SCHEDULE 14A INFORMATION
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ICN Pharmaceuticals, Inc.
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Following are materials first sent to ICN Pharmaceuticals, Inc.
stockholders on or about May 13, 2002. Prior to being sent, ICN did not
obtain the consent of the author or publication to use this material as
proxy soliciting material.
ARNHOLD AND S. BLEICHROEDER, INC.
GLOBAL VIEWPOINT
ICN PHARMACEUTICALS
UNDER REVIEW May 3, 2002
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ICN.N $27.80 COUNTRY: U.S. SECTOR: Pharmaceuticals
---------------------------------------------------
Fair Value: YEAR-END EPS P/E GROWTH/
Under Review DEC ($) (x) RATE
2000A $1.14 -- --
Richard R. Stover 2001A $1.02 27.2 -10%
Senior Analyst 2002E $2.05 13.6 101%
(212) 698-3141 2003E $2.80 9.9 36%
rick.stover@asbinc.com
Index: S&P 500 1084.56 Currency Rate: US$1 = NM
Market Cap. (Mil.): $2,259 52-Week Range: $34.73 - $24.01
Stephanie H. O'Brien
Research Associate
(212) 698-3149
stephanie.obrien@asbinc.com
------------------------------------------------------------------------------
ICN REPORTS RECORD FIRST QUARTER, BUT PROXY CONTEST POSES UNCERTAINTY AB0UT
FUTURE DIRECTION
FIRST-QUARTER HIGHLIGHTS
First-quarter EPS rose 40% to $0.36 per share, in line with the First Call
consensus but below our $0.42 per share estimate.
Ribavirin royalty revenue more than doubled to $57 million versus $27.6
million a year ago. This was in line with our estimates, but above the
consensus. Specialty Pharma revenue rose 11% and gross profit margins
improved, reflecting manufacturing efficiencies in European operations.
Both SG&A spending and the tax rate were considerably higher than expected.
SG&A spending reflected approximately $8 million
in expenses related to restructuring and the current proxy fight.
Management did not provide a cogent explanation for why the tax rate of
40.2% in the quarter was higher than its previous guidance of 30%. It
reiterated its target to achieve a 30% tax rate later in the year.
2002 GUIDANCE: "HIGHER THAN CONSENSUS"
Management provided guidance that EPS for the year would be higher than the
consensus estimate of $1.74 per share, which includes an expectation of
ribavirin royalty revenue in the range of $250-$300 million. Our estimate
remains unchanged at
Arnhold and S. Bleichroeder, Inc. has an investment banking advisory
relationship with ICN. A senior officer of Arnhold and S. Bleichroeder
maintains an advisory relationship with ICN.
[symbol] 2002 Arnhold and S. Bleichroeder, Inc. All rights reserved. Printed in
U.S.A. Reproduction or quotation in whole or in part without prior written
permission by Arnhold and S. Bleichroeder, Inc. is forbidden. All
information in this report is subject to change at any time without prior
notice. The information contained herein, while not guaranteed, has been
obtained from sources we consider reliable. This information is taken from
company reports and documents and/or Arnhold and S. Bleichroeder, Inc.
estimates, unless otherwise noted. This is not a solicitation of any order
to buy or sell. Arnhold and S. Bleichroeder, Inc., its officers and
employees including those involved in the preparation of this report,
directors and stockholders, and customers of this Firm whose accounts are
maintained on a discretionary basis may have substantial long or short
positions in, and buy or sell the securities or options of, companies
discussed in this report. Such positions may have been established, in any
and all cases, prior to the commencement of circulation of this report.
Additional information is available upon request.
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$310-$315 million. Management also indicated that it expects Specialty
Pharma revenue to exceed $800 million in the 2002 fiscal year.
Further 2002 guidance includes:
o A target G&A expense as a percentage of sales of about 7% in 2002, down
from 11% in 2001.
o An increase in R&D expenditures to about $70 million this year, of which
approximately $50 million will be spent by Ribapharm.
o A reduction in the tax rate to about 30%. It was unclear to us whether
that represented a tax rate that could be achieved for the full year or
in the fourth quarter.
OUTLOOK CHARACTERIZED BY UNCERTAINTIES
We initiated coverage of ICN in May 2000 based on our expectation of
explosive growth in ribavirin royalties, believing that Rebetol in
combination with PEG-Intron would become the new standard of care in the
treatment of hepatitis C. The valuation case for the company's proposed
restructuring may have made sense given investor preferences that were
reflected in the financial markets two years ago. However, valuation
arguments for its implementation appear far less compelling given today's
market conditions, in our view.
