RIBAPHARM INC, S-1/A, 2000-08-23

RIBAPHARM INC
S-1/A, 2000-08-23
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 2000

REGISTRATION NO. 333-39350

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RIBAPHARM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 2834 95-4805655
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

3300 HYLAND AVENUE
COSTA MESA, CA 92626
(714) 545-0100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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HARRY A. ROOSJE
3300 HYLAND AVENUE
COSTA MESA, CA 92626
(714) 545-0100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:

<TABLE>
<S> <C>
Jeffrey Bagner Frederick W. Kanner
Fried, Frank, Harris, Shriver & Jacobson Dewey Ballantine LLP
One New York Plaza 1301 Avenue of the Americas
New York, New York 10004 New York, New York 10019
(212) 859-8000 (212) 259-8000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE(2)
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<S> <C> <C>
Class A Common Stock, $.01 par value......... $310,500,000 $81,972
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</TABLE>

(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
registration fee.

(2) Of this amount, $66,000 was paid at the time of the initial filing.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission becomes effective. This
preliminary prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted. You should rely only on the information
contained in this preliminary prospectus.

PRELIMINARY PROSPECTUS Subject to completion August 23, 2000

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18,000,000 Shares

RIBAPHARM INC.
Class A Common Stock
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This is an initial public offering of shares of our Class A Common Stock. ICN
Pharmaceuticals, Inc. is selling all of these shares of our Class A Common Stock
and will receive all of the proceeds of this offering. We expect the public
offering price to be between $13.00 and $15.00 per share.

UPON COMPLETION OF THIS OFFERING, ICN WILL OWN APPROXIMATELY 97% OF THE COMBINED
VOTING POWER AND APPROXIMATELY 87% OF THE VALUE OF OUR OUTSTANDING SHARES OF
COMMON STOCK.

We filed an application to have our Class A Common Stock listed on the Nasdaq
National Market under the symbol "RIBA".

BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR CLASS A COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 6.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price $ $
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Underwriting discounts and commissions $ $
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</TABLE>

The underwriters may also purchase up to 2,700,000 additional shares of Class A
Common Stock.

Delivery of the shares will be made on or about , 2000

UBS WARBURG LLC CIBC WORLD MARKETS
<PAGE> 3

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Until , 2000 (25 days after the date of this prospectus), all
dealers selling shares of our Class A Common Stock, whether or not participating
in this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.

TABLE OF CONTENTS
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<TABLE>
<S> <C>
Prospectus summary.................... 1
The offering.......................... 3
Summary financial data................ 4
Risk factors.......................... 5
Forward-looking information........... 14
Use of proceeds....................... 15
Dividend policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected financial data............... 18
Management's discussion and analysis
of financial condition and results
of operations....................... 19
Business.............................. 24
Management............................ 46
Relationship with ICN................. 56
Principal and selling stockholders.... 62
Description of securities............. 63
Shares eligible for future sale....... 67
Underwriting.......................... 68
Legal matters......................... 71
Experts............................... 71
Where you can find more information... 72
Index to financial statements......... F-1
</TABLE>

<PAGE> 4

Prospectus summary

This summary highlights information contained elsewhere in this prospectus. We
urge you to read this entire prospectus carefully, including the "Risk Factors"
section, before making an investment decision. We derived the financial and
other information contained in this prospectus from our historical performance
as a division within the ICN Pharmaceuticals, Inc. consolidated group.

OUR BUSINESS

We are a biotechnology company that seeks to discover, develop and commercialize
innovative products for the treatment of significant unmet medical needs,
principally in the antiviral and anticancer areas. Our product ribavirin is an
antiviral drug that Schering-Plough Ltd. markets under license from us in
combination with its interferon alfa-2b under the trade name Rebetron as a
therapy for the treatment of hepatitis C. Our royalties from sales of ribavirin
by Schering-Plough were $110 million in 1999 and $76.6 million for the six
months ended June 30, 2000.

Ribavirin came from our extensive library of chemical compounds. At least 3,500
of these are nucleoside analog compounds. Nucleoside analogs are
small-molecule-type chemicals that resemble the natural building blocks of human
and viral genetic material. This genetic material is commonly known as DNA and
RNA. We believe that our library contains one of the largest collections of
nucleoside analogs in the world. We intend to combine our scientific expertise
with advanced drug screening techniques in an effort to discover and develop new
product candidates from our nucleoside analog library.

ADVANTAGES OF NUCLEOSIDE ANALOGS

We believe nucleoside analogs present significant opportunities for drug
development. Nucleoside analogs treat viruses and cancers by modifying the
natural structure of DNA and RNA in a way that disrupts the replication of
viruses and cancer cells. The US Food and Drug Administration, or FDA, has
approved over ten nucleoside analogs for antiviral and anticancer indications.
Some of these nucleoside analogs are marketed as monotherapy treatments. Others,
like ribavirin, are marketed as part of a combination therapy with other drugs.
Estimated 1999 US revenues for the top five selling nucleoside analogs were $1.2
billion. We also believe that our nucleoside analog library provides a
potentially greater opportunity for successful antiviral and anticancer drug
discovery when compared to the random screening of large numbers of diverse
chemical compounds. This random screening is used by many pharmaceutical and
biotechnology companies in their drug discovery efforts. We base our belief on
the fact that the chance of fitting molecules like nucleoside analogs to genetic
targets with viruses and cancer cells is higher than the fitting of random
unrelated small molecules to these same targets.

RIBAVIRIN FOR HEPATITIS C

In 1995, we granted an exclusive license to Schering-Plough for all oral forms
of ribavirin for the treatment of chronic hepatitis C. We also granted to
Schering-Plough an option to license oral forms of ribavirin for additional
indications we develop. In 1998, Schering-Plough received FDA approval to market
ribavirin in the United States in combination with Schering-Plough's interferon
alfa-2b for the treatment of chronic hepatitis C in patients with compensated
liver disease. Most hepatitis C patients have compensated liver disease. This
means that these patients have relatively normal liver function. In May 1999,
Schering-Plough received approval from the European Union to market the
combination therapy in the European Union for the same patient populations as
those approved in the United States. According to the World Health Organization,
as many as 170 million people worldwide are

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infected by the hepatitis C virus. Of these, it is estimated that approximately
10 million people in the United States, Europe and Japan are infected.

RESEARCH AND DEVELOPMENT PROGRAM

Our research and development efforts seek to capitalize on our nucleoside analog
library. We believe this library may provide us with a large supply of potential
new drug candidates. We have not fully screened our nucleoside analog library
for our target indications, hepatitis C, hepatitis B, HIV and cancer.

In March 2000, we hired Johnson Y.N. Lau, PhD, MD, to lead our research and
development efforts. Dr. Lau, an expert in viruses and liver diseases, was
formerly senior director in antiviral research at the Schering-Plough Research
Institute. We believe we currently have the scientific, technological and
financial resources necessary to screen our nucleoside analog library for our
target indications. We plan to continue to expand our research team to over 100
scientists by the end of 2002. In addition, we plan to spend approximately $20
million in 2000 to upgrade and modernize our research laboratories and
equipment. As of August 31, we spent approximately of this amount.

We derived four product candidates from our nucleoside analog library. Based on
preclinical studies, we believe that one of these product candidates, Levovirin,
may have an ability to stimulate an immune response to some viral infections
without the anemia associated with ribavirin. Based on preclinical studies, we
believe that another product candidate, Viramidine, may generate an antiviral
and immune response to viral infections similar to ribavirin, but with less
significant side effects.

We are also engaged in clinical trials for the other two nucleoside analog
compounds. Tiazole has completed preliminary human trials to evaluate its
effectiveness in the treatment of the late stages of a form of leukemia. We are
also evaluating Tiazole for the treatment of ovarian cancer and a bone marrow
cancer known as multiple myeloma. Adenazole is scheduled to begin additional
early-stage human trials for the treatment of colon cancer by the end of this
year, subject to FDA acceptance of a revised protocol. You should read "Risk
factors -- Risks Related to Our Business -- Because of an ongoing dispute
involving ICN's interest in a Yugoslavian joint venture, our rights to
commercialize Tiazole and Adenazole may be limited" for a description of legal
proceedings that may affect our rights to Tiazole and Adenazole.

We intend to fund our research and development from the royalty income we
receive from sales of ribavirin by Schering-Plough. If this royalty income
decreases significantly in the future, we would need to find an alternative
funding source.

OUR STRATEGY

Our objective is to be a leader in the discovery, development and
commercialization of nucleoside analogs and other novel drugs that can be
effective in the treatment of viral diseases, cancer and other unmet medical
needs. We plan to pursue this objective by:

+ discovering, developing and commercializing novel drug candidates from our
nucleoside analog library;

+ focusing on diseases that represent large unmet medical needs that we believe
provide substantial commercial opportunities;

+ maximizing the value of our new product candidates by leveraging our internal
development capabilities;

+ accelerating development of identified drug candidates from our current
product pipeline; and

+ expanding our existing product pipeline and technologies through acquisitions
and in-licensing opportunities.

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The offering

Class A Common Stock offered by
ICN................................. 18,000,000 shares

Common Stock to be outstanding after
the offering:
Class A Common Stock.............. 18,000,000 shares

Class B Common Stock.............. 124,857,142 shares

Voting rights....................... Each share of Class A Common Stock is
entitled to one vote and each share of
Class B Common Stock is entitled to
five votes. The Class B Common Stock
elects one director. On all other
matters, including the election of the
other directors, the Class A Common
Stock and the Class B Common Stock
generally vote as a single class.

Voting agreement.................... All shares of Class B Common stock are
owned by ICN. Through our 2003 annual
meeting, ICN will not vote its shares
of our common stock to cause the
election of any new director of the
Company who was a director, officer,
employee or consultant of ICN during
the previous three years.

Proposed Nasdaq National Market
symbol.............................. RIBA

Use of proceeds..................... We will not receive any of the proceeds
from the sale of the Class A Common
Stock in this offering.

The number of shares of Class A Common Stock shown above as outstanding after
this offering does not include the following:

+ up to 2,700,000 shares which the underwriters have the option to purchase
from ICN to cover over-allotments;

+ 21,000,000 shares reserved for issuance under our 2000 Stock Option Plan,
including shares issuable upon the exercise of options to be
granted at the time of this offering with an exercise price equal to the
offering price; and

+ 124,857,142 shares of Class B Common Stock held by ICN convertible into an
equal number of shares of Class A Common Stock.

HOW TO CONTACT US

Our principal executive offices are located at 3300 Hyland Avenue, Costa Mesa,
California 92626 and our telephone number is (714) 545-0100.

ABOUT THIS PROSPECTUS

Virazole(R), Levovirin(TM) and Viramidine(TM) are our trademarks. All other
brand names, trademarks or service marks referred to in this prospectus are the
property of their owners.

Schering-Plough sells ribavirin under the trade name Rebetron as part of a
combination therapy with Schering-Plough's interferon alfa-2b in the United
States. Outside the United States, Schering-Plough sells ribavirin under the
trade name Rebetol. For ease of presentation, we will refer to Rebetol and the
ribavirin component of Rebetron in this prospectus as ribavirin.

Unless otherwise stated, all information contained in this prospectus assumes no
exercise by the underwriters of their over-allotment option. The assumed initial
offering price of $14.00 used in this prospectus is the midpoint of the range
shown on the cover page of this prospectus.

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Summary financial data

The following table summarizes the financial data for our business during the
periods indicated. You should read the data set forth below in conjunction with
"Management's discussion and analysis of financial condition and results of
operations" and our financial statements and related notes included elsewhere in
this prospectus. We derived the statement of operations data for the years ended
December 31, 1997, 1998 and 1999 from our audited financial statements, which
are included elsewhere in this prospectus. We derived the statement of
operations data for the years ended December 31, 1995 and 1996 from unaudited
financial statements not included in this prospectus. We derived the statement
of operations data for the six months ended June 30, 1999 and 2000 and the
balance sheet data as of June 30, 2000 from our unaudited financial statements,
which are included elsewhere in this prospectus. In the opinion of management,
the unaudited financial statements from which the data below is derived contain
all adjustments, which consist only of normal recurring adjustments, necessary
to present fairly our financial position and results of operations as of the
applicable dates and for the applicable periods. Historical results are not
necessarily indicative of the results to be expected in the future.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
STATEMENT OF OPERATIONS DATA 1995 1996 1997 1998 1999 1999
--------------------------------------------------------------------------------------- 2000
(in thousands, except per share data) ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Royalties....................... $ 354 $ 1,753 $ 3,223 $36,830 $109,592 $45,929 $ 76,594
Costs and expenses:
Research and development.......... 6,846 6,589 7,011 9,530 5,523 2,574 4,078
General and administrative........ 3,301 6,253 9,676 7,392 5,608 2,320 1,822
-------- -------- -------- ------- -------- ------- --------
Total costs and expenses.......... 10,147 12,842 16,687 16,922 11,131 4,894 5,900
-------- -------- -------- ------- -------- ------- --------
Income (loss) from operations... (9,793) (11,089) (13,464) 19,908 98,461 41,035 70,694
Interest expense.................. 862 775 683 609 396 272 -0-
-------- -------- -------- ------- -------- ------- --------
Income (loss) before income
taxes........................... (10,655) (11,864) (14,147) 19,299 98,065 40,763 70,694
Provision (benefit) for income
taxes........................... (3,836) (4,271) (5,093) 6,948 35,303 14,675 25,450
-------- -------- -------- ------- -------- ------- --------
Net income (loss)............... $ (6,819) $ (7,593) $ (9,054) $12,351 $ 62,762 $26,088 $ 45,244
======== ======== ======== ======= ======== ======= ========
Unaudited as adjusted net income
per share....................... $ .44 $ .32
======== ========
Unaudited as adjusted shares
outstanding..................... 142,857 142,857
======== ========
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30,
BALANCE SHEET DATA 2000
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(in thousands)
<S> <C>
Cash........................................................ $ -0-
Working capital............................................. (1,104)
Total assets................................................ 22,014
Current liabilities......................................... 1,104
Total liabilities........................................... 3,816
Total equity................................................ 18,198
Total liabilities and equity................................ 22,014
</TABLE>

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Risk factors

An investment in our Class A Common Stock is risky. You should carefully
consider the following risks, as well as the other information contained in this
prospectus. If any of the following risks occur, our business could be harmed.
In that case, the trading price of our Class A Common Stock could decline and
you might lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

BECAUSE OUR EFFORTS TO DISCOVER, DEVELOP AND COMMERCIALIZE NEW PRODUCT
CANDIDATES ARE IN A VERY EARLY STAGE, THESE EFFORTS ARE SUBJECT TO HIGH RISK OF
FAILURE.

A key component of our strategy is to discover, develop and commercialize new
product candidates using our nucleoside analog library. The process of
successfully commercializing product candidates is very time consuming,
expensive and unpredictable. We have only recently begun to direct significant
efforts toward the expansion of our scientific staff and research capabilities
in order to pursue this strategy.

We may not identify any additional compounds from the library that we believe
have sufficient commercial promise to warrant further development. Furthermore,
compounds selected from the library for development may not be patentable. Also,
our development work may not identify patentable uses.

Clinical trials may not demonstrate that our products are safe or effective.
Even if we successfully complete clinical trials, we may not be able to obtain
the required regulatory approvals to commercialize any product candidate. For
example, prior to its approval as part of the combination therapy to treat
hepatitis C patients, the FDA denied our request for regulatory approval to
market ribavirin as a monotherapy to treat hepatitis C. If we gain regulatory
approval for a product, the approval will be limited to those diseases for which
our clinical trials demonstrate the product is safe and effective. To date,
ribavirin is our only product that has received regulatory approval for
commercial sale. A more detailed discussion regarding government regulation of
our products is included in this prospectus under the heading
"Business -- Government Regulation."

IF OUR ROYALTIES FROM SCHERING-PLOUGH DECLINE SIGNIFICANTLY IN THE FUTURE, WE
MAY NOT HAVE SUFFICIENT FUNDS TO OPERATE OUR BUSINESS.

We are dependent upon royalties from our license arrangement with
Schering-Plough to fund our research and development program. We will not
receive any proceeds from this offering. Since our next scheduled royalty
payment from Schering-Plough is not until late November, we will be dependent
upon ICN or other third parties to fund our operations until that time.

Schering-Plough has sole discretion to determine the pricing of ribavirin and
the amount and timing of resources devoted to the marketing of ribavirin. Any
significant decrease in royalties from this license arrangement could require us
to cut back on our research and development expenditures. We also may not be
able to repay any borrowings we have incurred in anticipation of receiving these
royalties. Royalties we receive from the sale of ribavirin by Schering-Plough
could decline in the future for a variety of reasons, including:

+ reductions in the pricing of ribavirin by Schering-Plough or in reimbursement
by health care payors;

+ the expiration or invalidation of the patents related to ribavirin;

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RISK FACTORS
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+ the approval of competing therapies, including pegylated interferon as a
monotherapy for the treatment of hepatitis C developed by F. Hoffmann LaRoche
Ltd. and Schering-Plough;

+ a decrease in Schering-Plough's marketing efforts;

+ quarterly or yearly fluctuations in the prevalence of hepatitis C;

+ fluctuations in foreign currency exchange rates;

+ the failure or refusal of Schering-Plough to pay royalties, including in
connection with any contract dispute;

+ the termination of our license arrangements with Schering-Plough; and

+ an increase in the severity or frequency of side effects associated with
ribavirin or interferon alfa-2b or the discovery of other harmful effects
attributable to these drugs.

IF OUR INTELLECTUAL PROPERTY RIGHTS EXPIRE OR ARE NOT BROAD ENOUGH, THIRD
PARTIES MAY BE ABLE TO SELL GENERIC FORMS OF OUR PRODUCTS.

We depend, in part, on the protection afforded by our patents relating to
ribavirin for market exclusivity. In particular, if generic forms of ribavirin
are permitted to be sold, both the volume of sales and the price Schering-Plough
charges for the combination therapy may decrease significantly. As a result, our
royalty revenues may decrease.

We have patents in foreign countries relating to various antiviral uses of
ribavirin. Coverage and expiration of these patents vary, with patents expiring
at various times through June 2005. We have no, or limited, patent rights
relating to the antiviral use of ribavirin in selected foreign countries where
ribavirin is currently, or in the future may be, approved for commercial sale.
These include countries in the European Union. However, the use of oral forms of
ribavirin for combination therapy was granted a favorable review classification
by the European Union. This classification may make it more difficult for
competing drugs not previously approved to gain entry to the European markets.

In addition, the expiration of US patent rights relating to Adenazole between
May 2008 and December 2015, Tiazole in February 2005, and any subsequently
issued patents relating to Levovirin and Viramidine or other products, may
result in competition from other drug manufacturers.

Some of the compounds in our nucleoside analog library may have been patented
previously or otherwise disclosed to the public. This would prevent us from
obtaining patent protection for the compounds themselves. In these cases, we
intend to seek patent protection for our intended uses of these compounds and/or
for derivatives of these compounds.

You should be aware that the existence of a patent will not necessarily protect
us from competition. Competitors may successfully challenge our patents or
produce similar drugs that do not infringe our patents.

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RISK FACTORS
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IF WE OR OUR STRATEGIC PARTNERS OR LICENSEES INFRINGE OR MISAPPROPRIATE THE
PROPRIETARY RIGHTS OF OTHERS, WE COULD BE PREVENTED FROM MAKING OR SELLING OUR
PRODUCTS.

