Bausch Health Companies Inc (BHC) 2002 Q3 法說會逐字稿

Good day everyone and welcome to the ICN Pharmaceuticals third quarter 2002 earnings results conference call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Greg Keever, Executive Vice-President, General Counsel and Corporate Secretary for ICN. Please go ahead, sir.

Thank you. I would like to welcome everyone to today's call.

Before we begin the call, I would like to read to you the safe harbor statement under the Private Securities Litigation Reform Act of 1995. The statement is as follows: this presentation contains forward-looking statements that involve risks and uncertainties including, but not limited to, projections of future sales, operating income, returns on invested assets, regulatory approval processes, competition from generic products, marketplace acceptance of the company's products, success in the company's strategic repositioning initiatives and the ability of management to execute them, success with the company's on-going inventory reduction program and other cost cutting measures and other risks detailed from time to time in the company's Securities and Exchange Commission filings.

Joining us on the call today are Robert O'Leary, Chairman and Chief Executive Officer, Adam Jerney, President and Chief Operating Officer, John Giodarni, Chief Financial Officer, Phil , Treasurer, , Controller and Randy Thurman, an ICN director, all of whom will be available to answer questions during the Q&A Section.

Now, I'd like to turn over the call to Mr. O'Leary.

o'leary: Thank you, Greg. Welcome to all of you too and thank you for joining us today. Please bear with us, we have a lot to share with you this morning. I'd like to apologize in advance for the length of this presentation. We're very glad to be with you and to be in a position to begin sharing with you the strategic vision for ICN.

In the short four and a half months since the election of the new board members, we have accomplished a great deal. We've been very busy working on a strategic direction for the company and the management changes that we are reporting to you today. Let me, of course, begin the call by saying that I'm very pleased to be joining ICN as its full guiding Chief Executive Officer.

I'm excited about the opportunity and about the prospects for this company. As you know, we have also announced the appointment of two new executives at ICN and it is a genuine pleasure to have professionals of this caliber joining the team. I have invited Randy Thurman, currently Chairman and Chief Executive Officer of Viasys Healthcare Inc., and the former President and CEO of Pharmaceuticals and who has served on the executive committee here at ICN and does - has served as the Chairman of the search committee of ICN's board, to join us on the call today.

Randy has played a key roll in these executive appointments and he can share with you his perspective not only as a board member but also as someone who has many years of experience in the pharmaceutical industry. I'll turn the call over to Randy for a few brief remarks then join you gain to talk about our strategic redirection and third quarter earnings.

Randy is joining us on the phone from the East Coast and will be available to answer questions later in the Q&A session. Randy.

Thank you Rob. I'm very glad that I can represent the board of directors of ICN today to offer some insight into these very critical appointments and the new direction of ICN. When we set out four and a half months ago to find a new Chief Executive Officer and Executive Management Team for ICN, we knew the company needed the kind of leaders who would be able to quickly set a new course for the company and redirect its employees.

And whose sole focus would be on driving shareholder value. Indeed, that's why the new electors were elected. We knew that ICN needed executives who would be home in a fast paced environment that demanded quick and dramatic change. We didn't have to go very far to find the kind of leadership needed at the CEO level.

On behalf of the board, I am very pleased to have Rob remain and to take the helm as ICN's Chief Executive Officer. Rob has worked tirelessly in four and a half months as interim Chairman and CEO, taking control at a time when investor confidence in the company was very low and steering the company through an earnings warning and a subsequent comprehensive strategic review of all of ICN businesses.

Most importantly, Rob has the kind of vision that ICN needs to lead it to a new era as he and the new executive team begin to implement the board's new strategic direction. I've known Rob for years, and participated in recruiting him to the slate of new directors. Rob O'Leary is one of the most experienced healthcare executives in all of America. Having served as Chief Executive Officer of six different companies in his 28 year CEO career. Rob has most often been recruited to restructuring situations where tough-mindedness, decisiveness and leadership are at a premium.

He has compiled an enviable record of accomplishments, most notably is highly visible and successful that will be experience at American Medical International. Always focused on creating shareholder value, Rob has emphasized that same discipline in four and a half short months at ICN.

Speaking on behalf of the entire board, I can say that ICN and its shareholders will truly benefit from Rob's strategic thinking, leadership and decisive and dynamic style. Now four and a half months ago we set out with the belief that we would be bringing in a CEO from outside of the company but in four and a half short months Rob more than convinced the full board that he was the right person to take over for the following reasons which I think are important to all of our shareholders. He has demonstrated exceptional leadership in four and a half months, taking the helm at ICN during a very, very complicated period. Rob initiated and embarked on an aggressive, internal restructuring program that as you will hear today is going to yield substantial and immediate productivity and cost improvement throughout the company. Rob, working with the full board, the strategic initiative with Goldman Sachs and outside consults that has now set a new direction for the company. Maintaining the momentum that Rob has created in four and a half short months was an imperative the board set back and reflected on our new leadership direction and, of course, now Rob has recruited a world class team, which he'll speak more to in a few minutes, to take ICN forward. All of this in four and a half short months. You can see why the board of directors of ICN unanimously endorse Rob to become the permanent chairman and chief executive officer.