Meanwhile, the diversion of organizational and financial resources to the
restructuring effort and the ongoing proxy contest appear to us to have
been more of a deterrent to building shareholder value.
The ICN we saw two years ago had prospects of burgeoning royalty revenue
from a blockbuster drug, a newly recruited research team to exploit the
potential of its proprietary library of nucleic acid analogs, and an
established global commercialization infrastructure. Indeed, this should
have represented an ideal strategic positioning relative to fledgling
biotech companies and the vast majority of specialty pharma companies.
But ICN's implementation of its restructuring plan appears to be
dismantling the company's previously enviable strategic position, owing to
the combination of what we believe is poor advice from its investment
bankers and persistent prodding by dissident shareholders, neither of which
have any appreciation of the strategic elements of the pharmaceutical
business, in our opinion.
We believe the restructuring would effectively dismantle what most
companies strive to attain.
o In its place, ICN shareholders will be left with a stake in Ribapharm
(RNA.N - $ 10.60/Not Rated) a "biotechnology" company with strong cash
flow, a modest early-stage pipeline, and we believe little depth in
management. Ribapharm's CEO is an accomplished scientist and researcher,
but the organization possesses no management experience whatsoever in
business development or marketing. Ribapharm has disclosed that it plans
to spend $140 million on R&D over the 2002-2003 period. Given the
company's limited early-stage pipeline, this begs the question: "On
what?"
o As a result of the restructuring, the Specialty Pharma business will be
split geographically into two distinct business units with redundant
administrative overheads, and abandon any prospect of being able to
achieve global commercialization of any of its new products. None of the
company's disclosures to date provides financial statements for these
two entities (ICN Americas or ICN International) on a stand-alone basis.
Today, shareholders are faced with a proxy contest between ICN management
and a group of dissident shareholders led by two institutional groups that
established positions in ICN stock for their investment clients less than a
year ago.
In reading the proxy materials put forth by Iridian Asset Management and
Franklin Mutual Advisors, we are frankly disturbed by the absence of any
discussion of an alternative fundamental course for the company. This
subjects the stock to even greater uncertainty, in our view.
For its part, ICN management appears to have acquiesced to the clamoring of
most of its institutional shareholders, including the dissidents, by going
ahead with the restructuring program.
The Ribapharm partial IPO was completed, notwithstanding extremely
difficult market conditions, and management reiterated its commitment to
distribute the remaining Ribapharm shares as a dividend to shareholders
once its tax-free status is affirmed by the IRS. Management also reiterated
its commitment to spin out 40% of ICN International in an IPO once market
conditions improve, and distribute the remaining shares to shareholders.
In conversations with our institutional clients who own ICN shares, most
appear to favor the dissident shareholder "un-Panic" slate, in our view
willing to follow Iridian and Franklin Mutual (on their potentially
value-destructive path) like lemmings into the sea. The vast majority of
our institutional clients who don't like the company's management simply
don't own the stock, effectively voting their proxy on the trading desk.
RATING AND FAIR VALUE UNDER REVIEW
For our part, any credible assessment of ICN's fundamentals or valuation
requires some visibility as to the future management direction of the
company. As noted above, this visibility does not now exist.
Accordingly, we are suspending our previous "Buy" recommendation and $35
fair value assessment, pending further clarification of the company's
future fundamental direction.
o We had anticipated that effective execution of the Ribapharm IPO
would neutralize the dissenting shareholders' quest to gain control
of the company.
o We had anticipated that management and its investment bankers would
provide transparency to the financial statements of the company's
Specialty Pharma business. Our analysis of the company's financial
statements over the past several quarters exacerbates our concerns
about the cost and expense burden of redundant administrative
overheads.
o We had anticipated that by now management would have put forth a more
proactive plan for succession that would strengthen investor
confidence in ICN's ongoing strategic direction. Nor have the
dissident shareholders outlined a succession or strategic plan, which
heightens our concern that their actions may jeopardize the
realization of value inherent in ICN and Ribapharm in the future.
The events of the next month, hopefully, will provide greater clarity in
terms of ICN's future direction and its prospects of realizing value that
we believe should be well in excess of the market appraisal it has today.