Our success will also depend, in part, on our ability and the ability of any
strategic partners and licensees, including Schering-Plough, to operate without
infringing on or misappropriating the proprietary rights of others.

In January 2000, Hoffmann-La Roche filed suits against Schering-Plough in the
United States District Court in New Jersey and in France. These lawsuits allege
that Schering-Plough's pegylated interferon infringes Hoffmann-La Roche's
patents on pegylated interferons. Schering-Plough's pegylated interferon has
recently been approved in the European Union for sale as a monotherapy for the
treatment of hepatitis C patients who cannot take ribavirin because of
intolerance or counterindications. Schering-Plough has also submitted an
application to the FDA for approval of pegylated interferon for sale in the
United States. Pegylated interferon is also undergoing clinical trials as
combination therapy with ribavirin for the treatment of hepatitis C. If
Schering-Plough loses either of these lawsuits, it may not be able to market a
combination therapy of pegylated interferon and ribavirin if this combination
therapy is eventually approved by the FDA.

BECAUSE OUR EXPENSES WILL INCREASE SIGNIFICANTLY FROM PRIOR LEVELS, OUR
HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR FUTURE
RESULTS.

Prior to this offering, we have not operated as a stand-alone entity. Our
research and development activities have increased significantly since our
retention of Dr. Lau in March 2000. As a result, the historical financial
information we have included in this prospectus may not reflect what our results
of operations, financial position and cash flows would have been had we been a
separate, stand-alone entity during the periods presented. This information may
also not be indicative of what our results of operations, financial position and
cash flows will be in the future. As a result, there is limited information
which you have to evaluate our business and your investment decision. This is
because:

+ as a division of ICN, ICN provided us with various services and allocated
expenses for these services to us in amounts that may not have been the same
as the expenses we would have incurred had we performed or acquired these
services ourselves;

+ the information does not reflect other events and changes that will occur as
a result of our separation from ICN, including the establishment of our
capital structure and changes in our expenses as a result of new employee
plans, our tax sharing arrangement with ICN, and other matters; and

+ we are in the process of significantly expanding our research and development
activities in connection with the implementation of our business strategy,
including spending up to $120 million over the next two years on research and
development activities.

IF COMPETITORS DEVELOP MORE EFFECTIVE OR LESS COSTLY DRUGS FOR OUR TARGET
INDICATIONS, OUR BUSINESS COULD BE SERIOUSLY HARMED.

The biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Ribavirin and many of the
drugs that we are attempting to discover will be competing with new and existing
therapies. Many companies in the United States and abroad are pursuing the
development of pharmaceuticals that target the same diseases and conditions that
we are targeting. We believe that a significant number of drugs are currently
under development and may become available in the future for the treatment of
hepatitis C, hepatitis B, HIV and cancer. Many of our competitors, particularly
large pharmaceutical companies, have substantially greater financial, technical
and human resources than we do. In addition, academic institutions, government
agencies,

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RISK FACTORS
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and other public and private organizations conducting research may seek patent
protection with respect to potentially competitive products. They may also
establish exclusive collaborative or licensing relationships with our
competitors.

IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY RESEARCH SCIENTISTS AND OTHER
RESEARCH AND DEVELOPMENT PERSONNEL, WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS
STRATEGY.

We depend on the principal members of our scientific staff, including Dr.
Johnson Y.N. Lau. We have employment agreements with our executive officers,
including Dr. Lau. The loss of services of any of these persons could delay or
reduce our product development and commercialization efforts. Our success
depends upon our ability to attract, train, motivate and retain qualified
scientific personnel. Qualified personnel are in great demand throughout the
biotechnology and pharmaceutical industries. We currently plan to expand our
research team from 18 scientists on March 1, 2000 to over 100 scientists by the
end of 2002. However, we may not be able to attract additional personnel or
retain existing employees.

In addition, the existence of non-competition agreements between prospective
employees and their previous employers may prevent us from hiring these
individuals, or subject us to suit from their former employers.

BECAUSE OF AN ONGOING DISPUTE INVOLVING ICN'S INTEREST IN A YUGOSLAVIAN JOINT
VENTURE, OUR RIGHTS TO COMMERCIALIZE TIAZOLE AND ADENAZOLE MAY BE LIMITED.

In connection with our separation from ICN, ICN contributed to us its rights
related to Tiazole and Adenazole. These are two of the four compounds in our
product development pipeline. However, ICN is involved in litigation with the
Republic of Serbia, the Federal Republic of Yugoslavia and the State Health Fund
of the Republic of Serbia that could impact those rights. In this litigation,
ICN has taken the position that rights related to Tiazole and Adenazole were
previously validly transferred to ICN Yugoslavia, a joint venture between ICN
and Yugoslavian entities. Depending on the resolution of this litigation, we may
not have valid rights related to Tiazole and Adenazole. We may be required to
obtain licenses from, or grant licenses to, third parties prior to any effort by
us to commercialize these products. In addition, it may be difficult for us to
license Tiazole and Adenazole to third parties for commercialization if rights
related to these compounds remain unclear. See "Business -- Legal Proceedings."

The US Government has issued sanctions against the Federal Republic of
Yugoslavia. These sanctions are monitored by the Office of Foreign Assets
Control of the US Department of the Treasury. Accordingly, ICN's contribution of
its rights in Tiazole and Adenazole was made subject to the approval of the
Office of Foreign Assets Control, to the extent necessary. If, for any reason,
any required approval from the Office of Foreign Assets Control is not obtained,
then ICN's rights in Tiazole and Adenazole may never be contributed to us.

WE MAY BE ADVERSELY AFFECTED BY AN ONGOING LITIGATION AND INVESTIGATION
INVOLVING ICN AND ITS CHAIRMAN.

ICN and Milan Panic, its chairman, are defendants in a pending civil lawsuit by
the SEC. They also are targets of a criminal investigation by the US Attorney's
Office. As a company controlled by ICN, any adverse result in these proceedings
may affect us. Furthermore, the pending SEC civil lawsuit seeks to bar Mr. Panic
from acting as an officer or director of any publicly traded company. See
"Business -- Legal Proceedings" for a description of this litigation and
investigation.

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8
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RISK FACTORS
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IF OUR PRODUCTS ARE ALLEGED TO BE HARMFUL, WE MAY NOT BE ABLE TO SELL THEM AND
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE.

The nature of our business exposes us to potential liability risks inherent in
the testing, manufacturing and marketing of pharmaceutical products. Using our
drug candidates in clinical trials may expose us to product liability claims.
These risks will expand with respect to drugs, if any, that receive regulatory
approval for commercial sale.

In the event that anyone alleges that any of our products are harmful, we may
experience reduced consumer demand for our products or our products may be
recalled from the market. In addition, we may be forced to defend lawsuits and,
if unsuccessful, to pay a substantial amount in damages. We do not currently
have insurance against product liability risks. Insurance is expensive and, if
we seek insurance in the future, it may not be available on acceptable terms.
Even if obtained, insurance may not fully protect us against potential product
liability claims.

IF WE DO NOT DEVELOP OUR OWN SALES, MARKETING AND DISTRIBUTION CAPABILITIES, WE
WILL REMAIN DEPENDENT ON THIRD PARTIES TO COMMERCIALIZE OUR PRODUCTS.

We currently have no sales, marketing or distribution capabilities. If we do not
develop our own internal capabilities, we will have to rely on third parties to
sell, market and distribute some or all of our products. These third parties may
not be able to market our products successfully. We may have limited control
over the activities of these third parties. If we choose to develop our own
sales, marketing or distribution capabilities, we will need to build a marketing
and sales force with technical expertise and with supporting distribution
capabilities. Other than the license agreement with Schering-Plough, we
currently have no agreements with third parties to sell, market or distribute
our products.

WE ARE SUBJECT TO UNCERTAINTY RELATED TO HEALTH CARE REFORM MEASURES AND
REIMBURSEMENT POLICIES.

The levels at which government authorities, private health insurers, HMOs and
other organizations reimburse the costs of developing and manufacturing drugs
and treatments related to those drugs will have an effect on the successful
commercialization of our drug candidates. We cannot be sure that reimbursement
in the United States or elsewhere will be available for any drugs we may develop
or, if already available, will not be decreased in the future. Also, we cannot
be sure that reimbursement amounts will not reduce the demand for, or the price
of, our drugs. If reimbursement is not available or is available only to limited
levels, we may not be able to obtain a satisfactory financial return on the
manufacture and commercialization of any future drugs. In addition, as a result
of the trend towards managed health care in the United States, as well as
legislative proposals to reduce government insurance programs, third party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement of new drug products. Consequently,
significant uncertainty exists as to the reimbursement status of newly-approved
health care products. Third-party payors may not establish and maintain price
levels sufficient for us to realize an appropriate return on our investment in
product development.

IF WE FAIL TO MANAGE OUR EXPANSION, OUR BUSINESS COULD BE IMPAIRED.

We are in the process of significantly increasing the number of our employees
and expanding the scope of our operations. Our plan is to expand our research
team from 18 on March 1, 2000 to over 100 scientists by the end of 2002. We also
plan to spend approximately $20 million in 2000 expanding and updating our
research and development facilities. This internal expansion and any
acquisitions of products or businesses we make will result in an increase in
responsibilities for both existing and new management personnel. Our ability to
manage our expansion and acquisitions effectively will require

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RISK FACTORS
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us to continue to implement and improve our operational, financial and
management information systems. We may also have to recruit additional
employees.

IF OUR NUCLEOSIDE ANALOG LIBRARY IS DESTROYED BECAUSE OF AN EARTHQUAKE OR OTHER
DISASTER, OUR RESEARCH AND DEVELOPMENT PROGRAM WILL BE SERIOUSLY HARMED.

The laboratory books and the compounds that comprise our nucleoside analog
library are all located at our headquarters in Costa Mesa, California. There are
no duplicate copies off-premises. Our ability to develop potential product
candidates from our nucleoside analog library would be significantly impaired if
these records were destroyed in an earthquake or other disaster. Any insurance
we maintain may not be adequate to cover our losses.

IF WE USE BIOLOGICAL AND HAZARDOUS MATERIALS IN A MANNER THAT CAUSES INJURY OR
VIOLATES LAWS, WE MAY BE LIABLE FOR DAMAGES NOT COVERED BY INSURANCE.

Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We cannot completely eliminate the
risk of accidental contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or injury, we could
be held liable for damages that result. Any liability could exceed our
resources. We are subject to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with, or any potential
violation of, these laws and regulations could be significant. Any insurance we
maintain may not be adequate to cover our losses.

RISKS RELATING TO OUR SEPARATION FROM ICN

WE WILL CONTINUE TO BE CONTROLLED BY ICN AS LONG AS IT OWNS OVER 50% OF THE
COMBINED VOTING POWER OF OUR STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT
INFLUENCE OVER OUR AFFAIRS DURING THAT TIME.

After the completion of this offering, ICN will beneficially own approximately
97% of the combined voting power and 87% of the value of our outstanding shares
of common stock. As the sole holder of Class B Common Stock, ICN will have the
right to elect one director. Through the 2003 annual meeting, ICN will not vote
its shares of our common stock to cause the election of any new director of the
Company who was a director, officer, employee or consultant of ICN during the
previous three years. As to all other matters requiring stockholder approval,
ICN will be able to determine the outcome. ICN may exercise this ability in a
manner that advances its best interests and not those of our other stockholders.

IF WE HAVE CONFLICTS WITH ICN WITH RESPECT TO OUR PAST AND ONGOING
RELATIONSHIPS, THESE CONFLICTS MAY BE RESOLVED IN A MANNER UNFAVORABLE TO US.

We may have conflicts with ICN after this offering that we cannot resolve and,
even if we are able to do so, the resolution of these conflicts may not be as
favorable as if we were dealing with an unaffiliated party. Upon the completion
of this offering, we will have arrangements with ICN requiring ICN and its
affiliates to provide us with various interim, ongoing and other services. In
addition, we will have a contract services relationship with ICN in which ICN
will agree to continue early-phase proof-of-concept studies of Tiazole for the
treatment of ovarian cancer. As a result, conflicts of interest may arise
between ICN and us in a number of areas relating to our past and ongoing
relationships, including:

+ major business combinations by us;

+ sales or distributions by ICN of all or any portion of its ownership interest
in us;

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RISK FACTORS
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+ ICN's ability to control our management and affairs;

+ the nature, quality and pricing of transitional services ICN has agreed to
provide us;

+ business opportunities that may be attractive to both ICN and us;

+ litigation, labor, tax, employee benefit and other matters arising from our
separation from ICN; and

+ the terms of our arrangement with ICN to conduct early-phase proof-of-concept
studies of Tiazole and other interim and ongoing agreements with ICN.

Our agreements with ICN were made in the context of an affiliated relationship
and were negotiated in the overall context of our separation from ICN. The
prices and other terms under these agreements may be less favorable to us than
what we could have obtained in arm's-length negotiations with unaffiliated third
parties for similar services or under similar agreements. For more information
about these arrangements, see "Relationship with ICN."

In addition, after this offering, a number of our directors and executive
officers will continue to own ICN stock and options on ICN stock that they
acquired as employees of ICN. This ownership could create, or appear to create,
potential conflicts of interest when these directors and officers are faced with
decisions that could have different implications for our company and ICN. These
conflicts may not ultimately be resolved in a manner fair to us.

BECAUSE WE ARE A MEMBER OF ICN'S CONSOLIDATED GROUP FOR FEDERAL INCOME TAX
PURPOSES, ICN WILL CONTROL DECISIONS RELATING TO PAYMENT OF TAXES.

For so long as ICN continues to own 80% or more of the combined voting power and
value of our outstanding shares of stock, we will be included in ICN's
consolidated group for federal income tax purposes. Under a tax sharing
agreement with ICN that will become effective upon completion of this offering,
we will pay ICN the amount of federal income taxes that we would be required to
pay if we were a separate taxpayer not included in ICN's consolidated returns.
Also, we will pay ICN the amount of state and local income taxes based upon
ICN's worldwide apportionment schedule. In addition, by virtue of its
controlling ownership and the tax sharing agreement, ICN will effectively
control substantially all of our tax decisions. Under the tax sharing agreement,
ICN will have sole authority to respond to and conduct all tax proceedings. This
authority would include control of tax audits relating to ICN consolidated or
combined income tax returns in which we are included. Moreover, notwithstanding
the tax sharing agreement, federal law provides that each member of a
consolidated group is jointly and severally liable for the group's entire
federal income tax obligation. Thus, to the extent ICN or other members of the
group fail to make any federal income tax payments required of them by law, we
could be liable for the shortfall. Similar principles may apply for state income
tax purposes in many states.

RISKS RELATED TO THIS OFFERING

OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.

Prior to this offering, there has been no public market for our Class A Common
Stock. An active public market for our Class A Common Stock may not develop or
be sustained after the offering. The initial public offering price will be
determined by negotiations between the representatives of the underwriters, ICN
and us and may not be indicative of future market prices. You may not be able to
resell your Class A Common Stock at or above the initial offering price due to
fluctuation in the market price of the Class A Common Stock arising from changes
in our operating performance or prospects. In addition, the stock market in
general has recently experienced extreme volatility often

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11
<PAGE> 15
RISK FACTORS
--------------------------------------------------------------------------------

unrelated to the operating performance or prospects of specific companies. In
particular, the market prices for securities of biotechnology companies in
general have been highly volatile and may continue to be highly volatile in the
future. The market price of our Class A Common Stock may be subject to
substantial volatility depending upon many factors. Many of these are beyond our
control. These factors include:

+ announcements regarding the results of discovery efforts and preclinical and
clinical activities by us or our competitors;

+ announcements regarding the acquisition of technologies or companies by us or
other biotechnology companies;

+ changes in our relationship with Schering-Plough;

+ establishment of additional corporate partnerships or licensing arrangements;

+ technological innovations or new commercial products developed by us or our
competitors;

+ changes in our intellectual property portfolio;

+ developments or disputes concerning our proprietary rights;

+ changes in government regulations affecting us or our industry;

+ progress or withdrawal of regulatory approvals with respect to our product
candidates;

+ issuance of new or changed securities analysts' reports and/or
recommendations;

+ economic and other external factors;

+ additions or departures of key personnel;

+ actual or anticipated fluctuations in our quarterly financial and operating
results; and

+ developments with respect to legal proceedings that we or ICN may be involved
in.

One or more of these factors could significantly harm our business and/or cause
a decline in the price of our Class A Common Stock in the public market.

FUTURE SALES BY ICN COULD CAUSE OUR COMMON STOCK PRICE TO DECLINE.

Sales of a substantial number of shares of our Class A Common Stock by ICN in
the public market or the perception that sales by ICN could occur following this
offering could adversely affect the market price of our Class A Common Stock.
Pursuant to a registration rights agreement, ICN has the right to require us to
register its shares of our common stock under the Securities Act. You should
read "Shares eligible for future sale."

IF WE ACQUIRE EXCESS CASH FROM OUR OPERATIONS, THE TYPES OF INVESTMENTS IN WHICH
WE MAY BE ABLE INVEST THIS CASH MAY BE LIMITED.

The Investment Company Act of 1940 requires registration as an investment
company for companies that are engaged primarily in the business of investing,
reinvesting, owning, holding or trading in securities. Unless an exemption or
safe harbor applies, a company may be deemed to be an investment company if it
owns "investment securities" with a value exceeding 40% of the value of its
total assets on an unconsolidated basis, excluding government securities and
cash items. Securities issued by companies other than majority-owned
subsidiaries are generally counted as investment securities for purposes of the
Investment Company Act.

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RISK FACTORS
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If we acquire significant amounts of cash from our royalty payments which are
not used in our operations, we will be limited in our ability to invest these
excess cash reserves. If we were to invest even a small percentage of this
excess cash in speculative investment securities we could be considered an
investment company. However, under interpretations by the staff of the SEC, we
would not be considered an investment company if we invest this cash in various
non-speculative investment securities and engage in activities that are
consistent with our goal of discovering, developing and commercializing
antiviral and anticancer medications.

Registration as an investment company would subject us to restrictions that are
inconsistent with our fundamental business strategies. We may have to take
actions, including buying, refraining from buying, selling or refraining from
selling securities, when we would otherwise not choose to in order to continue
to avoid registration under the Investment Company Act.

IF A THIRD PARTY MAKES AN ACQUISITION PROPOSAL BENEFICIAL TO OUR STOCKHOLDERS,
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION MORE DIFFICULT TO OCCUR.

Provisions of our certificate of incorporation and bylaws, as well as provisions
of Delaware law, could make it more difficult for a third party to acquire us,
even if doing so would benefit our stockholders. These provisions:

+ establish that members of the board of directors may be removed only for
cause upon that affirmative vote of stockholders owning at least two-thirds
of our capital stock;

+ authorize the issuance of "blank check" preferred stock that could be issued
by our board of directors to increase the number of outstanding shares and
thwart a takeover attempt;

+ limit who may call a special meeting of stockholders;

+ establish advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted upon at
stockholder meetings; and

+ provide for a board of directors with staggered terms.

THE PURCHASE PRICE PAID BY YOU PER SHARE FOR OUR CLASS A COMMON STOCK IN THIS
OFFERING WILL BE SUBSTANTIALLY GREATER THAN BOOK VALUE PER SHARE OF THE CLASS A
COMMON STOCK.

You will suffer immediate and substantial dilution. The initial public offering
price for our Class A Common Stock will be substantially higher than the book
value per share.