As you know, the company also announced this morning the announcement, the appointment of Tim Tyson as president and chief operating officer. Tim has 25 years of health care, pharmaceutical experience with strong sales, marketing and operations background, as well as tremendous stature throughout the world in the pharmaceutical industry. Tim has both domestic and international experience with significant executive leadership experience but he's also an executive who is at home in an environment of significant change like ICN.

Tim is currently a member of GlaxoSmithKline's corporate executive team and is president of Global Manufacturing and Supply for GlaxoSmithKline where his global responsibility for supply chain manufacturing in 43 countries and all procurement operations around the world. There he has restructured the management team, reinvigorated the business, and installed a new discipline to the organization along with new and for best practices. His broad experience at GlaxoSmithKline included managing two major P&L operations, Glaxo Dermatology and Cerenex Pharmaceuticals. He also was responsible for managing all sales and marketing for the U.S. operations where he launched 32 new products, 8 of which have become blockbuster drugs. Under Tim's leadership, GlaxoSmithKline was awarded the Marketer of the Year Award from for two consecutive years.

I have known Tim for several years and as chairman of the search committee for ICN aggressively sought his candidacy. Tim has a successful track record with difficult restructuring situation, which is one of the many strengths that we knew would add value to the company. We are tremendously pleased to have Tim join the organization and to team with Mr. O'Leary as we move forward to create shareholder value.

ICN also announced this morning the appointment of Bary Bailey as Chief Financial Officer. Bary is one of the bright financial stars in the health care industry. He has over 20 years of experience and as Executive Vice President, Pharmacy and Technology of PacifiCare Health Systems. Bary also has served as Chief Financial Officer.

At Pacific Care, Bary has provided leadership for the information technology group and for RX Solutions, the pharmacy benefit management services subsidiary of PacifiCare. Bary has a diverse background with experience in public accounting and significant roles including Vice President of Finance at American Medical International, a major for profit publicly traded hospital company. He has also served as Chief Financial Officer of a highly regarded healthcare buying consortium.

Bary's had an exceptional financial career with virtually every aspect of finance in his portfolio. He also has very strong information technology background, which will bring great expertise to ICN. Bary has the added benefit of having worked with Rob for a number of years in numerous capacities. So they know each other very well.

It is the belief of the Board of Directors of ICN and management that the executives appointed today will provide the strength of leadership that the Company needs to guide it through the strategic restructuring, financial challenges therein and the major organizational changes that will result. I'll be happy when Rob is through to answer any questions about the decisions that have been made today. And with that, I'll turn the call back to Rob O'Leary.

o'leary: Thanks, , you certainly set the bar high enough for the three of us. There's an awful lot there for us to live up to.

Let me underscore the Board's belief about the strength of these executives that will be joining ICN shortly. They are the kind of aggressive leaders that we need as we move forward with a new strategic vision and direction. They have strong backgrounds in pharmaceutical and the healthcare fields and they have extensive experience in restructuring situations and managing change.

And they have a depth of commitment to see the organization through the successful completion of the goals we have announced today. Both Tim and Bary are making themselves available to help us through the transition period and will be here full-time on or about the first of December.

I would like to turn your attention to a discussion of our strategic direction. Its key elements, potential growth strategies and a summary of next steps. After review of the new strategic direction, we'll move on to the quarter's performance and then close with questions and answers.

When I came onboard in June, we were faced with three sets of challenges. First, we had to focus our attention on the speciality pharmaceutical business. And set a strategic direction for those operations that would enhance shareholder value.

Second, we needed to get ICN's overall cost structure inline with where it should be for a Company of its size and in this industry. And finally, we had to decide on an approach for our 80 percent ownership in that would maximize value for ICN shareholders.

These, of course, are not simple challenges. Each in and of itself requires a great deal of attention and careful analysis and requires a great deal of time. You add in the four and a half months, this short period of time that we've been working, we have, I believe, made dramatic progress.

This morning we announce the adoption of a new strategic direction for ICN in which we have set forth a more focused strategy for the specialty pharma business and in which we have aggressively attacked the cost structure issue. We have also carefully analyzed several strategic options regarding our stake in and we will select among those options in the coming weeks and as we do, seek to maximize shareholder value.

