Drug Yields Only Headaches for ICN, Shareholders : Medicine: As the marketability of antiviral Virazole wanes, critics point to company founder Milan Panic and his controversial tactics.

COSTA MESA —  Milan Panic was upset. He was reading stories last winter about an outbreak in Southern California of RSV, a respiratory ailment that afflicts children, and never saw a word about the only drug that treats serious RSV cases--the drug his company makes.

A born salesman and autocratic leader, Panic ordered his staff at ICN Pharmaceuticals Inc. to put together a full-page advertisement for him to edit and approve. He believed that the drug, Virazole, could help afflicted children and that the public simply didn’t know about it.

He also wanted to make money, and sales of Virazole were down.

“Looks like a cold. Is it RSV?” the big headline in the newspaper ads blared. The ad listed some symptoms--runny nose, coughing and rapid or labored breathing--and stated, “It could be RSV.” The ad urged readers to call their doctors or a toll-free number.

Reaction was swift.

Angry doctors and nurses at Children’s Hospital of Orange County in Orange had to take time preciously needed elsewhere to explain to numerous parents who phoned that the ad was oversimplified. The U.S. Food and Drug Administration sent a letter in protest, slapping the company on the wrist for engaging in such “marketing” activities, especially for a drug that could be used only for severe lower respiratory cases under a physician’s supervision in a hospital.

Panic (pronounced PAN-eesh) couldn’t understand why regulators didn’t see what he saw. Virazole, the brand name for ribavirin, is a drug that can fight many viruses, and there are few drugs that can. In spite of its toxicity, it has fewer and less harsh side effects than other antiviral drugs. He sells it in 47 countries to treat up to 10 illnesses, from the flu to the AIDS virus.

Yet today, Panic and ICN are left to ponder whether there’s much of a future for Virazole.

The company lost a bitter battle with the FDA in the late 1980s to get the drug approved to treat the AIDS virus, and ICN recently revealed that the agency has directed it to halt Virazole testing on hepatitis C, a highly contagious and potentially fatal liver disease.

The latest setback prompted lawsuits accusing Panic of withholding details on the FDA’s rejection while selling his ICN stock for $1.24 million. The company’s value plunged 42% over the last two weeks before rebounding a bit. It closed Friday at $15.375 a share, up 62.5 cents in New York Stock Exchange trading.

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Except for its use to treat RSV, Virazole has become what detractors have dubbed it--a drug in search of an illness.

That search has taken ICN on a long and tortuous path, and its stock price has risen as high as $33.75 a share and fallen as low as $2.31 a share with each promising development and each disheartening failure.

Panic, his directors and a host of investors so far have been willing to follow that path because they believe Virazole--after $200 million was spent on developing, testing and putting the drug through clinical trials--hasn’t struck out yet and someday could be ICN’s home-run drug.

Obtaining FDA approval to treat a major illness would propel the mid-size company into a prescription drug titan, joining the likes of Merck & Co., Burroughs-Wellcome and Schering-Plough.

That’s more than a dream for Belgrade-born Panic, who defected from his former Soviet-bloc country in 1955 while on tour as an alternate cyclist on Yugoslavia’s Olympic team. That has been his aim since leaving his post as a research lab technician at the USC chemistry department in 1959 to found the International Chemical and Nuclear Corp.

Panic went about methodically building his fledgling company as a biochemicals supply house, but had other goals in mind. He wanted to develop drugs, specifically one major drug that would propel the company to status as a leading pharmaceutical concern.

Biochemist Roberts A. Smith, a former USC colleague and co-founder, set the company’s mission and oversaw drug research. His one-page 1964 “white paper” focused the company on drugs to combat cancer and viruses. The company then hired a leading chemist in nuclear medicine, Roland K. Robins, to develop the drugs.

Robins and a team he brought with him quickly formed about 5,000 compounds for fighting viruses and cancers, then whittled them down to a handful. Concentrate on just one, Panic told the researchers, because development costs were too high for a small company. By 1972, Robins had come up with ribavirin, a drug that seemed to attack more viruses and appeared to be less toxic than others being tested.

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Panic quickly seized on ribavirin as a broad-based antiviral drug. Ribavirin inhibits virus cells from replicating themselves and spreading. Panic’s long-range intent for his company’s antiviral drugs was grander--to protect, stimulate and repair enzymes that break down in cells and cause aging.

“As you grow older, the whole repair process slows up considerably,” Panic told reporters. “If we can stimulate the process of repair, we can perhaps change the whole picture.”

But in the early 1970s, he targeted ribavirin first for influenza and herpes. The FDA, however, didn’t think the drug was useful in treating those ailments and instead allowed ICN to start testing an aerosol version for respiratory diseases.

Panic, however, was not satisfied. He went to Mexico, where he got ribavirin approved as a treatment both for the flu and for herpes. In 1975, the company finally began to sell the drug, which was given the brand name Vilona in Mexico and Virazole in the United States.

