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ICN Gets Cautious on Outlook

ICN Pharmaceuticals (ICN) said Tuesday that it is "no longer comfortable" with its year-end earnings guidance, adding that it isn't ready to adjust its earnings predictions at this time.

As a result, shares of the Costa Mesa, Calif.-based company ended down 4.1%, or 66 cents, at $15.48. The company also reported second-quarter earnings that fell below analysts' estimates.

ICN said its previous year-end earnings guidance of $1.20 to $1.25 per share was contingent, in part, on a steady stream of royalty revenue from ribavirin, a treatment for hepatitis C licensed to Schering-Plough (SGP), which sells the drug under the brand name Rebetol in major world markets.

Schering-Plough also sells Rebetron, a drug that combines Rebetol and Schering-Plough's Intron interferon. ICN also licenses ribavirin to Hoffmann La Roche, which sells the drug under the brand name Copegus.

But ICN's second-quarter earnings report issued Tuesday showed that royalty revenue dropped to $51.96 million for the three months ended June 30, compared with $66 million for the same period last year.

Robert W. O'Leary, ICN's chairman and chief executive, said Tuesday that the royalty problem may be exacerbated because of a federal court judge's ruling in California last month that said three generic drug companies aren't infringing on ribavirin patents. However, the court didn't rule on the validity of the patents for the hepatitis C drug.

ICN and Ribapharm (RNA), a spinoff of ICN that makes ribavirin, had sued the generic drugmakers. Both companies said they plan to appeal the judge's decision. ICN still owns 80% of Ribapharm and is trying to buy back the remaining 20%.

The court's ruling prompted Standard & Poor's on July 17 to cut its corporate credit rating for ICN to BB-minus from BB and to lower its rating to B from B-plus its rating on ICN's 6.5% convertible notes due July 15, 2008. S&P, whose outlook on ICN is "negative," said the speculative-grade ratings on ICN reflect the fact that ribavirin royalties have accounted for 37% of the company's revenue, as well as the uncertainty about its restructuring efforts.

S&P said ICN's royalty revenue stream is expected to weaken if the generic competitors prevail and if Hoffmann La Roche continues to make market share inroads against Schering-Plough in the hepatitis C market for drugs combining ribavirin and interferon.

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