[GRAPH OMITTED]
FIGURE 1: QUARTERLY SALES AND EARNINGS PROJECTIONS 2002/2001
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------- ------------------ ----------------- ------------------
($ Millions except per share) 2002 2001 %Chg. 2002E 2001 %Chg. 2002E 2001 %Chg. 2002E 2001 %Chg.
---------------------------- ---- ---- ---- ----- ---- ----- ----- ---- ----- ----- ---- -----
NET SALES
Pharmaceutical Products
North America $46.9 $42.3 11% $51.0 $44.1 16% $46.0 $39.0 18% $54.0 $47.2 14%
Latin America 29.5 26.1 13% 33.0 29.6 11% 34.0 30.7 11% 47.0 42.0 12%
Western Europe & Central Europe 54.9 52.5 5% 56.0 49.9 12% 53.0 47.6 11% 63.0 56.2 12%
Eastern Europe (Russia) 29.8 24.4 22% 25.0 23.0 9% 25.0 22.9 9% 36.0 33.2 8%
Asia, Africa & Australia 11.8 10.6 11% 14.0 13.0 8% 13.5 12.5 8% 14.5 12.9 12%
---
Human Pharmaceuticals $172.9 $155.9 11% $179.0 $159.6 12% $171.5 $152.7 12% $214.5 $191.5 12%
Biomedical Products 15.8 15.5 2% 15.0 14.8 2% 15.0 14.4 4% 17.0 16.8 1%
---- ---- ---- ---- ---- ----
Product sales $188.7 $171.4 10% $194.0 $174.4 11% $186.5 $167.0 12% $231.5 $208.3 11%
Royalty revenues 57.0 27.6 107% 75.2 31.4 139% 82.0 24.0 242% 98.0 54.0 81%
TOTAL REVENUES $245.7 $199.0 23% $269.2 $205.8 31% $268.5 $191.1 41% $329.5 $262.3 26%
OPERATING COSTS & EXPENSES
Cost of sales $71.1 $69.8 2% $73.9 $69.2 7% $72.0 $65.5 10% $86.0 $81.3 6%
% of product sales 37.7% 40.7% 38.1% 39.7% 38.6% 39.2% 37.1% 39.0%
Selling, general &
administrative 91.6 73.4 25% 91.4 79.2 15% 95.0 83.2 14% 97.0 84.6 15%
Amortization of goodwill &
intangibles 7.2 8.2 -12% 7.0 7.9 -11% 7.0 7.9 -11% 7.3 8.1 -10%
Research & development 9.9 6.4 55% 16.1 6.5 150% 20.0 6.9 188% 24.0 10.7 124%
--- --- ---- --- ---- --- ---- ----
Total operating costs
& expenses $179.8 $157.8 14% $188.4 $162.8 16% $194.0 $163.5 19% $214.3 $184.7 16%
Operating Income $65.9 $41.2 60% $80.8 $43.1 88% $74.5 $27.5 170% $115.2 $77.6 49%
Margin 28.9% 35.1% 27.5% 33.6% 26.8% 34.3% 26.1% 31.0%
Translation gain (loss) (2.1) (0.4) (2.0) 4.7 (2.0) (1.3) (2.0) (1.8)
Interest income (expense)- net (13.2) (10.8) (7.0) (10.9) (7.0) (12.1) (7.0) (12.4)
INCOME before taxes $50.6 $30.0 68% $71.8 $36.9 95% $65.5 $14.1 365% $106.2 $63.4 68%
Pretax margin 26.8% 20.7% 30.0% 20.9% 27.7% 14.4% 35.0% 29.6%
Provision for taxes $20.3 $9.3 120% $25.8 $14.5 78% $23.6 $4.7 405% $37.2 $30.2 23%
Effective tax rate 40.2% 30.8% 36.0% 39.4% 36.0% 37.0% 35.0% 47.6%
Minority interests (0.0) 0.3 (1.5) (0.8) (1.5) (0.3) (2.0) 0.3
NET INCOME $30.2 $21.0 44% $44.4 $21.6 106% $40.4 $9.2 341% $67.0 $33.5 100%
Convertible interest add back $5.7 $5.7 $5.7 $5.7 $5.7
Shares outstanding - Diluted 84.3 82.3 84.4 83.2 84.5 83.6 84.5 83.6
Shares - assuming conversion 99.6 99.7 99.8 99.8 98.9
EARNINGS PER SHARE $0.36 $0.26 40% $0.50 $0.26 94% $0.46 $0.11 322% $0.73 $0.40 84%
===== ===== ===== ===== ===== ===== ===== =====
Full year
---------------------
2002E 2001 %Chg.