Foreign countries, with less stringent testing requirements, became the primary market for Virazole. ICN began promoting the drug as a treatment for several other viruses, including measles and chicken pox, and for general antiviral use.

By 1982, the company had finally found a way to introduce the drug into the huge U.S. market, and it applied for FDA approval to use an aerosol version to treat a common respiratory infection that can be fatal in premature infants or young children with heart and lung disorders. The agency approved the drug on the last day of 1985.

The infection, called respiratory syncytial virus, or RSV, is usually a mild, cold-like disease that runs its course through most children without requiring any special attention. But some children develop serious illnesses and must be hospitalized. Those are the cases that are allowed to be treated with Virazole.

The drug is released by a special aerosol generator under an oxygen hood for 12 to 18 hours a day for three to seven days. And the treatment does not come cheap.

Patients had been charged about $1,000 a day for Virazole. But last year, shortly after its “It could be RSV” ads appeared, ICN doubled the price. Investors loved the profit margin as revenue from Virazole soared 57% last year to $46.4 million, but doctors began relying less on the costly drug. So unit sales actually fell last year.

“The price increase unleashed a lot of bad feelings toward the company,” said Dr. Gary Goodman, associate director of the pediatric intensive care unit at CHOC.

“In addition to all the other problems with the drug--it’s time-consuming and elaborate to administer and it is not dramatically helpful to the kids--this was the icing on the cake,” Goodman said. “We’re trying to be cost-effective, and this price increase is not an easy thing to accept.”

ICN’s patent on ribavirin will expire in 1998, and any drug maker will be able to produce it, an event expected to force the price down.

The ink on the FDA’s approval of Virazole for RSV was hardly dry before Panic got in trouble with the agency. The company’s press release announcing the approval contained “false or misleading claims” about the drug’s effectiveness, the FDA charged, and the agency took the unusual step of ordering the recall of the press release. ICN sent out a corrected version.

By the mid-1980s, ribavirin also was being used in a number of countries and by the U.S. Army, which maintained a supply to treat troops stationed abroad for such tropical diseases as Lassa fever and sand fly fever.

But Panic was still trying to hit a home run, trying to find a widespread disease that could safely and effectively be treated by the drug. He decided to take on AIDS. The virus that leads to AIDS destroys the immune system, and Panic believed ribavirin could stop that virus from spreading, especially if used in the early stages of the disease.

The outbreak of the terminal disease with no known cure had rocked the nation several years earlier, and drug companies were scrambling to come up with safe, effective treatments. The FDA was being pushed hard by AIDS activists, who protested the agency’s cumbersome, slow approval procedures and put heat on Congress and the Ronald Reagan Administration to hasten the creation of new drugs.

AIDS patients and activists weren’t waiting for FDA approval. They were flocking to Mexico to buy ribavirin over the counter, smuggling carloads of pills over the border, often with the tacit consent of customs agents. When ICN tripled the price, pushing the price in Tijuana to $22 for a day’s supply, activists protested the price gouging, threatening a $45-million investment Eastman Kodak Co. had made in the company to work on a joint project developing other drugs. ICN eventually worked out a deal to supply ribavirin in Mexico City at about $7 for a day’s supply, according to “Acceptable Risks,” a book by Jonathan Kwitny about the effort to approve drugs for AIDS patients.

Those infected used the drug alone and in combination with another drug, isoprinosine, that gave them some hope. They also smuggled in other drugs, including suramin, dextran sulfate and pentamidine, from Mexico and other countries. Their lives were at stake, and the FDA wasn’t moving fast enough.

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Panic found himself in a contest with Burroughs-Wellcome, which was given the right to test a drug that a government research center had developed. That drug, AZT, was eventually cleared by the FDA and a frenzy ensued in 1986 to get other drugs approved.

In late 1986, ICN believed that the first formal academic study of ribavirin, which was being concluded, was a big success, and it pushed the FDA to hold a press conference on the results. The agency delayed it, though, because FDA Commissioner Frank E. Young, who wanted to be involved, had to care for a son who was critically injured in a train crash.

But because it was registering a stock offering with the Securities and Exchange Commission, ICN decided to hold a limited press conference anyway in January, 1987. The SEC required that all relevant facts about the company be disclosed.

Corporate executives told reporters that the six-month study showed that even though the drug didn’t cure AIDS, ribavirin halted the progression of the AIDS virus in the early stages. Despite the news, ICN’s stock plunged $4 a share on the New York Stock Exchange, closing at $21.25 a share. Days later, AIDS researchers called the test results “sketchy,” “inclusive” and “premature.”

A month later, ICN was rocked with the news that the SEC had started an investigation into “possible stock manipulation and insider trading in ICN securities.” It didn’t help his cause that the flamboyant Panic himself was viewed as arrogant and prone to overly promoting his products.