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13
<PAGE> 17

--------------------------------------------------------------------------------

Forward-looking information

Some of the statements under the captions "Prospectus summary," "Risk factors,"
"Use of proceeds," "Management's discussion and analysis of financial condition
and results of operations" and "Business" and elsewhere in this prospectus are
forward-looking statements. These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "seeks," "should," "will" or "would" or the negative of these terms or
similar expressions are generally intended to identify forward-looking
statements.

Forward-looking statements necessarily involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the
forward-looking statements due to a number of factors, including those set forth
above under "Risk factors" and elsewhere in this prospectus. The factors set
forth above in the "Risk factors" section and other cautionary statements made
in this prospectus should be read and understood as being applicable to all
related forward-looking statements wherever they appear in this prospectus. The
forward-looking statements contained in this prospectus represent our judgment
as of the date of this prospectus. We caution readers not to place undue
reliance on these statements. Neither the Private Securities Litigation Reform
Act of 1995 nor Section 27A of the Securities Act of 1933 provide any protection
for statements made in this prospectus.

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<PAGE> 18

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Use of proceeds

We will not receive any proceeds from the sale of the Class A Common Stock in
this offering.

Dividend policy

We currently intend to retain our future earnings, if any, to support the growth
and development of our business. We do not anticipate paying dividends for the
foreseeable future. Our board of directors will make all future determinations
relating to our dividend policy. This determination will depend on a number of
other factors, including future earnings, capital requirements, financial
condition and future prospects and other factors our board of directors may deem
relevant. Pursuant to our certificate of incorporation, all cash dividends are
required to be declared pro-rata on the Class A Common Stock and the Class B
Common Stock.

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<PAGE> 19

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Capitalization

The following table shows our capitalization as of June 30, 2000 on an actual as
adjusted basis to give effect to the issuance of common stock to ICN, the
contribution of assets to us by ICN and the recapitalization of our capital
stock into two classes of common stock.

<TABLE>
<CAPTION>
AS OF
JUNE 30,
2000,
AS ADJUSTED
-------------------------------------------------------------------------
(in thousands)
<S> <C>
Stockholders' equity:
Preferred Stock, $0.01 par value; 10 million shares
authorized; none issued and outstanding................ $ --
Class A Common Stock, $0.01 par value, 400 million shares
authorized; 18 million issued and outstanding.......... 180
Class B Common Stock, $0.01 par value, 124,857,142 shares
authorized, issued and outstanding..................... 1,249
Additional paid in capital.................................. 16,769
Total stockholders' equity.................................. 18,198
-------
Total capitalization...................................... $18,198
=======
</TABLE>

The number of shares of Class A Common Stock to be outstanding after this
offering set forth in the table above does not include the following:

+ up to 2,700,000 shares which the underwriters have the option to purchase
from ICN to cover over-allotments;

+ 21,000,000 shares reserved for issuance under our 2000 Stock Option Plan,
including shares issuable upon the exercise of options to be granted at
the time of this offering with an exercise price equal to the offering price;
and

+ 124,857,142 shares of Class B Common Stock held by ICN convertible into an
equal number of shares of Class A Common Stock.

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16
<PAGE> 20

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Dilution

The as adjusted net tangible book value of our Class A Common Stock on June 30,
2000, giving effect to the issuance of common stock to ICN, the contribution of
assets to us by ICN and the recapitalization of our common stock into two
classes, was approximately $18.2 million, or approximately $0.13 per share. As
adjusted net tangible book value per share represents the amount of our total
tangible assets less total liabilities divided by the total number of shares of
Class A Common Stock and Class B Common Stock outstanding.

The following table summarizes, on an as adjusted basis as of June 30, 2000, the
differences between the total consideration paid and the price per share paid by
ICN for the shares of common stock purchased by ICN from us and by the new
investors for the shares of Class A Common Stock purchased from ICN in this
offering. We have assumed an initial public offering price of $14.00 per share
and have not deducted estimated underwriting discounts and commissions and
estimated offering expenses in our calculations. For purposes of this table, we
have treated the Class A Common Stock and the Class B Common Stock as one class.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
ICN......................... 124,857,142 87.4% $ 100 --% $ --
New Investors............... 18,000,000 12.6% $252,000,000 100% $14.00
Total..................
</TABLE>

The foregoing discussion and tables assume no exercise of any outstanding stock
options or the exercise by the underwriters of their over-allotment option.

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17
<PAGE> 21

--------------------------------------------------------------------------------

Selected financial data

The following selected financial data should be read in conjunction with the
financial statements and the notes to the statements and "Management's
discussion and analysis of financial condition and results of operations"
included elsewhere in this prospectus.

We derived the statement of operations data for the years ended December 1997,
1998 and 1999, and the balance sheet data as of December 31, 1998 and 1999 from
our audited financial statements, which are included elsewhere in this
prospectus. We derived the statement of operations data for the years ended
December 31, 1996 and 1995 and the balance sheet data as of December 31, 1995,
1996 and 1997 from unaudited financial statements not included in this
prospectus. We derived the statement of operations data for the six months ended
June 30, 1999 and 2000 and the balance sheet data as of June 30, 2000 from our
unaudited financial statements, which are included elsewhere in this prospectus.
In the opinion of management, the unaudited financial statements from which the
data below are derived contain all adjustments, which consist only of normal
recurring adjustments, necessary to present fairly our financial position and
results of operations as of the applicable dates and for the applicable periods.
Historical results are not necessarily indicative of the results to be expected
in the future.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
STATEMENT OF OPERATIONS DATA 1995 1996 1997 1998 1999 1999 2000
--------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share
data)
Revenue:
Royalties....................... $ 354 $ 1,753 $ 3,223 $36,830 $109,592 $45,929 $76,594
Costs and expenses:
Research and development........ 6,846 6,589 7,011 9,530 5,523 2,574 4,078
General and administrative...... 3,301 6,253 9,676 7,392 5,608 2,320 1,822
-------- -------- -------- ------- -------- ------- -------
Total costs and
expenses............... 10,147 12,842 16,687 16,922 11,131 4,894 5,900
-------- -------- -------- ------- -------- ------- -------
Income (loss) from operations..... (9,793) (11,089) (13,464) 19,908 98,461 41,035 70,694
Interest expense.................. 862 775 683 609 396 272 --
-------- -------- -------- ------- -------- ------- -------
Income (loss) before income
taxes........................... (10,655) (11,864) (14,147) 19,299 98,065 40,763 70,694
Provision (benefit) from income
taxes........................... (3,836) (4,271) (5,093) 6,948 35,303 14,675 25,450
-------- -------- -------- ------- -------- ------- -------
Net income (loss)................. $ (6,819) $ (7,593) $ (9,054) $12,351 $ 62,762 $26,088 $45,244
======== ======== ======== ======= ======== ======= =======
Unaudited as adjusted net income
per share....................... $ .44 $ .32
======== =======
Unaudited as adjusted shares
outstanding..................... 142,857 142,857
======== =======
</TABLE>

<TABLE>
AS OF DECEMBER 31, AS OF
BALANCE SHEET DATA 1995 1996 1997 1998 1999 JUNE 30, 2000
--------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Working capital................... $ (4,696) $ (3,897) $ (2,828) $ 6,889 $ 33,350 $ (1,104)
Total assets...................... 27,885 27,361 27,127 29,561 55,177 22,014
Current liabilities............... 6,628 6,457 6,096 1,454 1,112 1,104
Total liabilities................. 32,297 29,407 27,010 13,591 3,777 3,816
Total equity (deficit)............ (4,412) (2,046) 117 15,970 51,400 18,198
</TABLE>

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<PAGE> 22

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Management's discussion and analysis of financial condition
and results of operations

RESULTS OF OPERATIONS

Financial information for our business is set forth below. This discussion
should be read in conjunction with our financial statements included elsewhere
in this prospectus.

SIX MONTHS ENDED JUNE 30, 1999 AND 2000

ROYALTY REVENUES

Royalty revenues represent amounts earned under our exclusive license and supply
agreement with Schering-Plough. Under the license agreement, we exclusively
licensed to Schering-Plough all oral forms of ribavirin for the treatment of
chronic hepatitis C. In 1998, Schering-Plough received FDA approval to market
ribavirin in the United States in combination with Schering-Plough's interferon
alfa-2b for the treatment of chronic hepatitis C in patients with compensated
liver disease. In May 1999, Schering-Plough received approval from the European
Union to market the combination therapy in the European Union for the same
patient populations as those approved in the United States. Royalty revenues for
the six months ended June 30, 1999 were $45,929,000 compared to $76,594,000 for
the same period in 2000. The increase of 67% was mainly due to additional sales
of Rebetron by Schering-Plough resulting from the 1999 launch into some European
markets.

RESEARCH AND DEVELOPMENT

Research and development expenditures were $2,574,000 for the six months ended
June 30, 1999 and $4,078,000 for the same period in 2000. The increase of 58%
resulted from the expansion of research and development, primarily in the area
of antiviral and anticancer drugs.

GENERAL AND ADMINISTRATIVE

General and administrative expenses include corporate allocations of shared
services. These services include legal, finance, corporate development,
information systems and corporate office expenses. These expenses are allocated
to us using methods that we believe reflect most fairly or reasonably the
utilization of services provided to or the benefit obtained by us. These include
the square footage, headcount, or actual utilization. However, the financial
information included in this prospectus does not necessarily reflect what the
results of operations would have been had we operated as a stand-alone entity
during the periods covered. We do not expect the methods used in allocating the
expenses of shared services to change significantly from those utilized in the
historical results of operations. Additionally, we do not expect the amount of
costs of shared services allocated to change significantly. These allocated
expenses amounted to $1,856,000 for the six months ended June 30, 1999 and
$1,548,000 for the same period in 2000.

General and administrative expenses were $2,320,000 for the six months ended
June 30, 1999 compared to $1,822,000 for the same period in 2000, a decrease of
21%. Those expenses principally consisted of legal expenses, facility and
central service charges and other general and administrative expenses. Legal
expenses were $1,102,000 for the six months ended June 30, 1999 and $830,000 for
the same period in 2000. This decrease of 25% relates to a reduction of fees for
the investigation involving the US Attorney's Office. Facility and central
services charges were $717,000 for the six months ended June 30, 1999 and
$621,000 for the same period in 2000. This represents a decrease of 13%.
Excluding legal and facility and central service costs, general and
administrative expenses were

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------

$501,000 for the six months ended June 30, 1999 and $371,000 for the same period
in 2000. The decrease of 26% over 1999 was due to a decrease in compensation
expenses related to bonuses and charges associated with a long-term incentive
plan.

INTEREST EXPENSE

Interest expense declined as a result of the repayment of a mortgage on our
headquarters building in September 1999.

INCOME TAXES

The effective tax rate was 36% for each of the six months ended June 30, 1999
and 2000. We were not a separate taxable entity for federal, state or local
income tax purposes. Our operations were included in the consolidated ICN tax
returns. Income tax provisions and benefits have been calculated on a separate
return basis for federal income tax purposes and based upon ICN's worldwide
apportionment California State rate of 1%.

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

ROYALTY REVENUES

Royalty revenues for 1998 were $36,830,000 compared to $109,592,000 for 1999, an
increase of 198%. The 1999 royalty amount reflected increased US commercial
sales of Rebetron by Schering-Plough subsequent to receipt of initial FDA
approval in June 1998, inception of commercial sales in the European Union and
an increase in compassionate use sales, primarily in Western Europe. Royalty
revenues for 1998 also include a one-time payment of $13,467,000, which we
received from Schering-Plough for settlement of past royalties due on samples
and free product distributed by Schering-Plough ($8,467,000) and forgiveness of
a $5,000,000 obligation to them. In addition, we gave up the right to co-market
in the European Union in exchange for an increase in worldwide royalty rates.

We recorded the entire amount of the one-time payment as revenue as well as the
previously unamortized and deferred portion of the 1995 license revenue paid to
us by Schering-Plough of $3,689,000. At the time of the initial sale of the
rights and technology to Schering-Plough in 1995, we maintained the rights to
co-market in the European Union, were obligated under a supply and manufacturing
agreement and participated on scientific advisory committees during the clinical
trial process being conducted by Schering-Plough. In 1998 when we gave up the
rights to co-market in the European Union in exchange for increased royalty
rates, we no longer had any continuing obligations with respect to the transfer
of the rights and technology to Schering-Plough.

Royalty revenues for 1997 were $3,223,000 compared to $36,830,000 in 1998. This
1,043% increase was mainly due to the launch of Rebetron in the US market during
the second quarter of 1998 after Schering-Plough received approval from the FDA
to market the combination therapy and a one-time payment of $13,467,000 from
Schering-Plough, discussed above.

RESEARCH AND DEVELOPMENT

Research and development expenditures were $7,011,000 for 1997, $9,530,000 for
1998 and $5,523,000 for 1999. The 42% decrease from 1998 to 1999 reflected lower
spending in clinical trials as we evaluated our overall research strategy. The
36% increase in 1998 compared to 1997 reflected our increased investment in the
development of products and clinical trials of several compounds.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $9,676,000 for 1997, $7,392,000 for
1998 and $5,608,000 for 1999. These include corporate allocations of $9,542,000
for 1997, $5,146,000 for 1998 and

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$4,852,000 for 1999. General and administrative expenses included legal
expenses, facility and central service charges and other general and
administrative expenses. Legal expenses were $7,155,000 for 1997, $2,460,000 for
1998 and $2,844,000 for 1999. The legal expenses were mainly related to the SEC
litigation, the investigation involving the US Attorney's Office and the
Hepatitis C and AIDS class actions lawsuits previously paid by ICN. Fifty
percent of these legal expenses were allocated to us. The 66% decrease in legal
expenses from 1997 to 1998 was due primarily to a class action settlement of
$5,500,000 in 1997. Facility and central service charges were $2,167,000 for
1997, $2,376,000 for 1998 and $1,963,000 for 1999. Excluding legal and facility
and central service costs, general and administrative expenses were $354,000 for
1997, $2,556,000 for 1998 and $801,000 for 1999. The 69% decrease from 1998 to
1999 related to compensation expense related to the extension of stock options
to an ICN director who was acting as the senior vice president of research and
development in the amount of $1,625,000 in 1998. The 622% increase from 1997 to
1998 was due to increased compensation expense including the amount related to
the stock option extension, bonuses and the charges associated with the
long-term incentive plan.

INTEREST EXPENSE

Interest expense declined 35% from 1998 to 1999 as a result of the repayment of
a mortgage on our headquarters building in 1999. The slight decrease of 11% in
interest expense from 1997 to 1998 relates to principal payments made in 1998 on
the mortgage payable.

INCOME TAXES

Our effective income tax rate was 36% for each of the years ended December 31,
1997, 1998 and 1999. We were not a separate taxable entity for federal, state or
local income tax purposes. Our operations were included in the consolidated ICN
tax returns. Income tax provisions and benefits have been calculated on a
separate return basis for federal income tax purposes and based upon ICN's
worldwide apportionment California state rate of 1%.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities was $37,693,000 for the six months ended
June 30, 2000 compared to $2,094,000 for the same period in 1999. Operating cash
flows in 2000 reflected net income of $45,244,000, offset by an increase of
$7,860,000 in the royalty receivable. For the same period in 1999, operating
cash flow reflected net income of $26,088,000, offset by deferred income of
$4,323,000 and a decrease in royalties receivable of $21,223,000.

Cash used in investing activities was $26,000 for the six months ended June 30,
1999 and $1,569,000 for the same period in 2000. The level of research and
development investment also reflects the beginning of the research and
development buildup that started in the second quarter of year 2000. We continue
to expect to increase our research and development spending, which includes
laboratory upgrades and installation of state-of-the-art equipment, in the
second half of the year.

Cash used in financing activities was $2,068,000 for the six months ended June
30, 1999 compared to $36,124,000 for the same period in 2000. This increase is
primarily due to an increase in cash retained by ICN, offset by an increase in
the allocation of income tax expense.

Cash provided by operating activities was $1,139,000 for 1997, $1,581,000 for
1998 and $7,681,000 for 1999. Operating cash flows in 1999 reflected net income
of $62,762,000, partially offset by an

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increase in royalties receivable of $26,119,000, an increase in advances to ICN
of $27,332,000 and a change of $4,323,000 in deferred income. In 1998, cash
provided by operating activities was $1,581,000. This reflected net income of
$12,351,000 and an increase in advances from ICN in the amount of $3,502,000,
partially offset by an increase in royalties receivable of $6,875,000, a
decrease in deferred income of $13,619,000 and an increase in trade payables and
accrued liabilities of $664,000. In 1997, cash provided by operating activities
was $1,139,000, primarily consisting of the net loss of $9,054,000 and
$11,217,000 in advances from ICN.

Cash used in investing activities was $346,000, $103,000 and $53,000 for the
years 1997, 1998 and 1999, principally related to the purchases of equipment
related to our research and development activities.

We paid off the remaining balance of our building mortgage during 1999, which
totaled $7,628,000. The mortgage debt payments were $793,000 and $1,478,000 in
1997 and 1998.

Historically, we did not maintain cash and cash equivalents balances. We
received cash from ICN on an as needed basis. During 2000 and 1999, we
transferred our excess cash provided by operating activities to ICN.

Under the terms of our affiliation agreement with ICN, ICN will indemnify us
against any expenses arising out of the SEC litigation, the investigation
involving the US Attorney's Office and the dispute involving ICN's interest in
its Yugoslavian joint venture. However, after the completion of this offering,
these expenses will continue to be allocated to us for financial reporting
purposes by way of a capital contribution from ICN. The actual cash payments
relating to these expenses will be made by ICN.

Management believes that our cash generated from royalties from Schering-Plough
will be sufficient to fund our research and development activities, potential
acquisitions and capital expenditures for the near and medium term. Since our
next scheduled royalty payment from Schering-Plough is not until late November
2000, we will be dependent upon ICN or other third parties to fund our
operations until that time. ICN will provide us with working capital financing
of up to $25 million for this purpose. Any borrowings from ICN will be payable
on December 31, 2001. The interest on these borrowings will be at LIBOR plus 200
basis points. See "Risk factors -- Risks Related to Our Business -- If our
royalties from Schering-Plough decline significantly in the future, we may not
have sufficient funds to operate our business."

We expect to spend up to approximately $120,000,000 over the next two years on
research and development activities, which represents a substantial increase. We
plan to continue to expand our research team from 18 as of March 1, 2000 to over
100 scientists by the end of 2002.

We are expanding our research facilities and anticipate spending approximately
$35,000,000 in capital expenditures over the next three years.

THE YEAR 2000 ISSUE

As with most industries, biotechnology and pharmaceutical companies use
information systems that had the potential to misidentify dates beginning
January 1, 2000. This could have resulted in systems or equipment failures or
miscalculations. We engaged in a comprehensive project to upgrade computer
software and equipment and systems to be Year 2000 compliant. This project was
successfully completed with no major difficulties encountered.

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NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and becomes
effective for us in the first quarter of 2001. We do not currently engage in any
program of hedging or hold derivative instruments and consequently we do not
expect the adoption of SFAS No. 133 to have a material effect on our financial
position, cash flows, or results of operations.

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Business

OVERVIEW

We are a biotechnology company that seeks to discover, develop and commercialize
innovative products for the treatment of significant unmet medical needs,
principally in the antiviral and anticancer areas. Our product ribavirin is an
antiviral drug that Schering-Plough markets under license from us in combination
with its interferon alfa-2b under the trade name Rebetron as a therapy for the
treatment of hepatitis C. Our royalties from sales of ribavirin by
Schering-Plough were $110 million in 1999 and $76.6 million in the six months
ended June 30, 2000.