Our strategy in this redirection is designed to create a leaner more focused company with a strong emphasis on building shareholder value. We expect to achieve the objective through a series of steps that include restructuring the company into its core specialty pharmaceutical business, divesting those non-core businesses that do not fit the company's strategic direction and improving our overall cost structure.

The restructured company will have a greater geographic and therapeutic focus while investing in a stronger product and business development capability. Specifically, we will focus on those regions with the greatest potential for growth for ICN namely North America, Latin America and Western and Central Europe. Within these geographies we also plan to strengthen our product portfolio by focusing on those therapeutic areas that have traditionally represented our strength and offer opportunities for growth such as dermatology.

Next, as a part of our renewed focus on the core business, we have identified those business units that have few synergies and do not fit our overall strategic direction. We have already begun to take steps to divest those businesses which include our operations in Eastern Europe as well as our raw materials business in Central Europe, our business in North America and our bio-medicals operations and our unit and we are taking and have taken steps to improve our overall cost structure in our corporate and international headquarters as well as in other areas.

We have targeted cost reductions of approximately $21 million on an annualized basis. Approximately 10 million of which have already been achieved and include the discontinuance of the company's aviation department, the closing of our Washington office and the discontinuance of associated activities, the closing down and outsourcing of the corporate PR function and the restructuring of certain corporate G&A activities.

We anticipate further progress against this goal as we restructure other representative offices around the world and the international headquarters in Basle, Switzerland. We will keep you informed about our progress against this $21 million target.

In addition to all of the above, management has also taken steps in the last four and a half months to renegotiate commitments, restructure budgets and reduce future spending which would have resulted -- which has resulted in a cost-avoidance on an annualized basis of an estimated additional $29 million. Our efforts at identifying and cost savings have not yet focused on pharmaceutical operations and the supply chain and manufacturing. We believe there are opportunities in those areas, perhaps significant opportunities, that can be addressed once the new management team is fully in place.

As we developed our new direction, we really took a hard look at where we wanted this company to go in the next several years if it was to truly deliver value to its shareholders. We felt strongly that the focus on our core specialty pharmaceutical business is the right course of action for ICN.

Specialty pharma has emerged as a viable and attractive model over the past decade. With a strong and sustainable outlook, the sector consists of companies with quite diversified roots. The common factor being a focus on self-marketing of products that are traditionally under the radar screen of big pharma.

While market conditions are forcing the big pharma players to increasingly focus on blockbusters, this has created very attractive opportunities for a newer breed of players focused on smaller, innovative or reformulated branded products with attractive growth potential and economics. In addition, the continued mergers and focus on larger therapeutic areas have created a steady stream of attractive product acquisition opportunities.

ICN, at its core, has always been a specialty pharma company. Refocusing our efforts on the core business should enable us effectively to capitalize on the marketing opportunity and to deliver sustained revenue and earnings growth. By focusing on our core business, investing in the most advantageous geographic and therapeutic areas and improving our overall cost structure, we are establishing a strong platform from which ICN can achieve desirable future growth.

Our strategy to drive growth over the next several years involves the following steps. First, we look to evolve the U.S. business into a leading dermatology company. We selected product acquisitions and end licensing of delivery technologies while building a pipeline of newly formulated and innovative products over time.

Second, we plan to fully capture the potential of our Latin American region, building on our strength in Mexico to help drive growth. Our plans for this market involves continued product acquisitions, emphasizing on existing development and reformulation capabilities and expanding the sales force within Latin America.

Third, we seek to evolve our pharmaceutical business in Western and Central Europe with a particular emphasis on Germany, Italy and Poland, into a more focused business with greater attention paid on a few therapeutic areas. In this renewed focus, we will utilize selected acquisitions to build critical scale in certain markets and expand the product portfolio. We believe we are on a strong track record for success.

We know the months ahead will be intense, as we further our progress and complete our restructuring. We expect that the divestitures will be completed over the next six to 12 months while the broader restructuring initiatives such as the manufacturing and supply chain overhauls, will take longer.

Now I'd like to turn your attention, if I may, to the third quarter results that we announced this morning. As reported, revenues from continuing operations for the third quarter 2002 were $215.9 million as compared with revenues of 182.4 million in the same period last year. An 18 percent increase.

On a GAP basis, we reported a net loss including a non-reoccurring unusual and extraordinary items for the quarter of 74.9 million or 90 cents per diluted share, compared with 11.7 million or 14 cents per diluted share in the same period last year. As you would expect, from any company that is in the midst of great change, and on the cusp of a new strategic direction, the financial results for the third quarter contain a number of unusual items.