ICN arranged an unusual hearing before the FDA’s Young to present its results and argue its case for approving ribavirin for AIDS treatment. The agency’s staff lined up on the opposite side to argue that the company hadn’t proved that ribavirin was safe or effective. The staff also worried privately that ICN was unlawfully selling ribavirin “out the back door” to AIDS patients.

Panic wanted in the worst way to get ribavirin classified as an investigational new drug, a status known as IND that would bridge the gap between the final trial stage and full approval. IND status practically assured eventual approval. But Young sided with the staff, saying the company needed to provide more information to prove the drug was safe and effective. Panic, not willing to spend more money on an additional study, withdrew his application before the agency could deny it.

Later, a federal grand jury began investigating whether ICN was selling ribavirin without government approval. And Congress began to look into the company. Finally, Kodak decided to sell its stock and halt its participation in tests with the drug maker.

ICN kept a low profile for a few years and kept Virazole out of the news. Panic and the company eventually settled with the SEC and federal prosecutors by paying a $600,000 fine, though they didn’t acknowledge any wrongdoing.

Panic concentrated on his overseas operations, part of a solid backbone in the company’s overall strategy to operate plants in the world’s 15 biggest markets. He acquired foreign drug companies, usually at a bargain, and built them up. ICN had plants in Spain, Holland, Mexico, Germany and Canada, and in 1991 bought a 75% stake in Yugoslavia’s biggest drug maker, renaming it ICN Galenika, which was based in his native Belgrade.

Virazole was the company’s flagship drug, but ICN had to make money too. Its ICN Biomedicals subsidiary each year supplies more than 55,000 research chemicals, test kits, equipment and other research products worldwide. ICN sells dermatological drugs in the United States and more than 300 other drugs overseas. Galenika, for instance, is a major provider of penicillin. The company also bought a chunk of Russia’s biggest drug manufacturer in 1993 and began to improve it.

Meantime, Panic set about mending fences with the FDA, where Young, the man he once called the “jerk commissioner,” was leaving. Panic hired new executives to shepherd Virazole through the FDA approval process once more, this time for a new disease called hepatitis C, a highly contagious, potentially fatal liver disease that afflicts 150,000 Americans.

But first, he had to attend to Galenika. Shortly after ICN bought Galenika, ethnic fighting broke out in the region and the economy was rendered a shambles. Restrictions on distribution also hurt Galenika’s sales and profits.

He agreed in July, 1992, to serve as prime minister of his native land at the invitation of Serbian strongman Slobodan Milosevic. But Panic, also a Serb, boldly ran against Milosevic in the December elections, promising to end the war and institute democracy and a market economy. He was soundly defeated.

He returned to ICN in early 1993 and soon was faced with a fight for control of the company. Investor Rafi M. Khan, once an ardent supporter of ICN and Virazole, was launching a proxy fight to oust Panic. But later that year, after a bitter battle that dragged through the courts, shareholders voted to keep Panic and his directors.

Panic, meantime, was focusing his attention on getting Virazole approved for hepatitis C. This time, he wanted to do it right; he didn’t want to make the same mistakes that were made in the AIDS fiasco. Besides using new executives to work with the FDA, he kept his mouth shut, holding back on press releases he wanted to send touting the drug’s effectiveness in treating the disease.

If this time he could just get Virazole approved for domestic sales, if he could come up with a blockbuster drug application, he told executives in meeting after meeting, ICN could do the other things it wanted--it could become a major player.

But on Nov. 25, 1994, the FDA sent a letter to ICN saying that Virazole wouldn’t be approved. Panic told directors about the letter, but didn’t provide copies. Instead, the company issued a press release Dec. 5 saying it would amend its application to seek approval for selling Virazole in combination with another drug, interferon.

Later in December, the FDA responded that such an undertaking would be “relatively problematic” and directed the company to halt further studies.

Meantime, on Nov. 29 and 30, only days after the first FDA letter, Panic sold 55,000 ICN shares worth $1.24 million, and told the SEC he planned to sell a total of 100,000 shares, more than a third of his holdings.

Trouble was, ICN never told the public about the FDA letters until Feb. 17, and investors howled over what appeared to be obvious insider trading. Five shareholder lawsuits were quickly filed, and some major investors demanded that the board fire Panic or demote him and transfer him to Europe.

Director James P. Miscoll, a retired BankAmerica Corp. vice chairman, resigned, saying his departure was in the works before the disclosures were made, and Dr. Vernon Knight of Houston, another director, decided to retire at the end of his term this spring.

Panic has denied any wrongdoing, saying, “I did not trade on inside information at any time.”

Shareholders, however, may have had their fill.