Ribavirin came from our extensive library of chemical compounds. At least 3,500
of these are nucleoside analog compounds. Nucleoside analogs are
small-molecule-type chemicals that resemble the natural building blocks of human
and viral DNA and RNA. We believe that our library contains one of the largest
collections of nucleoside analogs in the world. We intend to combine our
scientific expertise with advanced drug screening techniques in an effort to
discover and develop new product candidates from our nucleoside analog library.

We are expanding our research facilities and assembling an experienced research
and development team under the leadership of Johnson Y.N. Lau, PhD, MD. Dr. Lau
joined us in March 2000. Dr. Lau is an expert in viruses and liver diseases. He
was formerly senior director in antiviral research at the Schering-Plough
Research Institute. At that institute, he was involved in the development and
approval of the Rebetron combination therapy for hepatitis C. Under Dr. Lau's
leadership, we have already hired seven scientists with over 100 years in
combined experience to lead our drug discovery, molecular biology,
computer-assisted drug design, enzymology, pharmacology/toxicology, and
regulatory affairs departments. For a brief description of the professional
experience of these department heads, see "Management -- Scientific Staff." We
plan to expand our research team from 18 scientists on March 1, 2000 to over 100
scientists by the end of 2002. In addition, we plan to spend approximately $20
million in 2000 on upgrading and modernizing our research laboratories and
equipment. This will include the expansion of our physical research and
development facilities and the purchase of equipment for sophisticated
molecular, biological and animal experiments. Furthermore, we intend to
accelerate our drug discovery and development process by utilizing advanced
screening techniques and equipment, biological assays, and sophisticated
computer assisted drug design. We believe these steps are key components of our
strategy.

We previously were a division of ICN. On August 7, 2000, ICN contributed to us
our assets and operations. However, ICN's contribution to us of its rights and
obligations under the license agreement with Schering-Plough was made subject to
the approval of the holders of ICN's outstanding debt securities. Completion of
this offering is subject to obtaining the approval of the holders of these debt
securities. After this offering, we will continue to be controlled by ICN, which
will own approximately 97% of the combined voting power and approximately 87% of
the value of our outstanding shares of common stock. As the sole holder of Class
B Common Stock, ICN will have the right to elect one director. Through the 2003
annual meeting, ICN will not vote its shares of our common stock to cause the
election of any new director of the Company who was a director, officer,
employee or consultant of ICN during the previous three years. This restriction
does not prohibit ICN from voting for the re-election of directors in office at
the time of the completion of this offering. There will be no restrictions on
ICN's ability to vote on any other matter submitted to stockholders. As our
controlling stockholder, ICN will be able to approve or reject major corporate
transactions without the support of any other stockholder, including a merger,
consolidation or sale of substantially all our assets. See "Relationship with
ICN" for a description of agreements between us and ICN.

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ADVANTAGES OF NUCLEOSIDE ANALOGS

We believe nucleoside analogs present significant opportunities for drug
development. Nucleoside analogs are chemical compounds created by modifying
nucleosides, which are the natural building blocks of human and viral DNA and
RNA. Much antiviral and anticancer research has focused on nucleoside analogs
because viruses and cells use nucleosides to multiply. By mimicking the role of
nucleosides in the cell division process, nucleoside analogs have been used to
treat viruses and cancers by modifying the natural structure of DNA and RNA in a
way that disrupts the viral and cellular replication machinery. Some nucleoside
analogs also stimulate antiviral immune responses.

Pharmaceutical and biotechnology companies commonly focus their drug discovery
efforts on the random screening of large numbers of diverse chemical compounds.
We believe researchers screening nucleoside analogs may be more likely to
discover compounds for antiviral and anticancer drug development because
nucleoside analogs resemble the building blocks of human and viral DNA and RNA.
This approach has attracted significant attention by a number of academic and
pharmaceutical investigators. Antiviral and anticancer nucleoside analogs
approved by the FDA include:

+ ICN's antiviral Virazole and Schering-Plough's antiviral Rebetol;

+ Glaxo Wellcome's antivirals Retrovir, Epivir, and Zovirax;

+ Bristol-Myers Squibb's antivirals Videx and Zerit;

+ SmithKline Beecham's antiviral Famvir;

+ F. Hoffmann-La Roche's antiviral Hivid and anticancer Xeloda;

+ Eli Lilly's anticancer Gemzar; and

+ Pharmacia's anticancer Cytarabine.

It is estimated that 1999 US revenues for the top five selling nucleoside
analogs were over $1 billion. We believe that nucleoside analogs may capture
larger portions of the antiviral and anticancer markets in the future for use as
monotherapies and as part of combination therapies.

MARKET OPPORTUNITY

We intend to focus our product discovery efforts on treatments for hepatitis C,
hepatitis B, HIV, cancer and other life threatening diseases. We believe that
the hepatitis C, hepatitis B, HIV and cancer markets are attractive for us
because these diseases are highly prevalent and there are few treatment
alternatives. In addition, drugs that treat these diseases may qualify for
accelerated FDA review procedures. These drugs have a potential for premium
pricing in the marketplace and favorable pricing reimbursement policies from
third party payors.

HEPATITIS C

Hepatitis C is a highly infectious and potentially fatal virus that can be
contracted through blood and bodily fluid contact. It is one of the most
prevalent chronic infectious diseases in the United States. The disease attacks
the liver and can cause liver scarring, liver failure and liver cancer. Most
people infected with hepatitis C have no symptoms and are unaware that they
carry this potentially deadly virus. Because they are symptomless carriers, they
can unknowingly infect others. The hepatitis C virus also has the ability to
adapt rapidly to antiviral treatment and host immune response. For this reason,
mutants which are resistant to treatment can arise. In most cases, the body is
not able to fight off the hepatitis C infection and the infected individual
becomes a chronic hepatitis C carrier. According to

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the World Health Organization, as many as 170 million people worldwide are
infected by the hepatitis C virus. Of these, it is estimated that approximately
10 million people are infected with hepatitis C in the United States, Europe and
Japan. These areas include the world's leading pharmaceutical markets. According
to the Centers for Disease Control, approximately 36,000 people become infected
and approximately 10,000 people die from complications of hepatitis C each year
in the United States. The hepatitis C virus was not specifically identified
until 1989. Approximately 20% of infected persons develop cirrhosis of the liver
within 10 to 20 years after infection. For others, the rate of disease
progression is much slower and may extend over 20 to 40 years or more. Aside
from the fact that this is a blood borne disease, the proliferation of hepatitis
C within a population is not fully understood. Without improved prevention and
treatment, the American Liver Foundation and the Centers for Disease Control and
Prevention estimate the number of deaths from hepatitis C in the United States
will more than triple to 38,000 annually by 2010. Currently, there is no
approved vaccine to prevent hepatitis C.

We believe that the hepatitis C market is important not only because of the
potential size of the market, but because of the growing education and public
awareness campaigns that are focusing the public's attention on the scale and
severity of the disease. With this increasing awareness of hepatitis C virus
infection, we believe the market potential of hepatitis C will expand further
and the demand for effective treatments will increase.

We believe that Rebetron combination therapy is currently the most effective
treatment for patients with chronic hepatitis C. However, only approximately 41%
of patients with chronic hepatitis C respond to the Rebetron combination
therapy. In addition, interferon alfa-2b can cause flu-like symptoms and malaise
while ribavirin causes patients to experience anemia. Therefore, we believe that
safer and more effective treatments for hepatitis C will have significant market
potential.

HEPATITIS B

Hepatitis B causes inflammation of the liver and is potentially fatal. It is one
of the most common chronic infectious diseases in the world. Hepatitis B is
transmitted through contaminated needles or blood and also through sexual
contact. According to the American Liver Foundation, 90% of adults are able to
defeat the hepatitis B virus on their own. However, 5% to 10% of those infected
with hepatitis B will become chronic carriers of the virus. Children are
particularly susceptible to the virus. As many as 50% of those children exposed
to the virus become chronic carriers. The World Health Organization estimates
that approximately 2 billion people have evidence of past or current hepatitis B
virus infection and 350 million individuals worldwide, or 5% of the world's
population, are long term carriers of hepatitis B in their blood. There are over
1 million carriers of hepatitis B in the United States and an estimated 200,000
people in the United States contract acute hepatitis B each year. Most people
who contract acute hepatitis B remain in good health, have no symptoms, and
completely recover. However, chronic carriers of the hepatitis B virus have a
200-fold increased chance of developing liver cancer and a significant number
develop cirrhosis of the liver.

A safe and effective vaccine against hepatitis B is available. However, the
vaccine only benefits those who have not yet been infected by the hepatitis B
virus. There are two FDA approved therapies for patients infected with hepatitis
B: interferon alpha and lamivudine. Interferon alpha has the ability to reduce
the amount of hepatitis B virus in the blood for long periods of time in
approximately 40% of patients, but it has side effects such as flu-like symptoms
and malaise. Lamivudine, which is a nucleoside analog, decreases the amount of
hepatitis B virus in the blood in a majority of patients. However, if lamivudine
therapy is discontinued, hepatitis B virus levels in the blood can rebound and
liver disease can result. In addition, a significant number of patients taking
lamivudine rapidly develop drug resistance. Therefore, we believe that more
effective drugs, including drugs that are effective against lamivudine resistant
hepatitis B, will have significant market potential.

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HIV

AIDS, acquired immune deficiency syndrome, is caused by the human
immunodeficiency virus, or HIV. HIV attacks cells of the immune system. It
thereby destroys the body's ability to fight infections and some cancers.
Individuals diagnosed with AIDS are susceptible to life-threatening diseases
called opportunistic infections. These infections are caused by microbes that
usually do not cause illness in healthy people. According to the World Health
Organization, by the end of 1999, 33.4 million people worldwide were living with
HIV or AIDS. More than 600,000 cases of AIDS have been reported in the United
States since 1981, and as many as 900,000 Americans may be infected with HIV.
HIV is spread most commonly by sexual contact with an infected partner. HIV is
also spread through contact with infected blood, including by the sharing of
needles or syringes contaminated with minute quantities of blood of someone
infected with the virus.

The life cycle of HIV is still not fully understood. Researchers have focused on
an enzyme crucial to the replication of HIV, reverse transcriptase. This
research has led to the development of several reverse transcriptase inhibitors
as antiviral therapies. AZT is the best known and most widely used reverse
transcriptase inhibitor. More recently, inhibitors of a second enzyme required
for viral replication, HIV protease, have been approved as treatments for HIV
infection. The market for HIV protease inhibitors is highly competitive. Five
different protease inhibitors compete for a share of a $1 billion US market.
Worldwide sales of HIV protease inhibitors were an estimated $1.8 billion in
1998.

Initial treatments for HIV focused on monotherapies. Monotherapy involves
treatment with only one drug at a time. However, in an effort to combat
resistance to drugs, doctors now use a combination of two or more drugs. Often
called a "cocktail," combination therapy is useful for any number of reasons.
These include the fact that combination therapy reduces the likelihood of
developing resistant strains, the effect of the drugs is cumulative, and
combination therapy may result in clinical improvement and a reduction of virus
in the blood. Current combination therapy is usually composed of two nucleoside
analogs and either a protease inhibitor or a non-nucleoside reverse
transcriptase inhibitor. We believe that more effective therapies for HIV
infection will require the identification of additional molecular targets in the
HIV replication process. We believe that novel potent antiviral drugs to treat
HIV, and in particular treatments that are less susceptible to drug resistance,
will have significant market potential if approved by regulatory authorities.

CANCER

Cancer is characterized by uncontrolled division of cells and can occur in
almost any tissue or organ in the body. Cancerous cells can grow into a mass
known as a tumor. If not destroyed, cancer cells can spread throughout the body.
Cancer is the second leading cause of death in the United States. The National
Cancer Advisory Board reports that more than 8 million people in the United
States have cancer.

The three most prevalent methods of treating patients with cancer are surgery,
radiation therapy and chemotherapy. A cancer patient often receives a
combination of two or all three of these treatment methods. Surgery and
radiation therapy are particularly effective in patients in whom the disease has
not yet spread to other tissues or organs. Chemotherapy is the principal
treatment for tumors that have spread. These tumors are referred to as having
metastasized. The purpose of chemotherapy is to interfere with the molecular and
cellular processes that control the development, growth and survival of
malignant tumor cells. Chemotherapy involves the administration of drugs
designed to kill cancer cells or the administration of hormone analogs to either
reduce the production of, or block the action of, some hormones, including
estrogens and androgens. These hormones affect the growth of tumors. In many
cases, chemotherapy consists of the administration of several different drugs in
combination.

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Use of these agents often has adverse effects since chemotherapeutic agents
generally attack rapidly dividing cells indiscriminately. As a result,
chemotherapy damages both normal and cancerous cells.

Although several types of tumors can now be treated effectively with drugs,
survival rates for the most common tumors have only begun to improve slightly.
In recent years, however, there have been significant advances in molecular
biology, immunology and other related fields of biotechnology. These advances
have led to a better understanding of the processes that regulate the
proliferation and metastasis of malignant cells and by which malfunctioning
genes can result in the formation of tumors.

The anti-cancer pharmaceutical market is expanding due to aging demographics,
early detection and new treatments. According to the National Cancer Institute,
total US anti-cancer pharmaceutical sales were estimated at $6 billion in 1999,
representing 50% of the global market.

OUR STRATEGY

DISCOVER, DEVELOP AND COMMERCIALIZE NOVEL DRUG CANDIDATES FROM OUR NUCLEOSIDE
ANALOG LIBRARY

We plan to screen our library of at least 3,500 nucleoside analogs for compounds
that may have therapeutic uses for the treatment of viral infections and cancer
and other unmet medical needs. We intend to pursue development and
commercialization of compounds that show therapeutic efficacy. We intend to
employ the latest cell based screening assays to discover the potential of these
compounds as antiviral and anticancer drugs against specific disease targets. We
have not fully screened our nucleoside analog library for compounds that have
activity against hepatitis C, hepatitis B, HIV and cancer. In addition, we are
building a computer-assisted drug design team to facilitate the design of more
effective and selective compounds.

FOCUS ON DISEASES THAT REPRESENT LARGE UNMET MEDICAL NEEDS THAT WE BELIEVE
PROVIDE SUBSTANTIAL COMMERCIAL OPPORTUNITIES

We intend to continue to focus our drug discovery and development efforts on
serious diseases that represent large potential markets for our drug products.
Our current program areas include hepatitis C, hepatitis B, HIV and cancer, each
of which affects a large number of patients. Drugs that treat some of these
life-threatening diseases may be eligible for accelerated FDA review procedures.
These drugs may also have the potential for premium pricing in the marketplace
and favorable reimbursement policies from third party payors.

MAXIMIZE THE VALUE OF OUR NEW PRODUCT CANDIDATES BY LEVERAGING OUR INTERNAL
DEVELOPMENT CAPABILITIES

We intend to retain control of our product candidates through preclinical
development and as far into the clinical trial process as our resources permit.
We intend to do so in order to obtain the maximum value for our research
efforts. We believe that our royalty revenues from sales of ribavirin by
Schering-Plough may give us the financial flexibility to develop our product
candidates through the clinical trial process without being compelled to
prematurely out-license our product candidates to third parties. We may choose
to market and sell our products on our own and develop an internal sales force
in connection with these efforts. Alternatively, we may choose to collaborate
with other pharmaceutical companies to market and sell our products. If we
choose to collaborate with third parties, we believe we may be in a stronger
position to negotiate more favorable terms if we can demonstrate our new product
candidate's commercial potential in clinical testing.

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ACCELERATE DEVELOPMENT OF IDENTIFIED DRUG CANDIDATES FROM OUR CURRENT PRODUCT
PIPELINE

We intend to expedite the development of the drug candidates in our current
pipeline by committing additional resources to the preclinical and clinical
evaluation of these compounds. We are currently evaluating Levovirin and
Viramidine for the treatment of hepatitis C. Our focus is on comparing the
nature and incidence of side effects caused by these compounds with those
experienced by some patients who take ribavirin. We are also working to develop
Tiazole for the treatment of the late stages of chronic myelogenous leukemia in
patients who are not responding to traditional chemotherapy treatments as well
as for the treatment of ovarian cancer and multiple myeloma. Finally, we are
working to develop Adenazole for the treatment of colon cancer.

EXPAND OUR EXISTING PRODUCT CANDIDATE PIPELINE AND TECHNOLOGIES THROUGH
ACQUISITIONS AND IN-LICENSING OPPORTUNITIES

In addition to our in-house development efforts, we plan to selectively license
or acquire product candidates, technologies and businesses from third parties
that complement our business. We believe that our drug development expertise may
allow us to recognize licensing opportunities and to capitalize on research
initially conducted and funded by others. In addition, our existing technologies
and product pipeline may be expanded through acquisitions that present
additional commercial opportunities.

RIBAVIRIN FOR HEPATITIS C

INTRODUCTION

Ribavirin is a nucleoside analog that we discovered from our library of
nucleoside analog compounds. Ribavirin was one of the first antiviral drugs ever
discovered and was first approved by the FDA in 1985 for the treatment of a
respiratory virus infection in children. In 1995, we granted an exclusive
license to Schering-Plough for all oral forms of ribavirin for the treatment of
chronic hepatitis C. Prior to that time, clinical studies had indicated that
ribavirin, in combination with Schering-Plough's interferon alfa-2b, was
potentially an effective treatment for hepatitis C. When approved by the FDA in
1998, the Rebetron combination therapy represented a significant advance in the
treatment of patients with chronic hepatitis C. We believe the Rebetron
combination therapy is currently the most effective treatment for patients with
chronic hepatitis C. The mechanism of action of ribavirin in conjunction with
interferon alpha for the treatment of hepatitis C is not clear. Recently
published data suggest that ribavirin not only has an antiviral effect, but it
also may stimulate some aspects of the body's immune responses to viruses. Under
the license agreement, Schering-Plough is responsible for all clinical
development and regulatory activities relating to oral forms of ribavirin.
Schering-Plough markets ribavirin under the trade name Rebetol.

On August 7, 2000, ICN contributed to us some of its rights with respect to
ribavirin. These include all of its rights under the license agreement with
Schering-Plough, subject to the approval of the holders of ICN's outstanding
debt securities. Completion of this offering is subject to obtaining the
approval of the holders of these debt securities. ICN has retained perpetual,
exclusive and royalty-free rights to all indications for ribavirin in a given
jurisdiction to the extent currently approved in that jurisdiction, but not in
other jurisdictions for which that indication is not currently approved.
However, ICN will not retain any rights to any indications or forms of ribavirin
licensed to Schering-Plough. ICN has also retained perpetual and royalty-free
rights with respect to the use of ribavirin in aerosol form for the treatment of
bone marrow transplant patients with respiratory infections caused by
respiratory syncytial virus. Any future indications for ribavirin that are
developed by us will be our property and are not subject to ICN's retained
rights. However, Schering-Plough will have an option to exclusively license from
us oral indications for ribavirin developed by us in the future. See
"Relationship with ICN."