I hope to put those items in the proper context for you today. First, primarily as a result of steps taken in the strategic restructuring, the company reported several non-reoccurring and unusual items in the third quarter. Normally occurring and unusual charges in the third quarter totaled 104.6 million or 65.8 million after taxes or 79 cents per diluted share which primarily included impairment charges recorded on certain assets, severance costs, flood damage to the company's business in the Czech Republic and environmental costs. We have detailed non-reoccurring and unusual charges in Table 2 and Table 3 attached to the press release. You'll find them at the bottom of both of those tables. Although we believe the bulk of the non-reoccurring and usual charges are behind us, it is possible that we would incur additional charges in the fourth quarter.

That , as I mentioned earlier, we have -- intend to several operations and businesses of the company for divestiture that do not fit the company's new strategic direction. Those operations that are further along in the process, namely and our unit, have been segregated in our financial statement as discontinued operations. Accounting rules, of course, require that we remove the income and expense from these businesses from our ongoing or continuing operations and report them as a single line item, net of income tax expense in the income statement and we must restate prior periods so that we have comparability in our reporting. A net loss from these discontinued operations in the current quarter were 34.5 million or 41 cents per share. Included in that loss is an impairment charge on these operations to appropriately value them at fair value of 31.6 million. These operations -- those operations that were not far enough along in the process of divestiture to qualify for discontinued operations treatment, namely eastern Europe, our raw materials business in central Europe and the Biomedical unit, have been continued -- reported in continuing operations in the current quarter. We expect to report them as discontinued in the 2002 fourth quarter. An impairment charge of 74.6 million on these operations was included in the non-reoccurring and unusual items in the current period. In order to foster a level of transparency and to give you a basis for thinking about the financials for our ongoing continuing operations, we have attached a pro forma tables to the press release which treats all of these operations to be divested as if they were discontinued in the current period. Table 3, which is attached to the release, presents this information for you.

Finally, we reported an extraordinary gain, net of taxes, in the third quarter of 10.9 million from the purchase -- repurchase of ICN 6 ½ percent convertible, subordinated notes in open market transactions. So while these unusual items had an impact on third quarter results, they were nearly all driven by our decision to reposition the company for future growth opportunities. When you remove the non-reoccurring, unusual and extraordinary items, we reported net income from continuing operations in the third quarter of 15.1 million or 18 cents per diluted share and operating income before non-reoccurring and unusual items was 35.9 million in the third quarter or a 26 percent increase over a comparable period last year. The improvement in ICN's results reflected the strong performance by Ribapharm which reported their earnings two days ago. The improvement at Ribapharm was driven by higher royalties, which reflects increased sales of ribavirin by Schering Corporation. The specialty pharmaceuticals business, however, turned in a mixed performance with some strength in Latin America offset by a decrease in revenues for our North American operations. Our North American revenues declined 13.6 million or 45 percent. The decline in sales in part reflects the impact of the company's continuant program to reduce inventories at its U.S. wholesaler and the company's decision to reduce shipments of its Mestinon products in anticipation of the possibility of generic competition. @@@@@@@@@@@@@@ o'leary: ... at its U.S. wholesalers. And the Company's decision to reduce shipments of its Mestinon products in anticipation of the possibility of generic competition.

The wholesaler inventory reduction program is expected to continue well into 2003. Latin American sales totaled 32 million in the 2002 third quarter compared with 30.7 million a year ago. A four percent increase in spite of an aggregate 17 percent devaluation of currencies in the region.

Operating income was 11.2 million compared with eight million a year ago, up 40 percent. Results of the third quarter benefitted from the strong sales of and Virazole, which increased to 9.1 million in the 2002 third quarter from 7.9 million in the third quarter of 2001.

Sales in Western Europe, which includes Central Europe, totaled 49 million in the third quarter of 2002, an increase of three percent compared with the same period last year. The region reported an operating loss of 5.1 million compared with an operating profit of 6.8 million in the same period last year. Western Europe benefitted from new products we acquired in the past several quarters and introduced into the Italian and German market.

This was offset at the operating income line by the flood damage we sustained to our business in the Czech Republic. As I indicated earlier, the raw materials business is in the process of debt . Eastern European sales in the third quarter of 2002 were 22.9 million. Unchanged from the third quarter of 2001. The Eastern European region reported an operating loss of 75.7 million compared with a $1.5 million in the third quarter of 2001.

The increased operating loss was primarily due to the impairment charge of 73.1 million related to the of this business. Sales in Asia, Australia and Africa in the 2002 third quarter were 15.2 million compared with 12.5 million in the same period last year. An increase of 21 percent. The region posted an operating loss of 2.3 million compared with a 1.2 million a year earlier.

