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.

Schering-Plough's Rebetron once commanded nearly all of the market; now S&P estimates that Roche has captured about 30% with its combination of ribavirin and its interferon product Pegasys. S&P pointed out that although ICN collects a royalty on Roche's ribavirin drug, Copegus, the ratings agency believes that ICN gets a smaller royalty from Roche. (In January, Roche, ICN and Ribapharm agreed to stop all ribavirin patent suits involving the three companies. Financial terms weren't revealed.)

Ribavirin and the reduced royalty revenue were only part of ICN's second-quarter report in which net income dropped to $14.87 million, or 21 cents a share, from $32.40 million, or 61 cents a share, for the same period last year. The Thomson First Call consensus estimate of two analysts was 27 cents.

Excluding discontinued operations, ICN's EPS was 18 cents for the second quarter, down from 39 cents for the same period last year. Total revenue for the second quarter was $183.5 million, up slightly from the $180.8 million for the same period last year.

O'Leary told investors and analysts in a telephone conference call Tuesday that he expects ICN to complete its remaining planned divestitures by year-end and to publicize in the near future the details of ICN's new strategic plan, which he said "will dramatically change the profile of this company."

ICN sold its research products and diagnostic biomedical businesses on July 1 to Milan Panic, ICN's founder and former chairman and chief executive, who has created the privately held MP Biomedicals in Irvine, Calif. These businesses had sales of $42 million last year, Panic said. ICN said the price of the deal -- which included a corporate jet -- was $15 million in ICN stock.

The previous day, ICN sold for about $50 million in cash its Russian medical operations to Millhouse Capital, a Russian asset management firm. The Russian businesses had annual sales of about $100 million last year.

However, O'Leary had little to say Tuesday about the convoluted and contentious relationship between ICN and Ribapharm, which ICN spun off as a public company in April 2002 while holding 83% of the spinoff's shares. ICN still has about 80%.

Two months ago, ICN announced it would make a cash tender offer of $5.60 per share for all of the Ribapharm shares it didn't own. A week later, it commenced the tender offer; but two weeks after that, Ribapharm's board of directors said the unsolicited offer was "inadequate" and told its shareholders to reject the proposal.

Ribapharm's directors also approved a poison pill that would make any unapproved acquisition more difficult and expensive once a suitor had secured 89.9% or more of Ribapharm's stock.

The companies spent the next few weeks launching press releases against each other, and ICN filed suit to overturn the poison pill. But on Monday, the companies announced a compromise. ICN raised its offering price to $6.25 a share; and Ribapharm, whose board considers the revised price "inadequate," said it would amend its poison pill.

According to the agreement, if two-thirds of Ribapharm shareholders accept the new buyout offer from ICN, the Ribapharm board will approve the deal. Otherwise, it will invoke the poison pill. As of Aug. 1, the companies said 53% of Ribapharm shareholders had agreed to the cash tender offer, whose deadline has been extended to Aug. 19.

S&P said Tuesday that revised agreement between ICN and Ribapharm -- raising ICN's acquisition price for the shares of Ribapharm it doesn't own to $188 million from $168 million -- won't change the rating agency's negative outlook on ICN.

Ribapharm's stock ended down 0.5%, or 3 cents a share, at $6.14. On Monday, after the new tender offer was announced, the stock had jumped to $6.17 from Friday's closing price of $5.12.