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CLINICAL TRIALS AND APPROVALS

In June 1998, Schering-Plough received FDA approval to market the interferon
alfa-2b and ribavirin combination therapy under the brand name Rebetron for the
treatment of chronic hepatitis C in patients with compensated liver disease who
had relapsed following interferon alpha therapy. In December 1998,
Schering-Plough received FDA approval to market the combination therapy for the
treatment of chronic hepatitis C in patients with compensated liver disease
previously untreated with interferon alpha therapy. These patients are commonly
referred to as treatment-naive patients. Clinical trials evaluating the efficacy
of the Rebetron combination therapy indicated that the combination therapy, as
opposed to treatment with interferon alfa-2b alone, produced a greater sustained
response to the hepatitis C virus. In two clinical trials involving hepatitis C
patients who had relapsed following interferon alfa-2b therapy, 45.7% of the
patients had no detectable hepatitis C virus in their blood after receiving
interferon alfa-2b plus ribavirin, as compared to 4.7% who received interferon
alfa-2b alone. In two clinical trials involving treatment-naive hepatitis C
patients, 41% of the patients who received combination therapy responded
compared to 16% of the patients who received interferon alfa-2b alone. These
results represented a significant advancement in the treatment of patients with
chronic hepatitis C.

In May 1999, the European Union granted marketing authorization to
Schering-Plough to market ribavirin capsules for use in combination with
interferon alfa-2b injection for the treatment of both relapsed and treatment
naive chronic hepatitis C patients. As opposed to the United States, where the
combination therapy is sold as a package, ribavirin and interferon alfa-2b are
sold separately in European Union countries. The European Union approval was
immediately valid in all 15 European Union-Member States. The 15 members of the
European Union are Germany, Italy, the United Kingdom, France, Spain, Portugal,
Austria, Sweden, Finland, Greece, the Netherlands, Belgium, Luxembourg, Denmark
and Ireland. Schering-Plough commenced marketing ribavirin in Germany in May
1999, the United Kingdom in July 1999, Italy in October 1999, France in May 2000
and Spain in May 2000 after receiving pricing approvals in these countries. We
anticipate that Schering-Plough will introduce ribavirin in other European Union
markets upon receiving pricing approvals.

Schering-Plough also currently markets the combination therapy in Canada and
Argentina.

NEW DEVELOPMENTS

Each of Schering-Plough and Hoffmann-La Roche has developed a modified form of
interferon, called pegylated interferon. Pegylated interferon differs from
interferon in that a substance called polyethylene glycol is attached to the
interferon protein. The presence of polyethylene glycol is believed to result in
longer-acting, sustained activity of interferon. By prolonging the activity of
interferon, patients could potentially take pegylated interferon only once a
week, as opposed to the three times per week regimen currently followed with the
combination therapy.

Schering-Plough publicly announced on May 1, 2000 that results from a Phase II
clinical trial evaluating the efficacy of pegylated interferon in combination
with ribavirin, or Pegatron, showed that ribavirin enhanced the antiviral effect
of pegylated interferon. 72 hepatitis C patients enrolled in the Phase II
clinical trial. Patients took either pegylated interferon alone or Pegatron.
Three groups of patients taking the Pegatron combination therapy were given
different dosage levels of the pegylated interferon component of Pegatron. The
results indicated that 17%, 53% and 60% of patients from the three groups had a
sustained response to the hepatitis C virus 24 weeks after treatment, with those
receiving higher doses of pegylated interferon having the greater sustained
response. In contrast, three groups of patients taking pegylated interferon
alone at the dosage levels administered to the three groups of patients
receiving Pegatron showed a 0%, 44% and 42% sustained response to the hepatitis
C virus 24 weeks after treatment. Phase III trials are now underway to further
evaluate Pegatron. If

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the clinical trials ultimately demonstrate safety and better efficacy than
Rebetron and Pegatron is approved by the FDA and other regulatory authorities,
Pegatron could become the preferred treatment for hepatitis C.

Phase III clinical trial results publicly announced by Schering-Plough on May 1,
2000 indicated that pegylated interferon taken once per week alone was twice as
effective as taking interferon alfa-2b three times per week alone. According to
these results, 24 weeks after a 48 week period of taking either pegylated
interferon once per week or interferon alfa-2b three times per week:

+ 11% of patients with the most severe type of hepatitis C had no detectable
hepatitis C virus in their blood after taking pegylated interferon, as
opposed 6% of patients taking interferon alfa-2b; and

+ 49% of patients with less severe types of hepatitis C had no detectable
hepatitis C virus in their blood after taking pegylated interferon, as
opposed to 28% of patients taking interferon alfa-2b.

In addition, the Phase III study showed that side effects experienced by
patients taking pegylated interferon were similar to those patients taking
interferon alfa-2b.

On May 30, 2000, Schering-Plough announced that it had received approval from
the European Union to market pegylated interferon as a monotherapy for the
treatment of hepatitis C patients who cannot take ribavirin because of
intolerance or counterindications. This European Union approval specified that
the optimal treatment for chronic hepatitis C is still considered to be the
interferon alfa-2b and ribavirin combination therapy.

Hoffmann-La Roche has alleged that Schering-Plough's pegylated interferon
violates Hoffmann-LaRoche's patents in pegylated interferon. See "Risk
factors -- Risks Related to Our Business -- If we or our partners infringe or
misappropriate the proprietary rights of others, we could be prevented from
making or selling our products" and "Business -- Patents and Proprietary
Technology."

The conduct of the clinical trials and regulatory approval process related to
the pegylated interferon and ribavirin combination therapy is not within our
control. Schering-Plough may not successfully complete its clinical trials and
obtain regulatory approval for this product nor can we make any prediction as to
the timing of these events.

PATENT AND REGULATORY STRATEGY

Schering-Plough currently has regulatory protection under the Waxman-Hatch Act
in the United States for the treatment of hepatitis C using the combination
therapy. This protection means that the FDA cannot approve a generic form of the
combination therapy until December 2001 for treatment-naive patients.
Schering-Plough is currently conducting pediatric studies for the use of the
combination therapy that, if successful, would extend this regulatory protection
until June 2002. We have two issued US patents that relate to methods of using
ribavirin in dosages that can enhance a patient's immune system in a manner that
is particularly useful for treating hepatitis C in combination with interferon
alpha. We believe these patents may provide additional protection for the
combination therapy. These patents both expire in January 2016. We have
corresponding patent applications in many foreign countries, but it is unknown
when or if any of those patent applications will ever issue. We have no, or
limited, patent rights relating to the antiviral use of ribavirin in selected
foreign countries where ribavirin is currently, or in the future may be,
approved for commercial sale, including countries in the European Union.
However, the European Union granted a favorable level classification for the use
of oral forms of ribavirin for combination therapy. This classification will
make it more difficult for competing drugs not previously approved to gain entry
to the European markets. We have an issued patent in Japan relating to the use
of ribavirin for treatment of numerous viruses, including hepatitis C. That
patent expires in 2005.

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SCHERING-PLOUGH LICENSE AGREEMENT

ICN contributed the license agreement with Schering-Plough to us on August 7,
2000, subject to the approval of the holders of ICN's outstanding debt
securities. Completion of this offering is subject to obtaining the approval of
the holders of these debt securities. We have filed a copy of this agreement as
an exhibit to this prospectus. Some portions of the agreement have been omitted
from the filing because of the terms of our confidentiality agreement with
Schering-Plough. Under the license agreement, we are entitled to receive royalty
revenues associated with Schering-Plough's sale of ribavirin throughout the
world. The license agreement provides for two royalty rates: one rate that is
associated with sales in the European Union and another that is associated with
sales in the United States and the rest of the world. Pursuant to the license
agreement, each calendar year the royalty rates reset to a baseline rate, which
is the same each year. These rates increase during the course of the year upon
the achievement by Schering-Plough of different revenue milestones.

Schering-Plough's exclusive license expires in July 2010. After the expiration
of exclusivity, Schering-Plough will have a perpetual non-exclusive license to
oral forms of ribavirin. Pursuant to the license agreement, Schering-Plough can
terminate the license agreement at any time upon giving prior written notice to
us. If Schering-Plough were to terminate the license agreement pursuant to this
provision, our license to Schering-Plough would become a perpetual non-exclusive
license. We would be free to license oral forms of ribavirin to third parties.
However, if Schering-Plough terminates pursuant to this provision,
Schering-Plough would not be relieved from its obligation to pay us royalties on
its sales of ribavirin.

If we develop an additional indication for oral forms of ribavirin, the license
agreement gives Schering-Plough an option to expand its exclusive license to
include the new indication. In addition, Schering-Plough can itself develop
additional indications for oral forms of ribavirin.

RESEARCH AND DEVELOPMENT PROGRAM

NUCLEOSIDE ANALOG LIBRARY

Our efforts are focused on developing product candidates from our nucleoside
analog library, which we believe contains one of the largest collections of
nucleoside analogs in the world. The late Roland K. Robins, PhD, a prominent
nucleoside chemist who worked in ICN's Nucleic Acid Research Institute division,
created the majority of the compounds in our library. Dr. Robins was the
Director of the Cancer Research Center at Brigham Young University and Professor
of Chemistry and Biochemistry. During his affiliation with ICN, Dr. Robins was
responsible for the discovery and development of ribavirin and other compounds.
Dr. Robins and the Nucleic Acid Research Institute created more than half of the
compounds from 1968 through 1976, and later created additional nucleoside
analogs from 1985 through 1988 with funding from the Eastman Kodak Company in
Kodak's joint venture with the Nucleic Acid Research Institute. ICN received all
rights to the nucleoside analogs created during the Nucleic Acid Research
Institute-Kodak joint venture when that arrangement was terminated in 1988. We
believe that we may be able to synthesize additional nucleoside analogs using
modern technologies and our scientific expertise.

Between 1970 and 1980, a number of compounds in the library were screened for
activity against the virus that causes the common cold, herpes viruses, and
adenoviruses. Ribavirin was selected from a large panel of nucleoside analogs
for development because it demonstrated broad-spectrum antiviral activity and
because the financial resources of ICN at that time only permitted the
development of one compound.

We believe that our nucleoside analog library may provide us with a large supply
of potential new drug candidates. We have not fully screened our nucleoside
analog library for our target indications,

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hepatitis C, hepatitis B, HIV and cancer. With our investments in our research
and development facilities and equipment, together with our royalty revenues
from sales of ribavirin by Schering-Plough, we believe we now have the financial
resources and technological equipment necessary to perform this screening. We
intend to pursue US and foreign patent protection with respect to both compounds
and uses of nucleoside analogs from our library that show promise for
development.

Our chemical compound library also consists of several thousand non-nucleoside
analog compounds. However, we currently intend to focus on our nucleoside
analogs.

OUR DRUG DISCOVERY PROGRAM

SCREENING

The initial step in the drug development process entails identification of
compounds for potential future development. Our initial screening is
accomplished through the use of cell-based assays and biochemical assays. We use
cell-based assays to analyze a drug candidate's activity in an environment
similar to the cells in which the drug would act. In addition, cell-based assays
help us to assess the toxicity of drug candidates and their ability to penetrate
cellular membranes. Prior to conducting screening with cell-based assays, we may
need to resynthesize some of our nucleoside analogs to the extent that our
library does not contain the necessary physical samples to perform the
cell-based assay. After a potentially promising drug candidate is identified
through the use of cell based assays, we will screen the compound using
biochemical assays.

Using biochemical assays, we can determine how a compound works and determine
its activity with better precision and this will provide further information to
further modify the compound.

After performing our initial cell-based assays and biochemical assays, we screen
compounds using secondary assays. Secondary assays are designed to eliminate
those compounds that lack potency or specificity, or have unwanted
characteristics. If a compound survives the secondary assay screening process,
we then conduct further tests on the compound and, ultimately, conduct chemistry
optimization. We intend to develop the appropriate secondary assays for initial
counterscreening. We intend to engage contract research organizations to further
test the compounds that pass the initial screening for a broader secondary
screening. Generally, compounds with promising results in animal models and
desirable chemical characteristics become lead compounds.

LEAD OPTIMIZATION

After identifying a compound with activity, we will attempt to improve the
pharmaceutical properties of that compound before clinical development. This is
the process of lead optimization.

Using traditional structure-activity relationship studies for lead optimization,
we seek to synthesize new analogs of a lead compound with improved properties
using chemistry techniques. In addition, we utilize computational chemistry
capabilities, including molecular modeling, to support lead optimization. To
further expand our drug discovery capability, we also intend to generate a small
non-nucleoside molecule library biased towards polymerase inhibitors within the
next two years to prepare for the next phase of antiviral and anticancer drug
discovery. We believe our significant knowledge of the chemical aspects of
nucleoside analogs will help us to modify lead compounds in an attempt to create
more potent and selective compounds.

We also will use structural biology techniques to aid in drug design and
optimization by providing molecular "snapshots" that allow scientists to
visualize the interactions between a lead compound and its protein target.
Nuclear magnetic resonance, spectroscopy and X-ray crystallography comprise the
essential techniques of structural biology. We are in the process of upgrading
our laboratory facilities to allow for the use of these tools for lead
optimization. We have ordered all of the instruments

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necessary to conduct these activities. We expect to install these instruments
before the end of 2000. Utilizing structural information, we may be able to
design and synthesize new analogs of lead compounds that have a better fit with
the target protein, and therefore have greater potency. By combining the latest
biology and computer technologies, we feel that we will be better positioned to
maximize the value of our nucleoside analog library.

PHARMACOLOGY AND PRE-CLINICAL DEVELOPMENT

Once we have identified a lead compound, we perform animal pharmacokinetics and
toxicology studies on the compound. Since March 2000, we have established drug
safety and metabolism, pharmacokinetics, and toxicology teams to address these
needs. We have already hired 32 PhD or MD scientists and are in the process of
hiring more support staff to lead these activities. As programs move forward for
selected compounds, we expect that our pharmacology and pre-clinical development
group will support our chemists and biologists by performing the necessary
studies essential for investigational new drug application submissions.

CLINICAL DEVELOPMENT AND REGULATORY AFFAIRS

We also plan to make use of early phase proof of principle studies to evaluate
promising compounds early in the development process. These studies are designed
to preliminarily determine the safety and efficacy of product candidates prior
to incurring the expense of clinical trials. We have assembled a drug
development team to design and implement clinical trials and to analyze the data
derived from these studies.

PRODUCTS IN DEVELOPMENT

Our current product candidates, all of which were derived from our nucleoside
analog library, are as follows:

LEVOVIRIN

Levovirin is a nucleoside analog that we intend to develop in oral form for the
treatment of hepatitis C. We intend to test Levovirin's effect on the hepatitis
C virus both on its own and in combination with interferon alpha. Levovirin is
currently in preclinical development.

Preclinical studies suggest that Levovirin may have an ability to stimulate an
immune response to viral infections but without a direct antiviral effect and
without the anemia associated with ribavirin. In preliminary toxicology studies
on animals, Levovirin appeared to have less side effects than ribavirin at the
same dosage levels. We are presently conducting chemical development and
formulation studies, as well as the ancillary pharmacology and toxicology
studies, on Levovirin. We plan to submit an investigational new drug application
by the end of this year. If that filing is accepted by the FDA, we intend to
initiate Phase I studies of Levovirin.

Our patent efforts are directed at patent applications relating to the compound
itself, regardless of use, as well as related nucleosides. Use patent
applications are also focused on various activities related to the enhancement
of a patient's immune response, as well as related antiviral and other
indications, including infections, cancer and autoimmune disease. We have
submitted patent applications in the United States and in many foreign countries
for Levovirin relating both to the compound and for numerous indications.

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VIRAMIDINE

Viramidine is a nucleoside analog that we intend to develop in oral form for the
treatment of hepatitis C. We expect to test Viramidine's effect on the hepatitis
C virus both on its own and in combination with interferon alpha. Viramidine is
currently in preclinical development.

Preclinical studies suggest that Viramidine may be similar to ribavirin in that
it appears to stimulate an immune response to viral infections while also having
a direct antiviral effect. In addition, in preclinical studies on animals
conducted by a third party, Viramidine appeared to have less side effects than
ribavirin. We are currently conducting a number of preclinical studies to
determine the potential of this compound. These studies include experiments on
Viramidine's biological activities, virologic studies, drug metabolism studies,
pharmacology studies and toxicology studies. If these studies are successful,
and if Viramidine proves to have less side effects than ribavirin, patients may
be able to tolerate higher levels of this compound in their blood. This could
improve patients' response to the clearance of the hepatitis C virus from their
blood. The results of these preclinical studies should be available by the end
of this year. We presently expect to file an investigational new drug
application with the FDA in 2001. If that filing is accepted by the FDA, we
intend to initiate Phase I studies of Viramidine.

We have filed two patent applications for the use of Viramidine and its related
compounds. The structure of Viramidine was disclosed many years ago, and cannot
itself be patented. Patent efforts are therefore directed to claiming related
compounds, and novel indications including immunomodulatory activity and
activity against specific viruses.

TIAZOLE (TIAZOFURIN)

Tiazole is a nucleoside analog we are developing for the treatment of chronic
myelogenous leukemia with blast crisis, ovarian cancer and multiple myeloma. We
believe Tiazole may cause inhibition of the biosynthesis of guanosine
triphosphate, which is a building block essential for tumor cell growth in
various cancer cell lines. We believe that the resulting reduction in the
concentration of these building blocks may reduce the capacity of the cancer
cells to proliferate. We expect that Tiazole will be administered to patients
intravenously.

Preliminary studies sponsored by the US National Cancer Institute from 1996
through 1998 indicated that Tiazole may be useful in the treatment of chronic
myelogenous leukemia in blast crisis, which represents the transformation of
chronic leukemia to acute leukemia. To date a total of 21 patients with this
disease received this therapy. Seven patients had a complete hematologic
response. Of these patients, six had marrow and peripheral blood response and
one had peripheral blood response but no bone marrow examination was performed.
Two other patients experienced a partial response. A Phase III study is planned
to gather the clinical information required to support an orphan drug
application for Tiazole for the treatment of chronic myelogenous leukemia in
blast crisis. We have initiated discussions with the FDA regarding the required
population/protocol for this study. Depending on the outcome of these
discussions, we estimate that the study will commence by the end of this year
and will be completed in the second half of 2002.

Through a Russian subsidiary of ICN, we are also conducting limited Phase II
studies in patients with advanced ovarian cancer and in patients with multiple
myeloma resistant to conventional therapy. The multiple myeloma limited Phase II
study is still in the planning stage and we intend to start this clinical trial
by the end of 2000.

ICN secured a use patent for Tiazole several years ago, and that patent is
scheduled to expire in February 2005. ICN's current patent strategy is directed
towards the development and coverage of new dosage forms.

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ICN is currently involved in a dispute with Yugoslavian governmental bodies
regarding ownership rights in Tiazole. In addition, the contribution of Tiazole
to us by ICN is subject to the prior approval of the Office of Foreign Assets
Control of the US Department of the Treasury. See "Business -- Legal Proceedings
of ICN" and "Risk factors -- Risks Related to Our Business -- Because of an
ongoing dispute involving ICN's interest in a Yugoslavian joint venture, our
rights to commercialize Tiazole and Adenazole may be limited."

ADENAZOLE (8-CI cAMP, TOCLADESINE)

Adenazole is a nucleoside analog being developed for the treatment of colon
cancer. Adenazole may potentially control cell growth and cause cancer cells to
behave more like normal cells in various cancer cell lines. We expect that
Adenazole will be administered to patients intravenously. Adenazole has
completed two Phase I trials.

Adenazole has been evaluated for potential use in the treatment of colon cancer
in two Phase I studies. Of the 19 patients with colon cancer in the two studies,
one patient showed a 70% reduction of retroperitoneal mass, believed to be
related to cancer, while another patient showed stable disease for four months.
In December 1999 we submitted various data to US and Russian regulatory
authorities to obtain permission to proceed with Phase I trials in the treatment
of colon cancer in both countries. In the United States, the FDA accepted an
investigational new drug application. A Phase Ib study is scheduled to begin in
mid August 2000 with the University of California in San Diego and Los Angeles
as the two clinical trial sites.