Results in the third quarter reflected strong sales of and in the Far East. At the operating income line this was offset by writeoffs in the third quarter for certain inventory receivables as well as costs associated with a joint venture in China.

Before we close, I'd like to spend a few minutes discussing certain balance sheet components. First, cash at the end of September totaled 244 million, which was an $83 million decline from the balance at the end of 2001 and a decline of 37 million during the quarter. Royalty cash inflows in the quarter -- 61 million -- were more than offset by cash outflows that primarily included payments for subordinated note repurchases -- 40 million, and stock option purchases -- 24 million, interest and dividends -- 24 million, and legal and other net of 11 million.

We believe that the Company has sufficient cash resources to meet our ongoing operating needs. Accounts receivable on September 30th totaled 230 million, down 33 million from the balance at December 31, 2001. Inventory at September 30 was down as well totaling 157 million. Stockholders' equity decreased by 32 in the year to 779 million at the end of September.

The remainder of 2002 will be one of continued focus on executing the strategic direction and rounding out the management team. As the new management team begins to develop our action plans, we will be in a better position to give guidance for 2003. We have every reason to believe, however, that our efforts will ultimately drive double-digit top and bottom line growth.

We've covered an immense amount of ground on the call today. Before we close the presentation, I want to leave you with a perspective on what we've accomplished and where we see ourselves going in the next few months.

I view our activities as a six-step process. At least three of which we have almost fully completed and the fourth we have made significant progress on in today's announcement. The last two steps will be developed when our new management team is fully in place. Let me detail them for you.

First, and most importantly, we have stopped doing things that simply do not deliver value. Second, we have significantly reduced the company's overall infrastructure costs. Third, we have established a sense of direction for the specialty pharmaceutical business that will add value. Fourth, we have added strong depth to the management team in the new executives announced today and we expect to round out that team in the months ahead. Fifth, we expect to improve our ability to execute as a company in the areas of product lifecycle management, in licensing of new products in a more focused way, improving our ability to market and deliver products and streamlining our supply chain and manufacturing capabilities.

These simply are things that are about blocking and tackling as a specialty pharmaceutical business and we intend to focus on them. Sixth, and finally, we plan to grow the business in ways that are attractive and add value to the organization and to shareholders.

We're excited about the prospects for the new ICN Pharmaceuticals. With a new management team in place and a new strategic direction that will provide a stronger platform for growth, we believe that ICN will be a leaner, more focused company in the future with a top priority on building value for shareholders.

And with that, I'd like to open the call up for questions and just remind everyone, if we could, that please one question to a questioner and then we will recycle the people after everyone who wishes to ask a question has had an opportunity.

Operator, if you would, may we please now have the first question.

Sure, the question and answer session will be conducted electronically today. If you would like to ask a question, simply press the * key followed by the digit 1 on your touchtone telephone. We'll proceed in the order that you signal us and take as many questions as time permits.

Once again, if you would like to ask a question press *1 at this time and we'll first hear from Michael Tung of Walkovia Securities.

Hi, good morning. Thanks for taking the question. A little bit more strategically, you've talked about how you're focusing in terms of the specialty pharmaceutical business into different therapeutic categories, can you talk a little bit more about that other than dermatology which areas are you looking at and how do you expect to structure the sales and marketing infrastructure around those therapeutic categories? Do you expect to have separate sales forces and what's, may be a little premature at this point, but the respective sizes of such sales forces?

Well, Michael, this, again, is Rob. You're -- you perhaps have anticipated the response here. I think it is just a bit premature. We're certain of the dermatology focus in North America and, obviously, we will continue to focus on a variety of anti-infectives, but I think the -- the exact therapeutics focus and -- and the organization of the sales force are going to be left to Tim's arrival. We've done an awful lot of good groundwork done on those issues, but the actual decisions will be cut as the new management team gets on board and I can assure you that particularly Mr. Tyson's case, he has superb experience in these areas and will be very, very focused on them early on.

OK. A quick follow up, if I may, when do you expect - or when should we expect to hear results from that, I guess, planning over the next several months?

We're going to be - that very subject as well as the ability to give you some sense of 2003 - we hope to be back to you early in 2003. By that, I'm hopeful that it will be January and to give you a real sense of where we're going and how those plans are going to roll out. What sort of milestones we have in mind, and the processes that we're building or reinforcing to deliver on those.

My plan, although I don't want you to hold to me this specifically, that , myself and the management get on the road to sit down with a number of you sometime very, very early in 2003 and begin to fill in these blanks.

Great. Thank you very much.

Thank you, .

Our next question comes from Larry Smith of Gerard Klauer.

Yes. Could you tell us what the options are for that could be considered?