----- ---- -------
$197.9 $172.6 15%
143.5 128.4 12%
226.9 206.2 10%
115.8 103.5 12%
53.8 49.1 10%
$737.9 $659.7 12%
62.8 61.4 2%
---- ----
$800.7 $721.1 11%
312.2 137.0 128%
$1,112.9 $858.1 30%
$303.0 $285.7 6%
37.8% 39.6%
375.0 320.5 17%
28.5 32.1 -11%
70.0 30.5 130%
$776.5 $668.8 16%
$336.4 $189.4 78%
27.2% 33.3%
(8.1) 1.2
(34.2) (46.1)
$294.0 $144.4 104%
30.2% 22.1%
$106.9 $58.6 82%
36.4% 40.6%
(5.0) (0.5)
$182.1 $85.3 114%
$22.8
84.4 83.3
99.7
$2.05 $1.02 101%
Source: Company reports and Arnhold and S. Bleichroeder estimates
Global Equity Research
UBS Warburg
MAY 8, 2002 BIOTECHNOLOGY UNITED STATES
RIBAPHARM INC (RNA)[2] BUY
Key Statistics
------------------------------------
Price $10.45
52-Wk Range $12-10
Price Target $16.00
Return Pot'I. 53.1%
Mkt. Cap(MM) $1,568
Sh. Out.(MM) 150.0
Float NA
Inst. Hldgs. 0.0%
Avg. Volume(K) 1,588
CUrr.Div./Yield None/NA
Sec.Grwth.Rate 13%
Convertible? No
Debt/Capital NA
ROE LTM NA
Book Value/Share
Price/Book NA
------------------------------------
Quarterly Earnings Per Share (fiscal year ends December)
2001A 2002E Prev 20003E Prev
-------------------------------------------------------------------------------
1Q $0.10 $0.15
2Q $0 11 0.18
3Q 0.07 0.20
4Q 0.20 0.18
Year $0.48 $0.71 $0.76
FC Cons.: NA NA NA
P/E: 21.8x 14.7x 13.8x
Revs.(MM): $144 $250 $283
P/Rev.: 10.9x 6.3x 5.4x
EBITDA(MM): $112 $177 $207
Ribapharm is a biotechnology company with a primary focus on the
development and commercialization of anti-viral and anti-cancer
therapeutics. The company currently has one marketed product Ribavirin, a
major component of the standard treatment for Hepatitis C. Through its
marketing partner, Schering Plough (SGP), Ribapharm has built the 2nd
largest biotechnology franchise behind Amgen's Epogen. In addition,
Ribapharm is developing 2nd generation products which are both targeting
the hepatitis C market.
-----------------------------------------------------------------------------
Source: UBS Warburg LLC and First Call consensus estimates
RIBAPHARM: INITIATING COVERAGE WITH A BUY RATING
SUMMARY
o We are initiating coverage on RNA with a Buy rating and a $16 price
target. Our Buy rating is based upon strong expected earnings growth
driven by sales of ribavirin.
o We also expect several near-term events including a potential licensing
deal with Roche and the completion of the ICN spin-off to provide
further catalysts for the stock.
o RNA is a profitable biotechnology company focusing on the development
and commercialization of anti-viral and anti-cancer therapeutics. RNA
has one marketed product, ribavirin, a major component of the leading
HCV treatment.
VALUATION
Our $16 price target is based upon a 21x multiple on our 2003 EPS estimate
of $0.76. Our 21x multiple represents a slight discount to that afforded to
the large cap biotech companies currently trading at 25x 2003 earnings. In
addition, our 21x multiple represents a slight premium to comparable
companies such as Enzon and Biogen. We believe that our 21x multiple
comfortably accounts for the company's risk profile, while also recognizing
the growth opportunities associated with ribavirin. Indeed, as we gain
further clarity on outstanding issues such as the launch of Roche's Pegasys
and the generic issue, we believe RNA may be afforded a higher multiple.