ICN has rights to five patents relating to Adenazole, including anti-cancer uses
of Adenazole and related cAMP compounds. Also claimed are methods of
manufacturing Adenazole. The major US patents are scheduled to expire in 2015.
ICN has rights to one pending patent application for new uses.

ICN is currently involved in a dispute with Yugoslavian governmental bodies
regarding ownership rights in Adenazole. In addition, the contribution of
Adenazole to us by ICN is subject to the prior approval of the Office of Foreign
Assets Control of the US Department of the Treasury. See "Business -- Legal
Proceedings" and "Risk factors -- Risks Related to Our Business -- Because of an
ongoing dispute involving ICN's interest in a Yugoslavian joint venture, our
rights to commercialize Tiazole and Adenazole may be limited."

SALES AND MARKETING

We currently do not have a marketing or sales force or any distribution
capabilities. We may decide to build a sales and marketing force in the future,
although we may establish corporate collaborations with pharmaceutical and
biotechnology companies to fill these needs. As a part of the ordinary course of
our business, we may consider forming arrangements or collaborations with
strategic partners, including pharmaceutical companies, government
organizations, academic institutions and others, to help develop and market our
drug candidates. In addition, we may enter into marketing, sales and
distribution arrangements with ICN and its affiliates.

MANUFACTURING

We do not have manufacturing facilities. We currently expect to contract out our
manufacturing requirements to third parties who have plants that satisfy good
manufacturing practices requirements. We obtain compounds for our clinical
trials from third party contract manufacturers and other third parties.

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PATENTS AND PROPRIETARY TECHNOLOGY

Our success will depend in part on our ability to obtain patents for our
technology to preserve our trade secrets and to operate without infringing upon
the proprietary rights of others. ICN has contributed to us all of its patents
and patent applications that relate to nucleoside analogs in our nucleoside
library, including those patents relating to ribavirin. Patent positions in the
biotechnology field are often uncertain and may involve complex legal,
scientific and factual questions. There has been increasing litigation in the
biotechnology industry with respect to the manufacture, use and sale of new
therapeutic and diagnostic products that are the subject of conflicting patent
rights. The validity and breadth of claims in biotechnology patents may involve
complex factual and legal issues for which no consistent policy has emerged.
Therefore, these patents are highly uncertain. Moreover, the patent laws of
foreign countries differ from those of the United States. Hence, the degree of
protection afforded by foreign patents may be different from the protection
offered by US patents. There can be no assurance that patent applications
relating to products and technologies developed by us will result in patents
being issued or that, if issued, the patents will provide a competitive
advantage or will afford protection against competitors with similar
technologies. There also can be no assurance that these patents will not be
challenged successfully or circumvented by competitors, or that our
technologies, products or processes will not infringe on third parties' patent
rights. In addition, the US Patent and Trademark Office has a substantial
backlog of biotechnology patent applications and the approval or rejection of
patent applications may take several years.

In January 2000, Hoffmann-La Roche filed suits against Schering-Plough in the
United States District Court in New Jersey and in France. These lawsuits allege
that an advanced form of interferon alpha developed by Schering-Plough called
peginterferon alfa-2b infringes Hoffmann-La Roche's patents on pegylated
interferons. Peginterferon alfa-2b recently was approved in the European Union
as a monotherapy for the treatment of hepatitis C patients who cannot take
ribavirin because of intolerance or counterindications. Schering-Plough has also
submitted an application to the FDA for approval of peginterferon alfa-2b for
sale in the United States as a monotherapy. Peginterferon alfa-2b is also
undergoing clinical trials as combination therapy with ribavirin for the
treatment of hepatitis C. If Schering-Plough loses these lawsuits, it may not be
able to market a combination therapy of peginterferon alfa-2b and ribavirin,
even if the FDA approves this combination therapy.

We have an active patent program. New discoveries are rapidly disclosed to our
patent counsel. We attempt to file patent applications within weeks of
discoveries. Our patent applications include claims on both compounds and uses,
as appropriate. See "Business -- Marketed Product" and "Business -- Products in
Development" for more detailed descriptions of our patent position with respect
to specific compounds.

Our commercial success also will depend in part on not infringing patents or
proprietary rights of others. We cannot be sure that we will be able to obtain a
license to any third-party technology we may require to conduct our business. In
some cases, litigation or other proceedings may be necessary to defend against
or assert claims of infringement, to enforce patents issued to us, to protect
our trade secrets, know-how or other intellectual property rights, or to
determine the scope and validity of the proprietary rights of third parties. Any
potential litigation could result in substantial costs to us and diversion of
our resources. We cannot be sure that any of our issued or licensed patents
would ultimately be held valid or that efforts to defend any of our patents,
trade secrets, know-how or other intellectual property rights would be
successful. An adverse outcome in any litigation or proceeding could subject us
to significant liabilities, require us to cease using the subject technology or
require us to license the subject technology from the third party, which license
may not be available.

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Much of the know-how of importance to our technology and many of our processes
depend upon the knowledge, experience and skills of key scientific and technical
personnel. This experience and these skills are not patentable. To protect our
rights to and to maintain the confidentiality of trade secrets and proprietary
information, we require employees, consultants to execute confidentiality and
invention assignment agreements upon commencement of a relationship with us.
These agreements prohibit the disclosure of confidential information to anyone
outside our company and require disclosure and assignment to us of ideas,
developments, discoveries and inventions made by employees, advisors and
consultants. We cannot be sure, however, that these agreements will not be
breached or that our trade secrets or proprietary information will not otherwise
become known or developed independently by others.

COMPETITION

The biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. Many of the drugs that we
are attempting to discover will be competing with existing therapies. In
addition, a number of companies are pursuing the development of pharmaceuticals
that target the same diseases and conditions that we are targeting. We face
competition from pharmaceutical and biotechnology companies both in the United
States and abroad. Our competitors may utilize discovery technologies and
techniques or partner with collaborators in order to develop products more
rapidly or successfully than we or our collaborators are able to do. Many of our
competitors, particularly large pharmaceutical companies, have substantially
greater financial, technical and human resources than we do. In addition,
academic institutions, government agencies, and other public and private
organizations conducting research may seek patent protection with respect to
potentially competitive products or technologies. These organizations may also
establish exclusive collaborative or licensing relationships with our
competitors.

We believe that our ability to compete depends, in part, upon our ability to
create, maintain and license scientifically advanced technology. We also are
dependent upon our ability and the ability of third parties we license to sell
and market our products to develop and commercialize pharmaceutical products
based on this technology. Further, we need to attract and retain qualified
personnel, obtain patent protection or otherwise develop proprietary technology
or processes and secure sufficient capital resources for the expected
substantial time period between technological conception and commercial sales of
products based upon our technology. The failure by us or any of our
collaborators in any of those areas may prevent the successful commercialization
of our potential drug candidates.

Our competitors might develop technologies and drugs that are more effective or
less costly than any which we are developing or which would render our
technology and potential drugs obsolete and noncompetitive. In addition, our
competitors may succeed in obtaining the approval of the FDA or other regulatory
approvals for drug candidates more rapidly than us or our strategic partners.
Companies that complete clinical trials, obtain required regulatory agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage, including FDA marketing
exclusivity rights that might delay or prevent our ability to market our
products. Any drugs resulting from our research and development efforts might
not be able to compete successfully with competitors' existing or future
products or obtain regulatory approval in the United States or elsewhere.

GOVERNMENT REGULATION

NEW DRUG DEVELOPMENT AND APPROVAL PROCESS

Regulation by governmental authorities in the United States and other countries
is a significant factor in the manufacture and marketing of our products and in
ongoing research and product development

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activities. All of our products will require regulatory approval by governmental
agencies prior to commercialization. In particular, our products are subject to
rigorous preclinical and clinical testing and other premarket approval
requirements by the FDA and regulatory authorities in other countries. In the
United States, various statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of
pharmaceutical products. The lengthy process of seeking these approvals, and the
subsequent compliance with applicable statutes and regulations, require the
expenditure of substantial resources. We believe that we are currently in
compliance with applicable statutes and regulations. Regulatory approval, when
and if obtained, may be limited in scope. In particular, regulatory approvals
will restrict the marketing of a product to specific indications. Further,
approved drugs, as well as their manufacturers, are subject to ongoing review.
Discovery of previously unknown problems with these products may result in
restrictions on their manufacture, sale or use or in their withdrawal from the
market. Failure to comply with regulatory requirements may result in criminal
prosecution, civil penalties, recall or seizure of products, total or partial
suspension of production or injunction, as well as other action affecting our
potential products or us. Any failure by us to obtain and maintain, or any delay
in obtaining, regulatory approvals could materially adversely affect our
business.

The process for new drug approval has many steps, including:

PRECLINICAL TESTING

Once a drug candidate is identified for development, the drug candidate enters
the preclinical testing stage. During preclinical studies, laboratory and animal
studies are conducted to show biological activity of the drug candidate in
animals, both healthy and with the targeted disease. Also, preclinical tests
evaluate the safety of drug candidates. These tests typically take approximately
two years to complete. The tests must be conducted in compliance with good
laboratory practice regulations.

INVESTIGATIONAL NEW DRUG APPLICATION

When the preclinical testing is considered adequate by the sponsor, an
investigational new drug application is filed with the FDA to begin human
testing of the drug. The investigational new drug application becomes effective
if not rejected by the FDA within 30 days after filing. The investigational new
drug application must provide data on previous experiments, how, where and by
whom the new studies will be conducted, the chemical structure of the compound,
the method by which it is believed to work in the human body, any toxic effects
of the compound found in the animal studies and how the compound is
manufactured. All clinical trials must be conducted in accordance with good
clinical practice regulations. In addition, an institutional review board
comprised of physicians and other qualified experts at the hospital or clinic
where the proposed studies will be conducted, must review and approve the
investigational new drug application. The institutional review board also
continues to monitor the study. The institutional review board also must be kept
aware of the study's progress, particularly as to adverse events. Progress
reports detailing the results of the clinical trials must be submitted at least
annually to the FDA and more frequently if adverse events occur. In addition,
the FDA may, at any time during the 30-day period after filing of an
investigational new drug application or at any future time, impose a clinical
hold on proposed or ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence without FDA authorization and then
only under terms authorized by the FDA. In some instances, the investigational
new drug application process can result in substantial delay and expense.

Some limited human clinical testing may be done under a physician's
investigational new drug application in support of an investigational new drug
application and prior to receiving an investigational new drug application. A
physician's investigational new drug application is an investigational new drug
application that allows a single individual to conduct a clinical trial. A
physician's investigational new drug application does not replace the more
formal investigational new

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drug application process, but can provide a preliminary indication as to whether
further clinical trials are warranted, and can, on occasion, facilitate the more
formal investigational new drug application process.

Clinical trials are typically conducted in three sequential phases, but the
phases may overlap.

PHASE I CLINICAL TRIALS

After an investigational new drug application becomes effective, Phase I human
clinical trials can begin. These tests usually involve between 20 and 80 healthy
volunteers or patients and typically take one to two years to complete. The
tests study a drug's safety profile, and may include the safe dosage range. The
Phase I clinical studies also determine how a drug is absorbed, distributed,
metabolized and excreted by the body, and the duration of its action. We may
conduct early phase proof-of-principle studies of some drug candidates in
Eastern Europe to preliminarily determine the safety and efficacy of product
candidates. In such a situation, if the drug candidate is sourced from the
United States, an investigational new drug application may be necessary unless
there is conformity with FDA regulations applicable to the export of products
not approved in the United States.

PHASE II CLINICAL TRIALS

In Phase II clinical trials, controlled studies are conducted on an expanded
population of patients with the targeted disease. The primary purpose of these
tests is to evaluate the effectiveness of the drug on the volunteer patients as
well as to determine if there are any side effects. These studies generally take
approximately two years, and may be conducted concurrently with Phase I clinical
trials. In addition, Phase I/II clinical trials may be conducted to evaluate not
only the efficacy of the drug on the patient population, but also its safety.

PHASE III CLINICAL TRIALS

This phase typically lasts two to three years and involves an even larger
patient population. During the Phase III clinical trials, physicians monitor the
patients to determine efficacy and to observe and report any reactions that may
result from long-term use of the drug.

NEW DRUG APPLICATION

After the completion of all three clinical trial phases, if there is substantial
evidence that the drug is safe and effective, a new drug application is filed
with the FDA. The new drug application must contain all of the information on
the drug gathered to that date, including data from the clinical trials. New
drug applications are often over 100,000 pages in length.

The FDA reviews all new drug applications submitted before it accepts them for
filing. It may request additional information rather than accepting a new drug
application for filing. In this event, the new drug application must be
resubmitted with the additional information. The resubmitted application is also
subject to review before the FDA accepts it for filing. Once the submission is
accepted for filing, the FDA begins an in-depth review of the new drug
application. Under the Federal Food, Drug and Cosmetic Act, the FDA has 180 days
in which to review the new drug application and respond to the applicant. The
review process is often significantly extended by FDA requests for additional
information or clarification regarding information already provided in the
submission. The FDA may refer the application to an appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation. The FDA is not bound by the recommendation of an advisory
committee. If FDA evaluations of the new drug application and the manufacturing
facilities are favorable, the FDA may issue an approval letter authorizing
commercial marketing of the drug for specified indications. The FDA could also
issue an approvable letter, which usually contains a number of conditions that
must be met in order to secure final approval of the new drug application. When
and if those conditions have been met to the FDA's satisfaction, the FDA will
issue an approval letter.

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On the other hand, if the FDA's evaluation of the new drug application
submission or manufacturing facilities is not favorable, the FDA may refuse to
approve the new drug application or issue a non-approvable letter.

Among the conditions for new drug application approval is the requirement that
each prospective manufacturer's quality control and manufacturing procedures
conform to good manufacturing practices. Although we expect to contract with
third parties for the manufacture of any products that are approved, these
manufacturers must meet and continue to comply with the standards set forth in
the good manufacturing practices regulations. Manufacturing establishments are
subject to periodic inspections by the FDA and by other federal, state or local
agencies.

MARKETING APPROVAL

If the FDA approves the new drug application, the drug becomes available for
physicians to prescribe. Periodic reports must be submitted to the FDA,
including descriptions of any adverse reactions reported. The FDA may require
additional Phase IV studies as a condition of approval to evaluate long-term
effects.

PHASE IV CLINICAL TRIALS AND POST MARKETING STUDIES

In addition to studies required by the FDA after approval, these trials and
studies are often conducted to explore new indications. The purpose of these
trials and studies and related publications is to develop data to support
additional indications for the drug and to increase its acceptance in the
medical community.

ORPHAN DRUG DESIGNATION

The FDA may grant orphan drug designation to drugs intended to treat a "rare
disease or condition," which is generally a disease or condition that affects
fewer than 200,000 individuals in the United States. An applicant must request
orphan drug designation before submitting a new drug application. After the FDA
grants orphan drug designation, the FDA publicly discloses the generic identity
of the therapeutic agent and its potential orphan use. Orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory
review and approval process. If a product that has orphan drug designation is
the first to receive FDA approval for the indication for which it had been
designated, the product receives orphan exclusivity. This means the FDA may not
approve for seven years any other application to market the same drug for the
same indication, except in very limited circumstances.

APPROVALS OUTSIDE OF THE UNITED STATES

Steps similar to those in the United States must be undertaken in virtually
every other country comprising the market for our products before any product
can be commercialized in those countries. The approval procedure and the time
required for approval vary from country to country and may involve additional
testing. The relevant authorities may not grant approvals on a timely basis or
at all. In addition, most countries other than the United States require
regulatory approval of prices. There can be no assurance that the resulting
prices would be sufficient to generate an acceptable return to us.

OTHER GOVERNMENT REGULATIONS

The Food and Drug Administration Modernization Act of 1997 was enacted, in part,
to ensure the timely availability of safe and effective drugs, biologics and
medical devices by expediting the FDA review process for new products. This act
establishes a statutory program for the approval of "fast track products." The
fast track provisions essentially codified existing FDA accelerated approval
regulations for drugs and biologics. A "fast track product" is defined as a new
drug or biologic intended for the treatment of a serious or life-threatening
condition that demonstrates the potential to

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address unmet medical needs. Under the fast track program, the sponsor of a new
drug or biologic may request the FDA to designate the drug or biologic as a
"fast track product" at any time during the clinical development of the product.
The act specifies that the FDA must determine if the product qualifies for fast
track designation within 60 days of receipt of the sponsor's request. Approval
of a new drug application for a fast track product can be based on an effect on
a clinical endpoint or on a surrogate endpoint that is reasonably likely to
predict clinical benefit. Approval of a fast track product may be subject to
post-approval studies to validate the surrogate endpoint or confirm the effect
on the clinical endpoint. If a preliminary review of the clinical data suggests
efficacy, the FDA may initiate review of sections of an application for a "fast
track product" before the application is complete. This "rolling review" is
available if the applicant provides a schedule for submission of remaining
information and pays applicable user fees.

We intend to seek fast track designation to secure expedited review of
appropriate products. It is uncertain if fast track designation will be
obtained.

We are also subject to various laws and regulations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances used in connection with our research, including radioactive compounds
and infectious disease agents. We believe we are currently in compliance with
all these laws and regulations. The extent of governmental regulation that might
result from any legislative or administrative action cannot be accurately
predicted.

PHARMACEUTICAL PRICING AND REIMBURSEMENT

In both domestic and foreign markets, sales of our products will depend in part
upon the availability of reimbursement from third-party payors. Third-party
payors include government health administrative authorities, managed care
providers, private health insurers and other organizations. These third-party
payors are increasingly challenging the price and examining the
cost-effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. We may need to conduct post-marketing studies in order to demonstrate
the cost-effectiveness of our products. These studies may require us to provide
a significant amount of resources. Our product candidates may not be considered
cost-effective. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product development. US and foreign governments continue to
propose and pass legislation designed to reduce the cost of healthcare.
Accordingly, legislation and regulations affecting the pricing of
pharmaceuticals may change before our proposed products are approved for
marketing. Adoption of new legislation could further limit reimbursement for
pharmaceuticals. The marketability of our products may suffer if the government
and third party payors fail to provide adequate coverage and reimbursement rates
for our product candidates. In addition, an increasing emphasis on managed care
in the United States has and will continue to increase the pressure on
pharmaceutical pricing.

EMPLOYEES

As of August , 2000, we employed persons, of whom are involved
in research and development. PhD or MD degrees are held by of our
employees. In March 2000, we hired Dr. Johnson Y.N. Lau to lead our research and
development efforts. Since Dr. Lau joined us, he has hired a molecular
biologist, a computer-assisted drug designer, an enzymologist, a pharmacologist/
toxicologist, and a regulatory affairs MD to lead their respective departments.
Our goal is to expand our research team from 18 scientists on March 1, 2000 to
over 100 scientists by the end of 2002. We face competition in this regard from
other companies, research and academic institutions, government entities and
other organizations. Our employees are not covered by a collective bargaining
agreement and we consider relations with our employees to be good.