Well, there are - I'm sure there are numerous options, but the obvious overview options are, one, to continue with the spin out. Two, to leave it as it is and third, to buy it in. There are a number of permutations of all of those things, of course.

But we're not prepared to elaborate any further than that at this point.

Could you just tell us when that decision might be made?

I expect it to be made certainly by the end of the year and hopefully in the weeks immediately ahead.

OK. Thank you.

Our next question comes from of Iridium Assets.

Good morning Rob, Randy.

Good morning .

Want to take the opportunity to - want to thank you, both of you, for - I don't know that people really have an appreciation of just how difficult your task has been and how much effort you have expounded on behalf of the shareholders of this company.

And so I would like to just express my personal appreciation for having gotten you involved in an extraordinarily difficult restructuring and management task. So again, I think that people should have a profound appreciation for - and I understand its very hard for them to understand just how difficult this process has been and how demanding it has been.

As you might expect for me to ask, will there be any changes on the board? Will the new president be offered a board seat and, I guess, as a major holder this point given that your permanent appointment now is Chairman and CEO and maybe Randy as independent director might want to address this. Is the board prepared to publicly make it's request given - in light of all we've seen in corporate governance to make a stand and request that resign himself from the board of this company?

Randy, did you want to take that?

Sure. And , speaking personally, your comments about the work that has been accomplished in four and a half short months mean a lot. I think that in many ways you deserve the credit for the initiative that has lead to what I think is a extraordinary new future for the company.

You asked a couple of questions. With regard to Tim Tyson joining the board, you know, corporate governance being so much in the forefront of corporate America these days, the overwhelming preference of shareholders is to only have one insider on the board. That, obviously, now will be Rob O'Leary as chairman and CEO. Tim Tyson won't be joining the board immediately. Tim was brought on with the view that in the years to come he would be a successor to Rob and it would probably be an appropriate time to put him on the board at that point in time. With regard to Mr. Panic's remaining on the board, Milan has been steadfast in his results that he will not step down from the board of directors and, you know, despite the enormous amount of controversy surrounding Mr. Panic, there have been many instances where he has cooperated in this entire process, cooperated in the change that lead to Mr. O'Leary named permanent chairman and chief executive officer, as well as Mr. Tyson and Mr. Bailey coming in and with regard to his continuance on the board, his term expires this year and it is probably not the intention of the other directors that he would continue beyond his current term and I think Mr. Panic probably has other plans that will take him in different directions as well. That term, if I'm correct Rob and , expires in the April/May time frame.

That's correct, .

David, I would be remiss if I didn't add my thanks for your kind comments and your leadership in this . It's very much appreciated. Let me -- it's -- this has been a major challenge and there are an awful lot of good people here at ICN who have -- who operate below the radar screen and have done some really wonderful things in this period and the results we announced this morning wouldn't be possible without their efforts.

, again, I'd like to just again thank you both for having seen this company through this extraordinary difficult time and to kind of let you know other shareholders that is enormously supportive of Rob's appointment and and the rest of the board's continuing support of Rob's efforts. So, that being said, why don't we go -- move on.

Thank you.

Our next question comes from , .

Hi. Could you outline what the revenue would be without the discontinued operations and do you expect more charges in Q4 or do you have the kind of discontinued operations now at what you think is realizable value?

Yeah, with -- this is @@@@@@@@@@@@ unid: ... have that could have discontinued operations now at what you think is realizable value.

Yes, this is still low, , with regards to the revenue. That number would come down approximately 45 million if you were to subtract the discontinued for the quarter and then the to be discontinued that we expect to take action on in the fourth quarter.

OK. And that was 45 million in Q3 '02. How about Q3 '01 just for comparison's sake. Or Q2 or something.

That would be approximately the same amount.

OK.

On a run rate basis.

And charges in Q4?

o'leary: , I think we're going to stick with our statement in the script that we think we've got the great bulk of the charges behind us. But it is possible there will be some additional charges in the fourth quarter. We're not prepared to rule that out at this point.

OK. And how long do you think it takes to dispose of all the discontinued Ops?

o'leary: Oh, I don't have my crystal ball with me today. I can only tell you that we are off to a running start and very actively marketing most of these now. And, you know, some of these are going to be a challenge. There's no question because we're going to insist on full value.

So we're saying somewhere in the six month to one year time frame. In the meantime, if I may branch from your question, , because it begs the question, if you're going to have them in the operation for -- even though they're listed as discontinued they need to be managed aggressively in the meantime.

And the cost reductions that I reported to you earlier, some of them have been in the discontinued operations. And some of the -- there will be additional cost reductions in the discontinued operations as we attempt to lean them up and make them more valuable as we go forward. So we will continue to manage them aggressively through the sale period.

