Subject: Fight to Oust ICN Chairman Comes at Critical Juncture
Date: Published: 4/7/93 (137 lines)
Source: Wall Street Journal. Copyright Dow Jones & Co. Inc.

    Corporate Focus:
    Fight to Oust ICN Chairman Comes at Critical Juncture
    ---
    Leadership of Yugoslavia's Ex-Leader
    Is Questioned as Success Nears on Drug
    ----
    By Rhonda L. Rundle
    Staff Reporter of The Wall Street Journal

    COSTA MESA, Calif.  -- A shareholder fight to oust ICN
 Pharmaceuticals Inc. 's mercurial chairman, Milan Panic, comes at a
 critical moment when the small drug company may be on the verge of
 achieving the success that has long eluded it.
    At issue is whether Mr. Panic, back from a stormy nine months as
 Yugoslavian prime minister, is up to overseeing ICN at this
 potentially lucrative turning point.  More than 20 years after its
 development, ICN's only proprietary drug, ribavirin, seems to be a
 promising treatment for hepatitis C. 
    Part of what shareholders are upset about is ICN's recent
 disclosure that Mr. Panic -- who promised the U. S. government he
 wouldn't "participate in the affairs" of his company while he was
 Yugoslavia's head of state -- received his $619,000 ICN salary last
 year.  Since November, ICN has quietly sold seven million shares in
 private placements in Europe, at discounted prices, swelling shares
 outstanding to 20.3 million and diluting ownership of existing
 holders.
    Even as the squabble over Mr. Panic's return to the company
 escalates, ribavirin appears closer than ever before to achieving
 Food and Drug Administration approval.  The hopes are based on human
 tests showing success against hepatitis C, a serious liver ailment.
    Roughly 100 million people world-wide, including 2.5 million in
 the U. S., are infected with the hepatitis C virus, estimates Eric M. 
 Hecht, an analyst at Morgan Stanley & Co. Alpha interferon, the only
 approved treatment so far, doesn't help all patients and has many
 side effects, he said.  Ribavirin is promising because it is
 "well-tolerated" and can be administered orally in pill form.
    "We think that ribavirin has a good chance of being approved for
 treatment of hepatitis C, and will participate in a huge market .  .
 .  based on the evidence we have seen in the Phase II clinical trials
 done by the National Institutes of Health and others," says John
 Kaweske, executive vice president at Invesco Trust Co., which owns
 1.3 million ICN shares.
    The company's track record on moving ribavirin into the U. S. 
 market makes some industry analysts reluctant to be publicly
 identified as sharing Mr. Kaweske's optimism.  Privately, however,
 these analysts tend to agree that ICN's prospects are brightening.
    What's holding some investors' attention right now, though, is
 the leadership question.  Shareholder Rafi M. Khan started a fight
 last week to oust the 63-year-old Mr. Panic, who has headed ICN for
 more than three decades, claiming that there should be a management
 change because of ICN's poor operating performance and because of
 "excessive compensation" paid to Mr. Panic.  The company filed a suit
 Monday in a New York federal court alleging that Mr. Khan is making
 "illegal use of inside information" acquired at his former stock
 brokerage job.
    Mr. Khan and other shareholders say all the disclosures about Mr. 
 Panic's pay and the stock sales in Europe-especially in view of Mr. 
 Panic's past skirmishes with the FDA-make him a poor choice to lead
 the critical effort to win U. S. approval for ribavirin.
    Mr. Panic (pronounced PAHN-itch) declines to be interviewed,
 citing the litigation.  But ICN says proceeds from the stock sales
 were used to reduce debt, among other legitimate purposes.  And Birch
 E. Bayh Jr., an ICN director and former Indiana senator, defends Mr. 
 Panic's 1992 salary as a "darn good investment of the stockholders'
 money" in his "daring" attempt to stop a war that's hurt company
 interests in Yugoslavia.
    The FDA has expressed "complete satisfaction with the way the
 hepatitis C trials have been conducted, and there has been the
 development of a close cooperative relationship with mutual respect
 among the parties," says Mr. Bayh.  ICN hopes to submit an
 application to market ribavirin for hepatitis C early next year.
    Finding a big market would be a remarkable reversal for the drug,
 which has ignited periodic surges in ICN's stock price over the
 years.  Since ribavirin's development in 1970, ICN has promoted it as
 a treatment for diseases from herpes to AIDS but has received
 approval to sell it in the U. S. only for a lung ailment in infants.
 The drug is authorized for sale in more than 40 other countries for
 a number of viral conditions.
    Riding the latest hopes, ICN's share price nearly doubled in the
 first quarter to $12.75, the third-best performance on the New York
 Stock Exchange.  The rise came despite international economic
 sanctions that have crippled the company's Yugoslav operations, and
 a $73 million first-quarter write-off at its 88%-owned biomedicals
 subsidiary.  Late last week ICN reported a net loss of $64.9 million,
 or $4.03 a share, for the fourth quarter.
    ICN shares closed yesterday at $11.50, down 12.5 cents on the New
 York Stock Exchange.
    The shares traded as low as $2.50 in 1990, three years after a
 company run-in with the FDA squashed hopes that the agency would
 authorize ribavirin's sale for treatment of patients infected with
 the AIDS virus.  In 1991, ICN and Mr. Panic consented, without
 admitting or denying wrongdoing, to Securities and Exchange
 Commission charges that they made false statements about the drug's
 effectiveness against pre-AIDS conditions.
    Mr. Panic's critics say he bungled the commercial development of
 ribavirin while reaping generous stock options that he has cashed in
 over the years.  "If ribavirin were in Merck's hands, it would be
 generating at least $1 billion of sales now," asserts Eugene
 Melnitchenko, an analyst at Legg Mason Wood Walker Inc., a brokerage
 firm in Baltimore.
    "Milan's greed is obnoxious" and the other ICN directors are
 "spineless lackey yes men," fumes Mr. Khan, who has invested nearly
 $2 million of his own money in ICN stock.
    Mr. Bayh, the ICN director, says Mr. Panic's compensation is in
 line with what heads of comparable drug companies are paid, and
 while "Mr. Panic is a strong personality," the board doesn't
 hesitate to ask "penetrating questions."
    The 42-year-old, Pakistani-born Mr. Khan, who emigrated from
 England in 1987, has worked as a Los Angeles-area stockbroker for
 several years.  He resigned from H. J. Meyers two weeks ago over a
 dispute involving ICN, and has since joined another firm.  He denies
 ICN charges that at H. J. Meyers, which recently sold securities of
 an ICN subsidiary, he "illegally engaged in a conspiracy to form a
 cabal for the purpose of taking over ICN.  "
    Removing the board under the process Mr. Khan has instituted
 requires written "consents" from shareholders representing a
 majority of outstanding shares -- a tougher hurdle than a proxy
 contest, which requires a majority of the votes cast at a
 shareholder meeting.
    Mr. Khan, who says he'll be "shocked" if he fails, believes that
 ICN shares sold in Europe recently are in the hands of U. S. 
 institutional investors friendly to him.  Still, he has maintained
 that they were made without proper notification to shareholders.
    Mr. Panic "talks peace and democracy in Yugoslavia, and practices
 dictatorship in Costa Mesa," charges Mr. Khan, noting that some ICN
 employees have taken to calling the chairman "Your Excellency."  An
 ICN spokesman says he's addressed Mr. Panic that way himself, but
 out of respect and "absolutely not" at Mr. Panic's request.

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