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FACILITIES

We own our 178,000 square foot building in Costa Mesa, California where we
conduct all of our operations. In March 2000, we commenced work on a two-stage
upgrade of our research and development facilities. Stage one, which is
scheduled to be completed by September 2000, involves modernizing our biology,
enzymology, and drug safety and metabolism laboratories. In addition, this stage
involves constructing an animal facility and biosafety facilities. We have also
constructed a room to house our nuclear magnetic resonance machine and our X-ray
machine for our structural biology studies. We are planning to initiate the
stage two upgrading, which will consist of renovations to the remaining part of
our research facilities, by the end of 2000. This stage will include the
renovation of our biology and chemistry laboratories, as well as chemical
development/formulation and medical departments.

After this offering, ICN will use lease a portion of the office space at our
Costa Mesa facility from us for a transitional period. See "Relationship with
ICN -- Management Services and Facilities Agreement." We believe our building
are adequate to meet our immediate needs and that suitable additional space will
be available in the future on commercially reasonable terms as needed.

LEGAL PROCEEDINGS OF ICN

SEC LITIGATION AND GRAND JURY INVESTIGATION

On August 11, 1999, the SEC filed a civil complaint in the United States
District Court for the Central District of California against ICN and its
chairman, Milan Panic, and one other current and one former officer of ICN. The
SEC complaint alleges that ICN and the individually named defendants made
material misstatements and/or omissions and engaged in acts which operated as a
fraud and deceit upon other persons in violation of Section 10(b) of the
Securities Exchange Act of 1934. The civil lawsuit concerns public disclosures
made by ICN with respect to the status and disposition of ICN's 1994 new drug
application for ribavirin as a monotherapy treatment for hepatitis C. The FDA
did not approve this new drug application. The SEC complaint seeks injunctive
relief, unspecified civil penalties, and an order barring Mr. Panic from acting
as an officer or director of any publicly-traded company, which would include
us.

ICN has received subpoenas from a Grand Jury in the United States District Court
for the Central District of California requesting the production of documents
covering a broad range of matters over various time periods and the testimony of
various ICN employees and others. ICN has advised us that ICN, Mr. Panic, two
current senior executive officers, a former senior officer, a current employee
and a former employee of ICN are targets of the investigation. ICN also
understands that a senior executive officer and a director of ICN are subjects
of the investigation. None of the persons who are subjects or targets of this
investigation will be a director or executive officer of us at the time of the
completion of this offering. ICN has advised us that the United States
Attorney's office has advised counsel for ICN that the areas of its
investigation include disclosures made and not made to the public and other
third parties concerning ICN's 1994 new drug application for ribavirin as a
monotherapy for hepatitis C; stock sales for the benefit of Mr. Panic following
receipt on November 28, 1994 of a letter from the FDA informing ICN that it had
found ICN's new drug application not approvable; possible violations of the
economic embargo imposed by the United States upon the government of Yugoslavia
based upon alleged sales by ICN and Mr. Panic of stock belonging to ICN's
employees; and, with respect to Mr. Panic, personal disposition of assets of
entities associated with Yugoslavia, including possible misstatements and/or
omissions in federal tax filings. ICN has advised us that it is continuing to
cooperate with the Grand Jury investigation.

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As a majority owned subsidiary of ICN, we could be adversely affected by a
judgment or settlement agreement arising from the SEC civil lawsuit or by an
indictment in, or an adverse resolution of, the Grand Jury investigation. ICN
has agreed to indemnify us against any monetary judgment or settlement arising
from these proceedings.

LITIGATION RELATING TO ICN YUGOSLAVIA

ICN contributed the rights to the compounds Tiazole and Adenazole to ICN
Yugoslavia in connection with ICN's acquisition of its majority ownership
interest in that company pursuant to a Foundation Agreement executed in November
1990. As part of the Foundation Agreement, ICN acquired a 75% ownership interest
in ICN Yugoslavia and a socially-owned Yugoslavian corporation acquired the
balance.

Beginning in the Fall of 1998 and culminating in the February 6, 1999 physical
seizure of the company's premises, government bodies in Yugoslavia took over
control of ICN Yugoslavia and purported to reallocate the ownership interests in
the company. ICN's ownership interest was purportedly reduced to approximately
35%. Approximately 65% of the equity of ICN Yugoslavia was allocated to the
Republic of Serbia by Yugoslav authorities, based upon a purported conclusion
that ICN had failed to comply with its obligations under the Foundation
Agreement to contribute identified assets to ICN Yugoslavia, including the
rights to the compounds Tiazole and Adenazole.

On or about February 9, 1999, ICN commenced an action in the United States
District Court for the District of Columbia against the Republic of Serbia, the
State Health Fund of Serbia, and the Federal Republic of Yugoslavia seeking
damages in the amount of at least $500 million and declaratory relief arising
out of the unlawful taking of ICN's majority ownership interest in ICN
Yugoslavia. On or about March 8, 1999, the State Health Fund of Serbia commenced
an arbitration against ICN by filing a Request for Arbitration with the
International Chamber of Commerce International Court of Arbitration in Paris,
seeking unspecified injunctive relief and unquantified damages based upon
alleged breaches of the Foundation Agreement by ICN.

On April 27, 1999, ICN filed its answer and counterclaims against the State
Health Fund of Serbia. At the same time, ICN also filed a Request for
Arbitration with the ICC International Court of Arbitration against the Republic
of Serbia and the Federal Republic of Yugoslavia. This request seeks declaratory
relief and damages arising out of the unlawful taking of ICN's majority
ownership interest in ICN Yugoslavia and the State Health Fund of Serbia's
failure to pay for goods sold and delivered. Thereafter, the action in District
Court in Washington was stayed pending the outcome of the ICC arbitration
proceedings. The ICC arbitration proceedings are in their initial stages.

It is ICN's position in the ICC arbitrations that ICN validly transferred the
rights to Tiazole and Adenazole, as well as other intangible assets, to ICN
Yugoslavia and ICN is entitled to a declaration that it continues to own 75% of
the equity of ICN Yugoslavia and has the right to manage and control the company
as the majority owner. Alternatively, ICN seeks a declaration that all right,
title and interest in the intangible assets, including Tiazole and Adenazole,
have reverted to ICN or that ICN be awarded damages constituting the current
fair market value of the intangible assets.

Pursuant to the affiliation agreement, ICN has agreed that it will take all
required actions to cause ICN Yugoslavia to transfer or license Tiazole and
Adenazole to us or, in the event that the rights to these compounds are deemed
to have reverted to ICN, to effectuate the transfer or license to us directly.
However, there cannot be any assurance that ICN's dispute with the Republic of
Serbia, the Federal Republic of Yugoslavia and the State Health Fund of Serbia
will not result in the impairment of ICN's ability to fulfill its obligations to
transfer or license these assets to us. In addition, if we are able to
commercialize Tiazole or Adenazole, we may have to license the compounds from
ICN Yugoslavia which may involve the payment of fees by us to ICN Yugoslavia.

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ICN's contribution to us of whatever rights it has in Tiazole and Adenazole is
also subject to the approval of the Office of Foreign Assets Control of the US
Department of the Treasury. See "Risk factors -- Risks Related to Our
Business -- Because of an ongoing dispute involving ICN's interest in a
Yugoslavian joint venture, our rights to commercialize Tiazole and Adenazole may
be limited."

PRIOR CONSENT DECREES INVOLVING ICN AND MILAN PANIC

ICN and its chairman, Milan Panic, are parties to two prior consent decrees with
the SEC entered into in February 1977 and October 1991. Pursuant to these
consent decrees, in each case without admitting or denying any violation of the
securities laws, ICN and Mr. Panic agreed not to violate securities laws in the
future.

In May 1991, ICN entered into a civil settlement with the United States Justice
Department. This consent decree expired by its terms in 1994.

INVESTMENT COMPANY ACT OF 1940

The Investment Company Act of 1940 requires registration for companies that are
engaged primarily in the business of investing, reinvesting, owning, holding or
trading in securities. A company may be deemed to be an investment company if it
owns "investment securities" with a value exceeding 40% of the value of its
total assets, excluding government securities and cash items, on an
unconsolidated basis, unless an exemption or safe harbor applies. Securities
issued by companies other than majority-owned subsidiaries are generally counted
as investment securities for purposes of the Investment Company Act.

If we are deemed to be, and are required to register as, an investment company,
we will be forced to comply with the substantive requirements under the
Investment Company Act, including:

+ limitations on our ability to borrow;

+ limitations on our capital structure;

+ prohibitions on transactions with affiliates;

+ restrictions on specific investments; and

+ compliance with reporting, record keeping, voting, proxy disclosure and other
rules and regulations.

The SEC has recognized that bona fide research and development companies in the
ordinary operation of their businesses could become investment companies.
Accordingly, the SEC established conditions as a method by which the SEC could
address its regulatory concern, regulating true investment companies, while not
imposing burdensome regulations on bona fide operating companies. These
conditions, as applicable to us, are that:

+ we use our cash to finance the research and development of our products, with
our spending on research and development exceeding our gross investment
income;

+ a substantial portion of our gross expenses consists of research and
development expenses, with our gross investment expenses being de minimis in
comparison to our overall gross expenses;

+ we invest in securities with the goal of preserving assets until they are
needed to finance our operations;

+ our historical development reflects our status as a biotechnology company;

+ our officers and directors devote substantially all of their time to our
biotechnology business; and

+ our public representations of policy are consistent with our activities as a
biotechnology company.

We intend to operate in a manner that is consistent with the conditions noted
above and believe that we will be able to do so. We note that any significant
deviation from these conditions could cause us to become an investment company,
which would, in turn, subject us to regulation under the Investment Company Act.

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Management

EXECUTIVE OFFICERS AND DIRECTORS

Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers and directors as of the completion
of this offering.

<TABLE>
<CAPTION>
NAME AGE TITLE
<S> <C> <C>
-----------------------------------------------------------------------------------------------------
Michael Smith, PhD........................... 68 Chairman of the Board
Johnson Y.N. Lau, MD, PhD.................... 40 Chief Executive Officer, Chief Scientific
Officer and Director
Richard A. Meier............................. 41 President, Chief Operating Officer and Chief
Financial Officer
Benjamin Lap................................. 43 Senior Vice President, Investor and Public
Relations
Harry A. Roosje.............................. 39 Senior Vice President, General Counsel and
Secretary
Allen Barnett, PhD(1)........................ 63 Director
Roger Guillemin, MD, PhD(2).................. 76 Director
Arnold Kroll(1).............................. Director
Hans Thierstein(1)(2)........................ Director
John Vierling, MD(2) ........................ Director
</TABLE>

---------------

(1) Member of the audit committee
(2) Member of the compensation committee

Michael Smith, PhD, our Chairman, was a member of ICN's board of directors from
1994 until the completion of this offering. He is a director of Genome Sequence
Centre of the British Columbia Cancer Research Center. Dr. Smith is a former
Director of the Biotechnology Laboratory, an interdisciplinary unit, at the
University of British Columbia. He is also a Peter Wall Distinguished Professor
of Biotechnology and University Professor at the University of British Columbia.
He has been a Career Investigator of the Medical Research Council of Canada
since 1966 and was awarded the Nobel Prize in Chemistry in 1993 for the
development of the site-directed mutagenesis. He is also a director of
Aventis-Pasteur North America.

Johnson Y.N. Lau, MD, PhD, our Chief Executive Officer, was Senior Vice
President, Research and Development of ICN from March 2000 until the completion
of this offering. Before joining ICN, he was a Senior Director in Antiviral
Research at the Schering-Plough Research Institute from 1997 to February 2000.
He served as a faculty member at the University of Florida from 1992 to 1996.
From 1989 to 1991, he served as a faculty member at the Institute of Liver
Studies, King's College Hospital School of Medicine and Dentistry, University of
London.

Richard A. Meier, our President, Chief Operating and Chief Financial Officer,
was Executive Vice President and Chief Financial Officer of ICN from January
2000 until the completion of this offering and Senior Vice President -- Finance
and Corporate Treasurer of ICN from May 1998 until January 2000. Before joining
ICN, Mr. Meier was a Senior Vice President with the investment banking firm of
Schroder & Co. Inc. in New York, New York. From 1985 to 1996, Mr. Meier served
in various banking and private equity capacities at Salomon Smith Barney, Inc.,
Manufacturers Hanover Trust Corporation, Australian Capital Equity, Inc., and
Windsor Hall Partners in New York and Dallas, Texas.

Benjamin Lap, our Senior Vice President, Investor and Public Relations, was
ICN's Senior Vice President, Investor Relations, from May 2000 until the
completion of this offering, Corporate Vice

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President for Investor Relations from 1997 until May 2000, and was in Corporate
Development from November 1994.

Harry A. Roosje, our Senior Vice President, General Counsel and Secretary, was
Vice President, Associate General Counsel and Assistant Secretary of ICN from
May 1999 until the completion of this offering, and Associate General Counsel
from 1995 until May 1997. Prior to joining ICN, Mr. Roosje had a private law
practice in Newport Beach, California.

Allen Barnett, PhD, was Vice President, Technology Acquisition and External
Collaboration of Schering-Plough Research Institute from 1994 until 1999. He
held various other positions with Schering-Plough from 1966, except for a two
year period when he served as Chief, Psychiatric Research at the Research
Institute on Alcoholism -- New York State. Most of his career at Schering-
Plough was spent in drug discovery, mainly in the neuroscience area. He led the
effort which resulted in the discovery of Claritin, a non-sedating
antihistamine. Prior to joining Schering-Plough, Dr. Barnett was employed by
Roche Laboratories.

Roger Guillemin, MD, PhD, was a member of ICN's board of directors from 1989
until the completion of this offering. Dr. Guilleman has been an Adjunct
Professor of Medicine at the University of California College of Medicine in San
Diego since 1970. He was a Distinguished Scientist at the Whittier Institute in
La Jolla, California from March 1989 to 1995 and was Resident Fellow and
Chairman of the Laboratories for Neuroendocrinology at the Salk Institute in La
Jolla, California. He was awarded the Nobel Prize in Medicine in 1977 and in the
same year, was presented the National Medal of Science by the President of the
United States. He was affiliated with the Department of Physiology at Baylor
College of Medicine in Houston, Texas from 1952 to 1970. He is a member of the
National Academy of Sciences, and a Fellow of the American Association for the
Advancement of Science. He has also served as President of the American
Endocrine Society.

Arnold Kroll, has been a senior advisor of Burnham Securities since May 2000.
From March 1997 through April 2000, he was a senior advisor at Schroder & Co. He
was a managing director at Schroder & Co. and its predecessors from 1988 to
1997. Prior to that time, he was a managing director of L.F. Rothschild and its
predecessor from 1972 to 1988. Mr. Kroll is a member of the board of directors
of National Airlines and Heynetwork.com.

Hans Thierstein, was Chairman of the Board of Ares-Serono from 1992 until 1999
and a board member since 1987. Mr. Thierstein was Chief Financial Officer of
Ares-Serono from 1980 until 1996.

John Vierling, MD, has been on the executive committee of the board of directors
for the American Liver Foundation since 1992. He has been a medical professor in
residence at the University of California, Los Angeles since July 1996 and a
Director of Hepatology at Cedars-Sinai Medical Center since 1990.

Prior to the completion of this offering, our officers and directors were as
follows:

<TABLE>
<CAPTION>
NAME TITLES AT ICN TITLES AT RIBAPHARM
<S> <C> <C>
---------------------------------------------------------------------------------------------------
Milan Panic Chairman of the Board and Chief President and Director
Executive Officer
Bill MacDonald Executive Vice President -- Vice President, Chief Financial
Strategic Planning Officer and Treasurer and
Director
David Watt Executive Vice President, Vice President and Director
General Counsel and Corporate
Secretary
Harry A. Roosje Vice President, Associate Secretary
General Counsel and Assistant
Secretary
</TABLE>

Other than Harry A. Roosje, these persons will not remain as officers or
directors of Ribapharm upon completion of this offering.

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SCIENTIFIC STAFF

The following are key members of our scientific staff:

Chin-chung Lin, PhD -- Pharmacology/Toxicology. Dr. Lin joined us in May 2000
from the Schering-Plough Research Institute, where he was employed from January
1984. He served as a Senior Research Fellow -- Exploratory Drug Metabolism from
April 1998 to April 2000, and Senior Associate Director -- Exploratory Drug
Metabolism from July 1992 to March 1998. He held various other positions at
Schering-Plough prior to that time.

Zhi Hong, PhD -- Drug Discovery. Dr. Hong joined us in June 2000 from the
Schering-Plough Research Institute, where he was employed from April 1992. Dr.
Hong worked in Schering's Department of Antiviral Therapy, where he held the
titles of Principal Scientist from January 1998 to June 2000, Associate
Principal Scientist from January 1996 to January 1998, and Senior Scientist from
April 1994 to December 1995. He was a post-doctoral fellow prior to that time.

Jane Wing-Sang Fang, MD -- Clinical and Regulatory Affairs. Dr. Fang joined us
in April 2000. She was employed by the Schering-Plough Research Institute from
January 1998 to February 2000 as Associate Director, Clinical Research,
Gastroenterology & Liver Diseases. She served as Assistant Professor of
Pediatric Gastroenterology & Hepatology with the University of Florida in
Gainesville from July 1997 to December 1997.

Jingfan Huang, PhD -- Analytical Chemistry. Dr. Huang joined us in August 2000
from Wyeth-Ayerst Research. She was employed by Wyeth-Ayerst from September 1995
to August 2000, where she held the titles of Senior Research Scientist II from
December 1998 - August 2000, and Senior Research Scientist I from September 1995
to November 1998. Prior to joining Wyeth-Ayerst, she was employed as a Research
Scientist with Lederle Labs from September 1991 to August 1995.

Zhen Wu, PhD -- Biochemistry/Enzymology. Dr. Wu joined us in May 2000 from the
Schering-Plough Research Institute, where he was employed since 1995. He was an
Associate Principal Scientist and Project Leader from 1998 to May 2000, and
Senior Scientist from 1995 to 1998.

Nanhua Hugh Yao, PhD -- Structural Biology/Computer-Assisted Drug Design. Dr.
Yao joined us from the Schering-Plough Research Institute in June 2000, where he
was an Associate Principal Scientist from 1998 to June 2000, and a Senior
Scientist from 1995 to 1998.

Weidong Zhong, PhD -- Molecular Biology. Dr. Zhong joined us in June 2000 from
the Schering-Plough Research Institute, where he was an Associate Principal
Scientist in the Department of Antiviral Therapy from October 1998 to May 2000.
Prior to that time, he was an Investigator in the Department of Molecular
Virology and Host Defense with SmithKline Beecham Pharmaceuticals from November
1996 to September 1998.

BOARD COMPOSITION

At the completion of this offering, we will have 7 directors. In accordance with
the terms of our certificate of incorporation, the terms of office of the
directors are divided into three classes:

+ Class I, whose term will expire at the annual meeting of stockholders to be
held in 2001;

+ Class II, whose term will expire at the annual meeting of stockholders to be
held in 2002; and

+ Class III, whose term will expire at the annual meeting of stockholders to be
held in 2003.

In addition, the holders of the Class B Common Stock have the right to elect one
director. This director will be elected on an annual basis. Initially the Class
B Common Stock director will be Roger

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Guillemin, MD, PhD. The Class I directors will be Drs. Barnett and Vierling, the
Class II directors will be Mr. Thierstein and Dr. Smith, and the Class III
directors will be Mr. Kroll and Dr. Lau. At each annual meeting of stockholders,
the successors to directors whose terms will then expire will be elected to
serve from the time of election and qualification until the third annual meeting
following their election. Under our certificate of incorporation, the authorized
number of directors is determined by our board of directors from time to time.
The authorized number of directors may be changed only by resolution of the
board of directors or by vote of the stockholders. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of one
third of the directors. This classification of the board of directors may have
the effect of delaying or preventing changes in control or our management.
Pursuant to the affiliation agreement, through the 2003 annual meeting, ICN will
not vote its shares of common stock to cause the election of any new director of
the Company who was a director, officer, employee or consultant of ICN during
the previous three years. This restriction does not prohibit ICN from voting for
the re-election of directors in office at the time of the completion of this
offering. See "Relationship with ICN -- Intercompany Agreements -- Affiliation
Agreements -- Board of Directors."