OK, great. And could you ask Bary to see if he could put out the balance sheet with the income statement when he joins?

o'leary: I'd be happy to pass that on. I think I see a bunch of people making that note right now.

Thank you.

o'leary: All right. operator: Next we'll hear from of UBS Warburg.

o'leary: Andrew, yes?

Yes, Hi. Thank you. Just a couple of question and obviously Ribapharm from my perspective. What are some -- if you wouldn't mind maybe elaborating a little bit more if you can -- what are maybe some of the variables that you're considering that will lead you to, you know, a good decision as to pursue one of the options that you outlined earlier from the previous questions?

In terms of whether you'd spinoff, keep it the same or buy it back. I guess, what are the key sort of, you know, lightening rods or key issues that you're looking at and evaluating that will help you reach a decision in a couple of weeks?

o'leary: , elaboration isn't going to be really possible at this juncture. We're evaluating our options with respect to Ribapharm -- our 80 percent holding in Ribapharm. And any decisions we make will be done with an eye toward maximizing shareholder value. Any discussion about those options or their financial ramifications would be absolutely premature at this time.

Is keeping it in the current situation an option?

o'leary: Everything is on the table.

OK, thank you.

As a reminder, if you would like to ask a question, press star one at this time. And we'll now hear from of Franklin Street Partners.

Thank you. I have two questions. One, could you just explain the compensation packages being offered to the new management team in terms of options, salary and have a cash bonus, if anything is determined? And, secondly, if one eliminates the royalty revenue line from the income statement is it a goal of this current restructuring to make the company profitable without that line on the income statement and when might that be?

Well, this is Randy, would you like me to handle the first part?

Sure, why don't you Randy.

Okay, with regard to -- with regard to the compensations, this is Randy Thurman, I'm also chairman of the ICN Compensation Committee of the board of directors.

Two background statements before I give you any specifics. The Board and the Compensation Committee retain the services of TPF&C as well as the judgment of the search firm that we employed to -- to support the activity of bringing in the new executives and the competitive salaries for the position of Chairman and CEO, President and COO and Chief Financial Officer were all -- that competitive data was provided to us by , TPF&C as well as the involved search firm.

The compensation numbers, of course, will all be made public as a result of the company's filings. The base pay for both -- for Mr. O'Leary, Mr. Thiessen and Mr. Bailey are all within the competitive range of what's called the TPF&C Pharmaceutical Executive Database which also size adjust using regression analysis for the -- the size of ICN compared to the other pharmaceutical companies.

Each of their base pays are within the -- the range between the -- you know, the minimum and the max and -- and, at least, in a couple of cases, tends slightly toward the lower end of that range.

Each of these individuals will be on an annual bonus that will be 100 percent tied to objectives that will be agreed to by the Board of Directors. Those objectives are all going to be geared toward specific goals that drive shareholder value.

With regard to stock option equity and, by the way, those bonus targets also were within the range established by the TPF&C executive survey that they did for us. With regard to equity in the company, each of these individuals the largest part of their pay will be derived from driving the stock price up. Mr.O'Leary has been granted a total of 1,100,000 options in ICN that is within the range and toward the lower end of the range of comparable positions.

Similarly, Mr. Thiessen has been granted 1,000,000 options that also, for a President and Chief Operating Officer, is within the range. So you can see that both of those gentlemen had a significant incentive to drive shareholder value. Mr. Bailey is Chief Financial Officer's coming in with a grant of 400,000 options, again, within the competitive range.

So, in summary, each of the pay packages was determined with individual advice and counsel from one of the worlds leading compensation analysts. All of the pay that has been offered is within those competitive ranges and there was a weighting put on the stock option grants to get them to focus on increasing shareholder value.

Any and all bonuses will be paid toward goals established by the board that also drives shareholder value.

o'leary: Thank you Randy. I add too, that both the top two officers base compensation were established at levels definitely below their predecessors.

Thank you Rob. This is Randy. Let me reiterate that. Mr. O'Leary and Mr. Tyson's pay are below that of their predecessors in those positions.

And I think it says something about the potential faith in the future of the company. Mr. Bailey actually took a fairly substantial pay cut to take the job because his belief in the future potential of ICN.

The second part of the question was related to our intention to manage the specialty pharmaceutical business as a separate profitable business going forward. And the answer is an unequivocal yes. Of course that's our intention. And I would say with the removal of the discontinued operations and our efforts in cost cutting, those are two formulas that in very short order will produce the kind of profitable operations from the specialty product side.

That, of course, is hedged somewhat by our efforts to reduce the inventory in North America which is ongoing and will effect us into 2003.

Thank you.

Next question please.

Our next question comes from of Investments.

Thank you. Did you do any more debt repurchases after the quarter ended and do you expect to continue to repurchase your convertible debt?