“The stock would go up $10 a share if Panic would resign,” said shareholder Jack Hicks, a lawyer in Lufkin, Tex. “It went down because of him and it will go up if he’s not there. I don’t think that Panic is going to be able to survive this deal.”

Investors say they might be able to forget about the AIDS debacle. They could overlook the fact that Panic failed to pay $37,300 in taxes on a San Diego real estate investment at a time when he was earning $6 million a year. They might even ignore the two sexual harassment suits filed against him in the last two years, including one that accused him of forcing an employee to have sex and fathering her child.

Panic has paid the taxes, settled one of the lawsuits and “emphatically” denied the accusations in the paternity action against him.

But the stock sales last November showed very poor judgment at best, shareholders said, and the failure to get Virazole approved for treating hepatitis C was a shocker, one for which he, not his hired executives, should be blamed.

They are concerned that Virazole, which has always been considered the future of ICN, will never amount to much more than it is already. The drug will never be a cure for anything, they know, but they look for what they call a marketable indication--a major disease that the drug can treat.

“The trouble is,” a former top executive says, “Virazole has almost run out of marketable indications.”

Times staff writer Greg Johnson contributed to this report.

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Chain of Controversy

ICN’s struggle to win Food and Drug Administration approval for its pharmaceutical products has sent its stock tumbling more than once. The firm has also been plagued by stockholder dissatisfaction and sexual harassment lawsuits aimed at founder and chairman Milan Panic. An overview of ICN controversies:

1985

* Approval: FDA approves ICN Pharmaceuticals’ drug ribavirin for treatment of respiratory syncytial virus, the most prevalent cause of infant lung infection.

1986

* More Investors: Investor confidence in ribavirin triples ICN’s share price to $34.

1987

* January--AIDS Claim: ICN says tests indicate ribavirin may delay the onset of AIDS in people infected with HIV.

* February--SEC Investigation: Securities and Exchange Commission begins an investigation of unusual trading activity in ICN stock and that of subsidiary, Viratek.

* May--Suit Filed: Shareholders group files class-action suit contending that ICN and Viratek overstated value of ribavirin and that ICN officers made millions on insider trading.

* May--House Hearing: ICN is scolded before a House subcommittee for providing allegedly misleading information to federal officials about ribavirin’s effectiveness as an AIDS treatment.

* October--Testing Allowed: FDA says it can find no evidence that ribavirin is effective against AIDS but gives company permission to begin clinical tests.

1990

* March--Application Withdrawn: After investing $20 million, ICN drops effort to win FDA approval to market ribavirin as AIDS treatment in United States; stock drops to $3.625 a share.

1991

* May--Suit Settled: ICN agrees to pay $600,000 to settle civil charges that it violated federal law by promoting ribavirin as an AIDS treatment.

* October--SEC Suit: SEC sues ICN and Viratek for alleged securities fraud, contending that they knowingly misled public about ribavirin’s effectiveness against AIDS. Without admitting or denying wrongdoing, companies immediately settle suit by consent decree.

1992

* July--Prime Minister: Panic returns to his native Yugoslavia to serve as prime minister. He serves less than a year before being ousted.

1993

* April--Proxy Fight: Dissident stockholder Rafi Khan wages unsuccessful proxy battle to topple Panic and firm’s eight-member board.

1993

* July--Harassment Suit: Former Panic aide Colleen James files sexual harassment suit against him. Panic denies accusation and matter is eventually settled out of court under undisclosed terms.

* December--Stock Drop: ICN stock price tumbles 13% after FDA asks it to resubmit application to market Virazole as treatment for hepatitis C.

1994

* February--Down Again: ICN stock drops 23% after it announces FDA will not approve Virazole for use against hepatitis C.

* February--Another Harassment Suit: Former employee Debra Levy files suit against Panic and ICN, claiming sexual discrimination and harassment. She claims Panic demanded sex and fathered her child before forcing her to resign the previous October. He denies the allegations.

1995

* February--Loss Reported: ICN reports a 1994 loss of $183.6 million because of onetime charges related to consolidating its subsidiaries.

Source: Times reports; Researched by JANICE L. JONES / Los Angeles Times

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Drug Can’t Cure Stock Woes

ICN’s efforts to win Virazole approval have seen the firm’s stock price reach a high of $33.75 and a low of $2.31 since the mid-1980s. Stockholders complained recently when ICN delayed announcement of FDA rejection of the drug for use against hepatitis C. The stock price now hovers in the $15 range.

Stock Price

Monthly close

March 1995: $15.38

Virazole Uses

The drug has been approved by 47 countries for at least one use. The most common applications:

Countries Virus approving Respiratory syncytial virus 29 Influenza 25 Hepatitis 21 Herpes simplex 21 Exanthemas (chicken pox, measles) 12

Note: Also approved for use in treating AIDS in Hungary and Ireland

Sources: ICN, Dow Jones

Researched by JANICE L. JONES / Los Angeles Times