O.C. Firms Settle Suit Over Alleged AIDS-Drug Fraud

COSTA MESA â€”  The Securities and Exchange Commission on Monday sued ICN Pharmaceuticals and its Viratek Inc. subsidiary for alleged securities fraud, claiming that the firms knowingly misled the public about Viratek’s ribavirin drug and its effectiveness in fighting the AIDS virus.

Without admitting or denying any wrongdoing, the companies immediately settled the suit by signing a consent decree in which they agreed not to violate securities laws in future.

ICN officials “felt it was in the best interest of the shareholders and the companies to avoid protracted litigation,� said Clifford Saffron, a New York attorney for the companies.

The complaint also named Milan Panic, chairman of both companies, and ICN board member Weldon B. Jolley, claiming that they and the Costa Mesa-based companies used only selected information from clinical trials of ribavirin to support claims that it stopped the progression of AIDS. The officers also agreed to the settlement.

The SEC claimed that the companies knew--but failed to disclose--that patients with the HIV virus who were taking ribavirin in clinical trials were by and large healthier than those taking a placebo. The company had reported that none of the patients taking 800 milligrams of ribavirin had contracted AIDS, while 10 of those on placebos had died.

And, in a separate clinical trial of individuals with AIDS-related complex, the SEC claims that the company knowingly withheld preliminary results showing that a disproportionate share of those individuals on ribavirin had died.

The result, according to SEC officials and AIDS activists, was a rush to ribavirin as both a good investment and a medical miracle.

Viratek Inc.--which is 83% owned by ICN--saw its stock soar, although it has since fallen back. ICN’s stock appreciated at the same time, though not quite as dramatically.

“You can see how much AIDS money was invested in the stock,� said Joy Gaines Thompson, an assistant regional administrator for the SEC and the chief government attorney in the ICN-Viratek case.

While investors cozied up to ICN in the mid-1980s, AIDS patients began making regular trips to Mexico to get the drug, which never received approval from the U.S. Food and Drug Administration, in hopes that it would buy them some time. On Monday, some activists and medical officials reacted to the SEC’s accusations with a mixture of sadness and anger.

“I think any time you announce premature results that haven’t been verified, you are doing a disservice not only to people with HIV but to their families and the people who love them by elevating their expectations and then failing to come through,� said Dr. Donald Abrams, assistant director of AIDS activities at San Francisco General Hospital.

The SEC’s case against ICN and Viratek centered on a series of actions that federal regulators claim misled the public about ribavirin. The SEC cited a Jan. 9, 1987, press conference held by Panic and Jolley in addition to press releases, investor mailings and a videotape fed to local TV stations via satellite. During the press conference, Panic released the results of the clinical trials.

Thompson said the companies did not disclose during the press conference that in the trial involving ribavirin and the placebo, half of the HIV-positive patients in the placebo group were “extremely ill and at extreme high risk of progression to AIDS from the beginning of the study.�

The SEC contended that the companies knew at the time that among the AIDS-related complex patients, the group receiving the highest dosage of ribavirin was experiencing a disproportionate number of deaths, compared to the group receiving the lower dosage of ribavirin or the group receiving placebos.

Saffron, ICN’s New York attorney, disputed much of the SEC’s contention. The company, he said, was unaware of the health of many patients in the first trial, but he added that “four independent, world-renowned statisticians found that . . . the results would still have been statistically significant.�

Those four statisticians were paid by ICN, he said.

Regarding the AIDS-related complex trials, Saffron said Monday that it “would have been premature to assess the deaths and the causes of those deaths until all of the data--hundreds of thousands of pieces of data--had been fully analyzed by the company.�

ICN and Viratek have discontinued their efforts to obtain approval of ribavirin as an AIDS treatment in the United States, but they are still pursuing that path in a number of foreign countries.

And at least one country, Ireland, has given the go-ahead.

ICN’s Troubles: A Chronology

1985--The FDA approves ICN Pharmaceuticals’ drug ribavirin for treatment of respiratory syncytial virus, the most prevalent cause of lung infections in infants.

January, 1986--Ribavirin is tested on 375 patients at medical centers throughout the country. In April, ICN is ordered to recall a press release that the FDA says minimized the potentially life-threatening side effects of the drug. However, as a barometer of investors’ confidence in ribavirin’s potential, ICN’s stock triples to $34 a share in August.

January, 1987--ICN holds a press conference in Washington to say its tests indicate that ribavirin may delay the onset of AIDS in people infected with the AIDS virus.

February, 1987--The SEC begins an investigation of unusual trading activity in ICN and Viratek stock.

May, 1987--A shareholders group files a class-action suit against ICN and Viratek, claiming that the firm “hyped� the value of ribavirin and that ICN officers made millions on insider trading.

May, 1987--The company is scolded before a House subcommittee for providing allegedly misleading information to federal officials about ribavirin’s effectiveness as an AIDS treatment.

October, 1987--The FDA says it can find no evidence of ribavirin’s effectiveness against AIDS but grants permission to begin clinical tests.

October, 1988--A federal grand jury investigates allegations that ICN illegally offered to sell ribavirin as a treatment for AIDS without government approval. The company denounces the allegations as “nothing more than old accusations.�

November, 1989--Viratek Inc, a subsidiary of ICN, temporarily withdraws its application with the FDA to sell ribavirin to people who test positive for AIDS but don’t yet have any symptoms of the disease.

March, 1990--After investing $20 million, ICN announces that it will cease efforts to win approval to market ribavirin as an AIDS treatment in the United States. ICN stock closes at $3.625 a share.

May, 1991--Without admitting or denying wrongdoing, ICN agrees to pay $600,000 to settle civil charges that it violated federal law when it promoted its ribavirin as a treatment for the AIDS virus.

Oct. 7, 1991--The Securities and Exchange Commission sues ICN Pharmaceuticals and its chairman for securities fraud, claiming they knowingly misled the public about the company’s ribavirin drug and its alleged effectiveness in fighting the AIDS virus.

Researched by DALLAS M. JACKSON / Los Angeles Times