We did not do any more debt repurchases after the quarter end and we are always considering the best use of our capital which could include additional purchases going forward.

Thank you.

Next we'll hear from of Quaker Capital Management.

A couple - I'm just trying to clarify some of what was said here about the discontinued and to be discontinued businesses. I think I heard that the revenue contribution there was $45 million and I guess a couple of things here.

One, was that - what part of that was actually reported under product sales, presumably the discontinued part which is captured in the one line, discontinued? And since there is no balance sheet, but related to this, what is the balance sheet entry for the divested assets which, presumably, is a write down close to what you think they're worth?

And what is the cash cost accrued at this point for these severance, discontinued as well as some of the residual stuff left over between the management payouts under the prior regime?

OK. Great. With regards to the balance sheet, the - you can direct yourself to the table, you'll see that the on Table 2 is approximately 75 million and that's at the bottom of Table 2.

Right.

And of that is substantially non-cash.

Right.

No more than 10 percent of that is cash related with regards to the entry, that is your entry. Going into Q4 we recorded the impairment for the businesses to be discontinued in Q3 along with the businesses that have been discontinued in Q3 and that's due to some accounting requirements. For the businesses that are to be discontinued we expect to meet those criteria in Q4 but we did record the impairment during the quarter.

OK. So in terms of what it's actually going to cost you to clean up all of this you're saying is only about 10 million then or say 10 percent of that 75?

regards to cash?

Right.

No it's -- I would go a little bit higher than that but it's not substantially higher in terms of the cash impact.

OK and this also reflects all the charges and all the stuff from previous quarters as well?

Yes.

in that 20 million.

Right, well no, we have some residual amounts still outstanding from Q2 which in the range of about 20 million worth of cash that is still outstanding and then the 10 million for the items just mentioned gets you to about the right number.

OK and could you then clarify again I guess what is the balance sheet value at this point of the divested assets or to be divested and that reflect what you think you can get for them?

When we record -- when we release our 10-Q we will have that information included. We have about, hold on just a second, there's about 20 million of residual values still on our books after you record the for the businesses to be discontinued. After that impairment the remaining residual value's approximately 20 million.

Next we have a follow-up question from , .

Yes. The intellectual property position on ribavirin sales in the U.S. is probably the single most important factor that you have to cope with in your planning and we, obviously, have -- there's obviously a generic challenge. We've gotten input from Schering-Plough that there will be generic competition in 2003, which I think most people just don't believe will happen. The 30-month stay on expires in the second quarter of '04 and then, of course, if the method, the patents that Schering-Plough holds are valid, the patent goes out to 2015. But with all of those possibilities, what are you looking for in your planning process? What -- when are you looking for the potential for generic competition?

Well I'll let elaborate on our plans on the legal front. Obviously, we intend to vigorously defend but we're not going to be in the business of predicting when generic competition will be effected but as we -- but we are actively preparing to a variety of steps in the market place and with our development activities.

Greg, any comment on the legal defense side?

No. There are a multiplicity of lawsuits as you all know. And there's a great deal of speculation about the patents in the generic entries. But we really as a matter of policy can't comment on any of that pending litigation at this time. You might also, when you have the opportunity, to direct some of your questions to Ribapharm.

o'leary: All right. Well, I guess we're at our time. We'll take one more call. The next question, please. If there are no -- if there are no more ...

We do have a question.

o'leary: Oh, we do. All right. Very good.

From of Partners.

o'leary: OK, .

Thank you. A followup on the debt repurchases ...

Yes, sir?

You said you bought 60 million of the converts at a gain of about $11 million, which implies an $82.00 price free -- bonds are trading quite a bit below that now.

Yes, that's ...

... curious as to why you haven't continued to make repurchases.

Yes, that's a net of tax number -- the 10 million. No, they were bought in the 60's, which were at market prices at the time we were entering the market. And with regards to additional purchases we're considering that. Keep in mind, the Company has a policy with regards to trading windows and those policies applied not only to its purchase of some shares when those activities occurred, but also to the repurchases of its own bond.

I see. OK. Thank you.

o'leary: OK, thank you, . Appreciate that. I want to thank all of you for joining us on the call today. We look forward to speaking with you all again. And I look forward, particularly, to introducing you to both Tim Tyson and Bary Bailey. I think you will enjoy getting to know them and find them very helpful.

I want to thank my colleagues here at ICN and Randy Thurman and Adam Jerney as well. We look forward to speaking with you all again in the near future to share, hopefully, are progress these. And we will be reporting -- before we are next formally together -- against our progress against the targets we've set out there. Thank you all and good morning.

That does conclude today's conference call. We thank you all for your participation.