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Executive Summary

ICN is in the market to acquire pharmaceutical businesses that can expand both its product lines and its marketing clout in the U.S., the company disclosed in a registration statement recently filed with the Securities & Exchange Commission. "The company intends to acquire all or a portion of one or more pharmaceutical companies for the purposes of expanding the company's distribution capabilities, supplementing current product lines and adding compatible ones," the filing states. "Such acquisition or acquisitions may involve the company's Pharmaceuticals group or Biomedicals group or both." The plan appears consistent with the Costa Mesa, California-based firm's recent operating history. Between 1982 and 1985, ICN made eleven separate health-related acquisitions in the U.S., Mexico and Europe [see chart on next page]. In addition, the company said it recently entered into a license agreement with Brown Pharmaceutical Company, which could result in an outright acquisition of the Los Angeles-based firm, and is now negotiating the purchase of a Spanish pharmaceutical business at an estimated cost of less than $5.5 mil. One objective of ICN's acquisition search is to significantly expand the firm's North American detail force, which currently numbers 240 reps. "The company anticipates that it will specifically consider the acquisition of one or more pharmaceutical companies having in the aggregate a broad-based detail force of approximatley 200-500 persons in the U.S. and additional persons in other major industrialized nations," ICN said. ICN is cash rich after the successful completion of a $115 mil. debt offering and a 2.33 mil. share offering worth nearly $41 mil. in July. The firm said its aggregate net proceeds from the two July offerings was approximately $148.4 mil. The 1.25 mil. share offering covered by the current prospectus would raise an additional $30 mil. at the stock's Aug. 29 closing price of $24. The company's decision to increase its marketing muscle via acquisition coincides with the initial success of Virazole (ribavirin) in the market place. It appears that ICN's near-term profitability picture is tied to sales growth of the antiviral agent. "The company believes its favorable financial performance in the future may depend, among other things, upon the company's ability to market and distribute effectively its products, particularly ribavirin," the filing states. Ribavirin was developed by Viratek, which is 44% owned and controlled by ICN, and is marketed through another ICN subsidiary, SPI. Currently, the nucleic acid-derived antiviral compound has FDA approval only for hospital treatment, in aerosol form, of respiratory synctial virus in infants. However, the company believes Virazole may be effective in the treatment of other viral diseases. "These include RSV in other age groups, influenza A and B, most forms of herpes, hepatitis A, certain hemorrhagic fevers and certain childhood diseases," ICN said. "Reports published in the Lancet . . . and by the U.S. Centers for Disease Control indicate that ribavirin may inhibit replication of the HTLV-III virus, which has been associated with AIDS." The filing notes that in June, ICN, Viratek and SPI entered into a 15-year agreement with the U.S. Army to study ribavirin jointly. Under the arrangement, the Army "will commit its best efforts, contingent on the availability of funds" to file NDAs "within nine months for injectable indications of ribavirin applicable to hemorrhagic, dengue and sandfly fevers, and within 24 months for oral indications of ribavirin applicable to those fevers." Another key ribavirin player is Kodak, which manufacturers the drug and has equity positions in ICN and Viratek of 5% and 10%, respectively. Rumours on Wall Street this spring linked Kodak as a potential buyer of ICN and/or Viratek after Kodak announced it was prepared to spend up to $1 bil. to acquire an existing pharmaceutical business or businesses. Takeover speculation, combined with strong first quarter ribavirin sales and favorable analysts' predictions, helped push Viratek's stock price up 300% during the first half of 1986. Under a February agreement with ICN, Kodak will provide funding of clinical trials of ribavirin for the treatment of AIDS "and possible funding of future clinical trials of ribavirin for the treatment of influenza and herpes," the filing notes. In a separate filing, ICN disclosed its intention to take public another subsidiary, ICN Biomedicals. Established in 1983, ICN Biomedicals supplies a broad range of research chemicals and related products to life science researchers in the biotech area. "The company intends to expand its role as a broad-based supplier of the tools used in biomedical research through internal development and acquisitions, thereby participating in the field of biotechnoloby and genetic engineering without incurring the high risks that are encountered in attempts to develop end products," the prospectus states. ICN will remain in control of ICN Biomedicals by holding an 82% equity position in the spin-off after the public offering. Chart omitted.

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