Weiner, an ICN spokesman, said the offer reflects "the full and fair value of Ribapharm shares." He added, "We don't plan on chasing a run-up in the market price."

ICN's founder and then-chief executive, Milan Panic, orchestrated the spinoff of 20% of Ribapharm, planning to later sell the remaining 80%. Dissident shareholders then wrested control of Costa Mesa-based ICN, and Panic resigned in June 2002.

His successor as CEO, Robert W. O'Leary, put on hold plans for the full Ribapharm spinoff. When Ribapharm executives demanded that the sale be completed, a legal battle ensued.

In January, most of Ribapharm's top management resigned and ICN installed a former board member as Ribapharm's new chief executive.

At the heart of the dispute was the lucrative antiviral drug ribavirin, which Ribapharm licenses to Schering-Plough Corp. The drug is used to treat patients with potentially fatal hepatitis C.

ICN and Ribapharm rely heavily on royalties from the sale of ribavirin; the drug accounts for about 30% of ICN's revenue.

In December, Swiss drug maker Roche Holding launched a lower-cost hepatitis C drug that has hurt ribavirin sales. In the first quarter, Ribapharm's royalties from ribavirin fell 15% to $48.6 million.

Ribapharm also faces a possible generic competitor. This year, Schering-Plough agreed to license its ribavirin patents to a generic-drug firm, Three Rivers Pharmaceuticals. Three Rivers now is suing Ribapharm in a patent dispute over the hepatitis C drug.

Ribapharm begins the defense of its patents against Three Rivers in a Pennsylvania court this month.

Christopher Schulz, an analyst with the Spin-Off Report, said the Ribapharm sale last year "was a tough deal to begin with. ICN was selling off the one asset with substantial cash flow and was keeping its debt.... The deal should not have happened in the first place."

Bringing Ribapharm in-house is part of the ICN restructuring started after Panic's departure.

"We have concluded that now is an appropriate time to re-integrate Ribapharm," O'Leary said in a statement.

Last week, ICN said it would try to reclaim the $47.8 million that Panic and other former ICN officers were paid as bonuses for the Ribapharm spinoff.

Panic built ICN into an international business with units ranging from pharmacies in Russia to a raw-materials operation in Eastern Europe.

O'Leary is attempting to sell many of those businesses and focus almost exclusively on selling prescription drugs in North America.

Analysts disagreed whether ICN's buyback offer for Ribapharm was a fair price. Joseph Riccardo with Bear Stearns said that Ribapharm's value is tied so closely to the outcome of the patent fight that it's impossible to know the company's fair market value.

Analyst Shaojing Tino of Mehta Partners, noting how rival products already have eaten into ribavirin royalties, said, "Realistically, I would be happy to sell these shares back at $5.60."


Bloomberg News and Reuters were used in compiling this report.

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