ANDREW GITKIN
+1 212 713 2611
andrew.gitkin@ubsw.com
JIM BIRCHENOUGH, M.D., ASSOCIATE ANALYST
+1 416 814-1430
jim.birchenough@ubsw.com
BRENDAN BOYLAN, ASSOCIATE ANALYST
+1 212 713 2717
brendan.boylan@ubsw.com
--------------
1 In addition to the UBS Warburg web site,
WWW.UBSWARBURG.COM/RESEARCHWEB, our research products are available
over third-party systems provided or serviced by: Bloomberg, First
Call, I/B/E/S, IFIS, Multex, QUICK and Reuters. UBS WARBURG IS A
BUSINESS GROUP OF UBS AG
Ribapharm Inc May 8, 2002
-------------------------------------------------------------------------------
ADDITIONAL INFORMATION
We are initiating coverage with a Buy rating and a 12-month price target of
$16/share. Our Buy rating and $16 price target are based upon strong
expected royalties from increasing sales of ribavirin. Specifically, we
expect Ribapharm to realize $250 million in royalties in 2002 and $293
million in 2003. This should translate into EPS of $0.71 in 2002 and $0.76
in 2003; a potential licensing deal with Roche could provide upside to our
2003 estimates as well as to our outyear forecasts. In addition, we also
cite several near-term events, including a possible management change at
ICN in late May and the completion of the RNA spin-off from ICN, as
additional catalysts for the stock.
COMPANY BACKGROUND - RNA is a biotechnology company with a primary focus on
the development and commercialization of anti-viral and anti-cancer
therapeutics. The company currently has one marketed product: ribavirin, a
major component of the standard treatment for hepatitis C (HCV). Through
its marketing partner, Schering Plough, RNA has built ribavirin into the
second largest biotechnology franchise behind Amgen's Epogen. In addition,
RNA is developing second-generation products targeting HCV, cancer, HIV,
and hepatitis B.
Prior to its IPO on April 12, 2002, RNA was the biotechnology business unit
of ICN Pharmaceuticals, responsible for ribavirin and other follow-on
anti-viral/ anti-cancer compounds. ICN sold roughly 20% of RNA to the
public in early April; we expect the remaining 80% of the company to be
spun-off tax-free to ICN shareholders by the end of 4Q02. While RNA has two
follow-on products expected to move into Phase II development later this
year for the treatment of HCV, investor focus is clearly on ribavirin.
RIBAVIRIN - PROTECTING A BLOCKBUSTER FRANCHISE IN HEPATITIS C - Ribavirin
is an orally available nucleoside analogue developed by ICN in the early
1980's for the treatment of a variety of viral infections. With an initial
approval for respiratory syncytial virus (RSV) in infants in 1985, the drug
later demonstrated broad anti-viral activity, particularly in HCV. While
its mechanism of anti-viral activity is not fully understood, several
mechanisms have been proposed including inhibition of the genetic machinery
of rapidly replicating viruses, as well as an immune modulating effect.
This latter understanding regarding its effect is the basis for several
method of use patents issued to ICN, now transferable to RNA, in effect
until 2016.
Currently, ribavirin is the treatment of choice for chronic HCV, in
combination with interferon-alpha. This combination was approved in 1998,
and until October of last year was only available as a combined brand
called Rebetron (ribavirin capsules + interferon-alpha injectable) marketed
by SGP . In October, 2001 ribavirin was launched as a stand-alone brand,
Rebetol, for use with SGP's recently approved and pegylated version of
interferon-alpha, PEG-Intron. The combination therapy produces sustained
virologic responses in 54% of patients treated, and is better tolerated and
more convenient to use than traditional combination therapy. Nevertheless,
HCV remains a tremendously under-diagnosed and under-treated disease. Of
the 10-12 million infected persons in the US, Europe, and Japan, only 6-8%
are diagnosed and only 25-30% of those diagnosed are treated with
appropriate combination therapy. As a result, there is a huge market
opportunity still available to HCV therapies.
CHALLENGES ON THE HORIZON - Several potential competitive threats have
emerged over the last year that appear to challenge the sustainability of
the ribavirin HCV franchise. Included in these challenges are Roche's
intention to launch a competing combination pegylated interferon +
ribavirin product without paying a royalty to RNA as early as 4Q02. In
addition, generic ANDA's have been filed by Geneva, Three Rivers
Pharmaceuticals and Teva in August, 2001. We believe that RNA's patent
position will provide strong leverage in reaching a licensing agreement
with Roche. Further, we believe that the combined patent estates of SGP and
RNA detailing combination therapy will provide a high hurdle to generic
competitors.
