By Lisa Seachrist

Washington Editor

ICN Pharmaceuticals Inc. has decided to split its operations into three separate publicly traded companies. The Costa Mesa, Calif.-based company made the decision in an effort to enhance shareholder value and position itself strategically for long-term profitability and growth.

The decision came following four months of evaluation by UBS Warburg.

The plan has been approved by ICN's board of directors and will split the company into one entity devoted to the research and development activities and a second comprising ICN's operations in Eastern and Western Europe and the Pacific Basin. The existing ICN Pharmaceuticals, with its operations in North and Latin America, will make up the third company and hold a majority interest in the other two companies.

Milan Panic, chairman and CEO of ICN, will be chairman of all three companies and CEO of the North and Latin American company. Each company will have a separate management team and board of directors.

In an effort to get the restructuring under way, ICN said the company comprised of the research and development enterprise, called Ribapharm Inc., has filed with the Securities and Exchange Commission for an initial public offering. That offering is being lead by UBS Warburg, of New York, with CIBC World Markets, also of New York, serving as co-manager.

Richard Meier will be president and CEO of the new subsidiary. He now is executive vice president and chief financial officer at ICN. "The idea behind forming the biotech subsidiary," Meier told BioWorld Today, "is that ICN, as it's currently configured, we believe is significantly undervalued," with a number of component parts in areas such as specialty pharmaceuticals, generic drug distribution and some biotech

"One of the challenges has always been to get the value of the respective pieces valued appropriately in the marketplace. In the last three years the company has improved its fundamental financial position, and its not truly reflected in the equity markets. We want to unleash the value that heretofore has been hidden, or at least not realized, within the company.

"Now people will be able to look at a simpler business model," Meier said, and better recognize the value of the biotech subsidiary's royalty stream and its research and development pipeline, as well as its nucleoside library, "which we feel is one of the largest in the world. We want to expand our research efforts, and think over the course of the next number of years we can come up with some interesting compounds we can develop commercially."

While the restructuring is drastic, Viren Mehta, president of Mehta Partners LLC in New York, told BioWorld Today the move addressed only one of the issues facing ICN.

"From an outside point of view, the company needs three things: a change in management, structure and growth drivers," Mehta said. "Today's news release only addresses the structure aspect. There is a need for progress on the other fronts."

ICN's stock (NYSE:ICN) closed Thursday at $27.50, down $6.812, or nearly 20 percent.

In the preliminary prospectus filed Thursday with the SEC, the filing did not detail the number of shares Ribapharm would offer or the amount of money it expected to raise as a result of the offering. It describes itself as a biotechnology company dedicated to discovering, developing and commercializing innovative products for the treatment of significant unmet medical needs in the antiviral and anticancer areas.

Ribapharm's main product is ribavirin, a nucleoside analogue sold by Schering-Plough Corp., of Madison, N.J., in combination with interferon alfa-2b under the trade name Rebetron as a therapy for hepatitis C. ICN's royalties, which will become Ribapharm's royalties once the restructuring is complete, were $110 million in 1999.

In addition to ribavirin, Ribapharm has a library of chemical compounds, of which at least 3,500 are nucleoside analogues. Nucleoside analogues are small molecules that resemble the natural building blocks of human and viral RNA and DNA. The company believes its library is a rich source of compounds that may be useful in combating viral infections and cancer.

Ribapharm has two products in clinical testing, Tiazole and Adenazole. Tiazole has completed Phase I/II trials in chronic myelogenous leukemia. The company is considering testing the compound in ovarian cancer and multiple myeloma. Adenazole is scheduled to begin Phase I trials in colon cancer this year.

The company also has two product candidates in preclinical studies, Levovirin and Viramide. Levovirin may stimulate an immune response to certain viruses without the anemia associated with ribavirin. Viramide may generate an antiviral and immune response to viral infections similar to ribavirin, but without some of the side effects.

In its preliminary prospectus, Ribapharm noted it intended to expand its research team within two years of the offering to include more than 100 scientists, and to spend approximately $20 million in 2000 to upgrade and modernize its laboratory and research facilities. By doing this, the company said it intends to fully screen its nucleoside analogue library for compounds effective against hepatitis C, hepatitis B, HIV and cancer.

In the prospectus, the business operations that will become Ribapharm showed a net income of $20.2 million in the first quarter of this year. At that time the company had working capital of $33.3 million.