CATALYSTS - In the near term we believe there is a reasonably high degree
of probability for a Roche/RNA licensing agreement. We believe that both
Roche's commitment to coming to market as soon as possible, and the
potential hindrance posed by RNA's patent position make a potential deal
the logical outcome. We also expect to gain better visibility into the
generic issue over the next 6-12 months as these cases enter litigation in
mid-2003. In addition to these issues, we believe that a potential
management change at ICN could provide an additional catalyst for the
stock. Specifically, dissident shareholders in favor of new management have
been gaining momentum in recent weeks. We expect that a potential
management change at ICN's annual meeting on May 29th could prove to be a
catalyst for RNA shares. Regardless of the outcome at the meeting, we
believe the spin-off will occur by the end of 2002; and in so doing,
effectively removing the ICN taint from RNA. However, a new management team
would likely bolster investor confidence in the probability of this
occurring.
--------
2 UBS Warburg LLC
Ribapharm Inc May 8, 2002
-------------------------------------------------------------------------------
In the more immediate term, we believe that physicians and patients are
increasingly adopting the improved combination therapy, translating into
strong revenue and earnings growth. Indeed, it already appears that the
company is on pace to enroll roughly 100,000 new patients, which measures
comfortably with our projection of 60,000 patients (including significant
patient attrition rates close to 40%) in 2002. Additional increases in
prescription trends could provide upside to our 2002 EPS estimate of $0.71.
STATEMENT OF RISK
o There are a number of risks inherent in investing in the biotech
industry. These include, but are not limited to, clinical trial
failures, capital restrictions, failure to achieve significant
revenues and earnings, as well as other unforeseen events. Any
investment should carefully weigh all aspects of the company's product
portfolio and financial position in relation to any upside potential.
--------
3 UBS Warburg LLC
Ribapharm Inc May 8, 2002
-----------------------------------------------------------------------------------------------------------------------
Fiscal Year Ends December 31. 2002E
------- -------- --------- -------- --------- -------- ------- ---------
INCOME STATEMENT (mins) 2000A 2001A 10Q2E 2Q02E 3Q02E 4Q02E(2) 2002E 2003E
------- -------- ------- ---------
REVENUES:
Product Sales $ - $ - $ - $ - $ - $ - $ - $ -
Product Services - - - - - - - -
Product Royalties 154.8 143.6 50.0 61.5 68.4 70.2 250.0 293.1
------- -------- --------- -------- --------- -------- ------- ---------
TOTAL REVENUE $ 154.8 $ 143.6 $ 50.0 $ 61.5 $ 68.4 $ 70.2 $ 250.0 $ 293.1
EXPENSES
Cost of Goods Sold $ - $ - $ - $ - $ - $ - $ - $ -
R&D Expense 13.0 25.2 10.1 15.1 17.3 17.8 60.3 72.3
SG&A Expense 11.1 5.9 3.3 3.3 3.3 3.3 13.1 14.1
--- --- --- --- ---
TOTAL EXPENSES 24.1 31.2 13.4 18.3 20.6 21.1 73.4 86.3
----------------------------------------------- -------- --------- -------- --------- -------- ------- ---------
OPERATING INCOME 130.7 112.5 36.6 43.1 47.8 49.0 176.6 206.8
----------------------------------------------- -------- --------- -------- --------- -------- ------- ---------
Depreciation and amortization - - - - - - - -
EBIT 130.7 1125 36.6 43.1 47.8 49.0 176.6 206.8
Interest Income - - - - - - 3.5
Interest Expense - - (0.1) (0.3) (0.3) (0.7) (0.1)
Other
Total Other Income (Expense) - (0.1) (0.3) (0.3) (0.7) 3.4
Pre-Tax Income 1307 1125 36.6 43.1 47.5 48.7 175.9 210.2
Income taxes 48.7 40 5 13.6 15.9 17.6 18.0 65.1 77.8
------- -------- --------- -------- --------- -------- ------- ---------
Recurring Net Income $ 82.0 $ 72.0 $ 23.1 $ 27.1 $ 29.9 $ 30.7 $ 110.8 $ 132.4
======= ======== ========= ======== ========= ======== ======= =========
Non-Recurring Items (inc.
extraordinary, net of taxes) - - - - - - - -
------- -------- --------- -------- --------- -------- ------- ---------
Reported Net Income $ 82.0 $ 72.0 $ 23.1 $ 27.1 $ 29.9 $ 30.7 $ 110.8 $ 132.4
======= ======== ========= ======== ========= ======== ======= =========
----------------------------------------------- -------- --------- -------- --------- -------- ------- ---------
RECURRING EPS $ 0.55 $ 0.48 $ 0.15 $ 0.18 $ 0.20 $ 0.18 $ 0.71 $ 0.76
----------------------------------------------- -------- --------- -------- --------- -------- ------- ---------
Extraordinary item (net of taxes) - - - - - - -
Reported EPS 0.55 0.48 0.15 0.18 0.20 0.18 0.71 0.76
Fully Diluted Shares Outstanding 150.0 150.0 150.0 150.0 150.0 174.1 156.0 175.1
MARGIN ANALYSIS 2000A 2001A 1Q02E 2Q02E 3Q02E 4Q02E(2) 2002E 2003E
Product Royalties 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
COGS (as a % of Product Sales) - - - - - - - 0.0%
R&D Expense 8.4% 17.6% 20.1% 24.5% 25.3% 25.4% 24.1% 24.7%
SG&A Expense 7.2% 4.1% 6.6% 5.3% 4.8% 4.7% 5.3% 4.8%
Operating Income 84.4% 78.3% 73.3% 70.2% 69.9% 69.9% 70.6% 70.5%
Pre-Tax Income 84.4% 78.3% 73.3% 70.1% 69.5% 69.5% 70.4% 71.7%
Tax Rate 37.3% 36.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0%
Recurring Net Income 53.0% 50.1% 46.1% 44.1% 43.8% 43.8% 44.3% 45.2%
GROWTH ANALYSIS
Product Royalties 41.3% (7.2%) 71.0% 84.6% 158.4% 28.5% 74.1% 17.2%
Total Revenue 41.3% (7.2%) 71.0% 84.6% 158.4% 28.5% 74.1% 17.2%
COGS -- -- -- -- -- -- -- --
R&D Expense 135.7% 93.7% 96.1% 172.6% 197.2% 104.6% 139.2% 19.8%
SG&A Expense 98.0% (46.5%) 244.1% 111.2% 66.8% 123.4% 121.0% 7.1%
Operating Income 32.7% (14.0%) 58.3% 64.5% 155.9% 10.4% 57.0% 17.1%
Pre-Tax Income 32.7% (14.0%) 58.3% 64.2% 154.4% 9.7% 56.4% 19.5%
Recurring Net Income 30.1% (12.2%) 58.3% 59.4% 182.6% 3.0% 54.0% 19.5%
Recurring EPS 755.1% 141.6% 58.3% 59.4% 182.6% (11.2%) 48.0% 6.4%
NOTES:
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(1) Ribavirin was approved for use in conjunction with SDP's alpha
interferon for chronic Hepatitis C in mid-1998.
(2) ICN, the parent company of RNA, issued $525 million of 6.25%
convertible notes (convertible at $34.25/share) in July, 2000. Under
the terms of the offering, both ICN and RNA are liable for interest
and principal payments on the notes. However, a subsequent agreement
between the two companies states that ICN will be solely responsible
for all payments. This arrangement can only be altered with a majority
vote from RNA shareholders who are not ICN shareholders. The SEC has
ruled that RNA is not required to report interest expense on its pro
forma income statement; however, the $525 million liability will be
reflected on the company's pro forma balance sheet. Upon conversion of
the notes, bondholders are entitled to 23.07195 million shares of RNA
(15.3 million shares of ICN X 1.51 shares of RNA as per the proposed
spin-off of the company). We assume this spin-off will occur in 4Q02;
at this point, RNA will have roughly 174 million fully diluted shares.
MEMO:
RNA has its IPO in April, 2002; All previous results are Pro Forma as per
ICN.
Source: UBS Warburg Research and company reports
--------
4 UBS Warburg LLC
Ribapharm Inc May 8, 2002
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COMPANIES MENTIONED
--------------------------------------------------------------------------------------------------------------------------------
Company Name Ticker Price Company Name Ticker Price
--------------------------------------------------------------------------------------------------------------------------------
Amgenh[l] AMGN $46.54 Biogen Inc.[l] BGEN $40.29
Enzon[l] ENZN $28.82 ICN Pharmaceuticals[2,30,37,48] ICN $26.29
Schering-Plough[48] SGP $27.01
--------------------------------------------------------------------------------------------------------------------------------
Price quoted on May 7, 2002 Source: UBS Warburg
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