BOARD COMMITTEES

AUDIT COMMITTEE

Our audit committee, consisting of Messrs. Kroll and Thierstein and Dr. Barnett,
reviews our internal accounting procedures and the services provided by our
independent auditors.

COMPENSATION COMMITTEE

Our compensation committee, consisting of Drs. Guillemin and Vierling and Mr.
Thierstein, reviews and recommends to our board of directors the compensation
and benefits of all our officers and establishes and reviews general policies
relating to compensation and benefits of our employees.

SCIENTIFIC AND CLINICAL ADVISORY BOARD

We are in the process of establishing a scientific and clinical advisory board,
consisting of leading experts in the fields of virology, oncology, chemistry,
molecular biology, pharmacology and preclinical and clinical development. These
advisors will consult on matters relating to the development of the products
described elsewhere in this prospectus.

We expect that members of our scientific and clinical advisory board will review
our research, development and operating activities and will be available for
consultation with management and staff relating to their respective areas of
expertise. We anticipate that our scientific and clinical advisory board will
hold regular meetings. We intend to have separate consulting relationships with
several members of the scientific and clinical advisory board which will provide
for more frequent meetings with our management and staff to discuss our ongoing
research and development projects. Some of our scientific advisors may own
shares of our Class A Common Stock and/or hold options to purchase our Class A
Common Stock. Our scientific advisors are expected to devote only a small
portion of their time to our business.

Our scientific advisors will all be employed by other entities. We will require
each of our scientific advisors to enter into a letter agreement with us that
contains confidentiality and non-disclosure provisions that prohibit the
disclosure of confidential information to anyone else. These letter agreements
will also provide that all inventions, discoveries or other intellectual
property that come to

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the attention of or are discovered by our scientific advisors while performing
services under this letter agreement will be assigned to us.

DIRECTOR COMPENSATION

Directors who are also our employees will receive no additional compensation for
their services as directors. We will pay each of our non-employee directors a
quarterly fee of $7,500, payable at the election of each director either
one-half in cash and one-half in Class A Common Stock or in all Class A Common
Stock. Non-employee directors also are eligible to receive options to purchase
Class A Common Stock under the 2000 Stock Option Plan as compensation for their
services as directors. Each non-employee director will receive 7,500 options to
purchase Class A Common Stock at the initial public offering price on the date
of this offering, and 7,500 options to purchase Class A Common Stock on the date
of each annual meeting, at the then current market price. Each non-employee
director is reimbursed for reasonable expenses incurred to attend director and
committee meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No interlocking relationship exists between any member of our board of directors
or our compensation committee and any member of the board of directors or
compensation committee of any other company, and no interlocking relationship
has existed in the past.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation paid to
our executive officers for services rendered in all capacities to ICN and its
subsidiaries for the fiscal year ended December 31, 1999. The table does not
include the 1999 compensation of Dr. Johnson Y.N. Lau, our Chief Executive
Officer, whom we hired in March 2000. Dr. Lau was not an employee of ICN or any
of its subsidiaries during 1999. Dr. Lau's 2000 compensation is scheduled to be
$245,000. Dr. Lau also received a $70,000 sign-on bonus. These executive
officers held the following positions with ICN prior to this offering:

+ Richard A. Meier -- Executive Vice President and Chief Financial Officer

+ Benjamin Lap -- Senior Vice President, Investor Relations

+ Harry A. Roosje -- Vice President, Associate General Counsel and Assistant
Secretary

References to stock options and restricted stock relate to awards of ICN options
and stock under ICN's Long Term Incentive Plan.

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SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
LONG TERM COMPENSATION
ANNUAL COMPENSATION RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME SALARY BONUS COMPENSATION(1) AWARDS OPTIONS(#)(2) COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Richard A. Meier......... $246,128 $155,000 -- -- 150,000 $7,714(3)
Benjamin Lap............. 166,667 -- -- -- 90,000 --
Harry A. Roosje.......... 157,632 30,000 -- -- 10,000 --
</TABLE>

---------------
(1) Unless otherwise indicated, with respect to any individual named in the
above table, the aggregate amount of perquisites and other personal
benefits, securities or property was less than either $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.

(2) Includes grants of options to purchase shares of ICN's common stock.

(3) In 1999, the $7,714 of "All Other Compensation" Mr. Meier received consisted
of the following: executive medical of $6,008 and life insurance of $1,706.

The following table sets forth summary information regarding ICN option grants
made by ICN to each of our executive officers during 1999.

1999 ICN OPTION GRANTS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) IN 1999(2) (PER SHARE) DATE PRESENT VALUE(3)
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
Richard A. Meier..................... 30,000 2.7% $26.88 4/9/09 $ 393,147
Richard A. Meier..................... 120,000(4) 10.7 18.25 10/8/09 1,067,904
Benjamin Lap......................... 90,000 8.0 24.25 3/18/09 1,064,241
Harry A. Roosje...................... 10,000 0.9 26.88 4/9/09 131,049
</TABLE>

---------------

(1) Unless otherwise noted, the options granted have ten year terms. The options
granted to the executive officers vest according to the following schedule:
25% on the first anniversary of the date of grant and 25% on each of the
next succeeding three anniversary dates of the grant date. Except as
otherwise noted, all options were granted with an exercise price equal to
the fair market value of the underlying shares on the date of grant.

(2) Options to purchase a total of 1,125,285 shares were granted to employees,
including executive officers, during fiscal year 1999.

(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised, so that there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated values under that model are based on
arbitrary assumptions as to variables such as interest rates, stock price
volatility and future dividend yield.

(4) These options were granted in conjunction with Mr. Meier's promotion to
Executive Vice President and Chief Financial Officer of ICN.

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The following table sets forth summary information regarding the number and
value of ICN Pharmaceutical options held as of December 31, 1999 by our
executive officers. Options shown as exercisable in the table below are
immediately exercisable. We determined the value of unexercised in-the-money
options as of December 31, 1999 by taking the difference between the market
price of ICN common stock as of the close of business on December 31, 1999 and
the option exercise price, multiplied by the number of shares underlying the
options as of that date.

YEAR-END 1999 ICN OPTION VALUES

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(2)
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
Richard A. Meier.......... -- -- 25,000 225,000 $262,500 $1,635,000
Benjamin Lap.............. 22,730 312,477 10,727 108,224 81,254 176,842
Harry A. Roosje........... 4,000 $ 85,214 21,150 35,987 167,634 40,608
</TABLE>

---------------

(1) Difference between the fair market value of the shares of ICN common stock
at the date of exercise and the exercise price.

(2) Difference between the fair market value of the shares of ICN common stock
on December 31, 1999 and the exercise price.

EMPLOYMENT AGREEMENTS/CHANGE IN CONTROL AGREEMENTS

The board of directors adopted employment agreements which contained "change in
control" benefits for our key senior executive officers. The executives include
Dr. Johnson Y.N. Lau, Richard A. Meier and Harry A. Roosje. The Employment
Agreements are intended to retain the services of these executives and provide
for continuity of management in the event of any actual or threatened change in
control. Each agreement has an initial term of three years, and automatically
extends for successive one year terms unless we or the executive elects not to
extend it. These Employment Agreements provide that each executive shall receive
severance benefits equal to three times salary, bonus and other benefits under
various circumstances. These circumstances include the executive's employment
being terminated without cause, the executive terminating employment for
enumerated reasons following a change in control of us, or the executive leaving
us for any reason or without reason during a sixty day period commencing six
months after the change in control. The reasons permitting an executive to
terminate his employment include a significant reduction in the executive's
compensation, duties, title or reporting responsibilities or a change in the
executive's job location. The executive is under no obligation to mitigate
amounts payable under the employment agreements. For purposes of the employment
agreements, a "change in control" means any of the following events:

+ the acquisition by any person, subject to exceptions, of beneficial
ownership, directly or indirectly, of 20% or more of the combined voting
power of our outstanding voting securities, but excluding an acquisition from
ICN;

+ our existing board of directors ceases for any reason to constitute at least
two-thirds of our board of directors, unless the election, or nomination for
election by our stockholders, of any new director was approved by a vote of
at least two-thirds of our existing board of directors;

+ approval by our stockholders of a merger or consolidation involving us if our
stockholders, immediately before the merger or consolidation, do not, as a
result of the merger or consolidation,

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own, directly or indirectly, more than 80% of the combined voting power of
the then outstanding voting securities of the corporation resulting from the
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of our voting securities outstanding
immediately before the merger or consolidation; or

+ approval by our stockholders of a complete liquidation or dissolution of us
or an agreement for the sale or other disposition of all or substantially all
of our assets.

Based upon present compensation, our executives would be entitled to receive the
following approximate amounts if the employment of these key senior executives
is terminated under any of the circumstances described above: Dr. Johnson Y.N.
Lau, $ ; Richard A. Meier, $ ; Benjamin Lap, $ ; and Harry A.
Roosje, $ . In addition, the vesting of options granted to the executives
would be accelerated. The value of the accelerated options would depend upon the
market price of the shares at that time.

LIMITATIONS OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS

In connection with the completion of this offering, we will adopt and file an
amended and restated certificate of incorporation and bylaws. The disclosure
below assumes that the amended and restated certificate of incorporation is in
effect. As permitted by Delaware law, our certificate of incorporation provides
that no director will be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability:

+ for any breach of duty of loyalty to us or to our stockholders;

+ for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

+ for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law; or

+ for any transaction from which the director derived an improper personal
benefit.

Our certificate of incorporation further provides that we must indemnify our
directors to the fullest extent permitted by Delaware law. In addition, our
amended and restated bylaws provide that:

+ we are required to indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to limited exceptions;

+ we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise prohibited by law, our
certificate of incorporation, our bylaws or other agreements;

+ we are required to advance expenses to our directors and executive officers
as incurred in connection with legal proceedings against them for which they
may be indemnified; and

+ the rights conferred in the bylaws are not exclusive.

We intend to enter into indemnification agreements with each of our directors
and officers that would require us to indemnify them against liabilities that
may arise by reason of their status or service as directors or officers and to
advance their expenses incurred as a result of any proceeding against them.
However, we will not indemnify directors or officers with respect to liabilities
arising from willful misconduct of a culpable nature.

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EMPLOYEE BENEFIT PLANS

Our employees will not participate in ICN's option plans on an ongoing basis.
However, our employees that have ICN options will retain these options and will
retain benefits earned under ICN welfare and benefit plans.

2000 STOCK OPTION AND AWARD PLAN

Our Board of Directors adopted the 2000 Stock Option and Award Plan. ICN has
approved this plan as our sole stockholder. This plan provides for the grant of
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code and stock options which do not so qualify, stock appreciation
rights, restricted stock, performance units and performance shares, phantom
stock awards, and share awards. Persons eligible to receive grants under this
plan include our directors, officers, employees, and consultants as well as
directors, officers and employees of ICN and its other affiliates. This plan is
designed to comply with the requirements for "performance-based compensation"
under Section 162(m) of the Internal Revenue Code, and the conditions for
exemption from the short-swing profit recovery rules under Rule 16b-3 under the
Securities Exchange Act.

This plan is administered by a committee that consists of at least two
nonemployee outside board members. The compensation committee of the board
currently serves as the committee. Generally, the committee has the right to
grant options and other awards to eligible individuals and to determine the
terms and conditions of options and awards, including the vesting schedule and
exercise price of options and awards. This plan authorizes the issuance of
21,000,000 shares of Class A Common Stock pursuant to the plan.

This plan provides that the term of any option may not exceed ten years, except
in the case of the death of an optionee in which event the option may be
exercised for up to one year following the date of death even if it extends
beyond ten years from the date of grant. If a participant's employment, or
service as a director, with us or ICN or its affiliates is terminated following
a change in control of us, any options or stock appreciation rights become
immediately and fully vested at that time and will remain outstanding until the
earlier of the six-month anniversary of termination and the expiration of the
option term.

At the completion of this offering, we intend to grant stock options to various
employees, including our executive officers, under this plan. An aggregate of
shares of Class A Common Stock would be issuable upon exercise of
these options. The exercise price of these options will be the initial public
offering price. The options will have a term of 10 years. The vesting schedule
of the options will be 25% each year, commencing on the first anniversary of
grant. The following table sets forth the number of shares of our Class A Common
Stock underlying these options granted to our executive officers.

<TABLE>
<CAPTION>
SHARES OF
CLASS A COMMON STOCK
NAME UNDERLYING OPTIONS GRANTED
<S> <C>
----------------------------------------------------------------------------------------
Johnson Y.N. Lau, MD, PhD...................................
Richard A. Meier............................................
Harry A. Roosje.............................................
</TABLE>

In addition, we intend to grant options to acquire shares of Class A
Common Stock under this plan to officers and employees of ICN who are not one of
our directors, officers, employees or consultants. The exercise price of these
options will be the initial public offering price. The terms of

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these options will be substantially similar to the options granted our
employees. Under generally accepted accounting principles, we will be required
to expense the value of these options ratably over their vesting terms. This
value will be determined using the Black-Scholes option pricing model adapted
for use in valuing executive stock options. The following table sets forth the
number of shares of our Class A Common Stock underlying these options granted to
ICN officers and employees.

<TABLE>
<CAPTION>
SHARES OF
CLASS A COMMON STOCK
NAME UNDERLYING OPTIONS GRANTED
<S> <C>
----------------------------------------------------------------------------------------
</TABLE>

2000 EMPLOYEE STOCK PURCHASE PLAN

We have adopted the 2000 Employee Stock Purchase Plan. This plan allows our
employees to purchase additional shares of our common stock on the Nasdaq
National Market at the then current market price. Employees who elect to
participate in the program will pay for these subsequent purchases with funds
that we will withhold from their paychecks.

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<PAGE> 59

--------------------------------------------------------------------------------

Relationship with ICN

CONTRIBUTION

ICN has contributed to us:

+ our building, including all fixtures and furniture in the building and the
real property associated with our building;

+ its rights, title and interest under the license agreement with
Schering-Plough, which entitles us to receive all of the royalties from
Schering-Plough in connection with the sale of oral forms of ribavirin,
subject to the approval of the holders of ICN's outstanding debt securities;

+ all of the chemical compounds contained in its chemical compound library,
along with all associated records, journals and data;

+ all intellectual property rights, including all patents, copyrights and
trademarks, related to our business, including all intellectual property
rights held by ICN in ribavirin, Tiazole, Adenazole, Levovirin, Viramidine
and the chemical compounds in our nucleoside analog library; provided,
however, that contribution of ICN's rights in Tiazole and Adenazole are
subject to the approval of the Office of Foreign Assets Control;

+ all of our equipment contained in our research and development department;
and

+ all other assets used in the conduct of our business.

However, ICN retains perpetual, exclusive and royalty-free rights to all
indications for ribavirin in a given jurisdiction to the extent currently
approved in that jurisdiction, but not in other jurisdictions for which that
indication is not currently approved. This license excludes all indications and
forms of ribavirin licensed to Schering-Plough. ICN also retains a perpetual,
exclusive and royalty-free rights with respect to the use of ribavirin in
aerosol form for the treatment of bone marrow transplant patients with
respiratory syncytial virus.

Completion of this offering is subject to obtaining the approval of the holders
of ICN's outstanding debt securities.

INTERCOMPANY AGREEMENTS

We have entered into a number of agreements with ICN and will enter into several
other agreements with ICN for the purpose of defining our relationship with them
after this offering. These agreements were developed in the context of a
parent/subsidiary relationship and therefore are not the result of arms-length
negotiations between independent parties.

AFFILIATION AGREEMENT

GENERAL

After completion of this offering, ICN will continue to own all of our Class B
Common Stock. These shares represent approximately 97% of the combined voting
power and approximately 87% of the value of our outstanding shares of stock. As
a result, ICN will continue to include us as a subsidiary for various financial
reporting, accounting and other purposes. Accordingly, we entered into an
affiliation agreement with ICN which will be binding on us as long as ICN owns
at least 50% of the combined voting power of our outstanding shares of common
stock.

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--------------------------------------------------------------------------------

FINANCIAL INFORMATION

Pursuant to the affiliation agreement, we agreed that for so long as ICN is
required to include us in its consolidated financial statements, we will provide
ICN financial information regarding our company and our subsidiaries, consult
with ICN regarding the timing and content of our earnings releases and cooperate
fully with ICN in connection with its public filings.

BOARD OF DIRECTORS

Pursuant to the affiliation agreement, we agreed that the holders of the Class B
Common Stock have the right to elect one director, which director will be
elected on an annual basis. Through our 2003 annual meeting, ICN agreed not to
vote its shares of common stock to cause the election of any new director of the
Company who was a director, officer, employee or consultant of ICN during the
previous three years. This restriction does not prohibit ICN from voting for the
re-election of directors in office at the time of the completion of this
offering. ICN reserves this right to vote its shares of our common stock for the
election of any of these ICN affiliates in the same proportion voted by the
holders of our Class A Common Stock. This will have no effect on the outcome of
the vote. ICN reserved this right to vote its shares on a proportionate basis to
enhance its ability to effect a tax-free spin off of its shares of our capital
stock if it decides to do so at some point in the future. This also enhances
ICN's ability to include us in its consolidated group for federal income tax
purposes. There will be no restrictions on ICN's ability to vote on any other
matter submitted to stockholders. As our controlling stockholder, ICN will be
able to approve or reject major corporate transactions without the support of
any other stockholder, including a merger, consolidation or sale of
substantially all our assets.

INDEMNIFICATION

We agreed to indemnify ICN and its affiliates against all liabilities arising
out of:

+ any breach by us or our affiliates of any of the provisions of the
affiliation agreement; and

+ any incorrect or incomplete financial information provided by us or our
affiliates to ICN as required by the affiliation agreement.

ICN agreed to indemnify us and our affiliates against all liabilities arising
out of:

+ any breach by ICN or its affiliates of any of the provisions of the
affiliation agreement;

+ any incorrect or incomplete financial information provided by ICN or its
affiliates to us as required by the affiliation agreement; and

+ any expenses, monetary judgment or settlement incurred in connection with the
SEC litigation, the investigation involving the US Attorney's Office and the
dispute involving ICN's interest in its Yugoslavian joint venture.

EXPENSES

ICN will pay the costs and expenses incurred in connection with this offering,
including the costs and expenses of financial, legal, accounting and other
advisers.

INTERIM FINANCING

ICN will provide us with working capital financing of up to $25 million. We may
draw upon this commitment until December 1, 2000. Any borrowings from ICN will
be payable on December 31, 2001. The interest on the note will be at LIBOR plus
200 basis points.

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MANAGEMENT SERVICES AND FACILITIES AGREEMENT

We and ICN entered into a management services and facilities agreement. Under
this agreement, ICN will provide administrative and corporate support services
to us on a transitional basis, including human resource, accounting, treasury,
tax, facilities, and information services. Over time, it is our intention to
provide these services ourselves or contract with third parties to provide these
services. ICN will charge us for these services at its cost, including all
out-of-pocket, third party costs and expenses incurred by ICN in providing the
services. If ICN incurs third party expenses on behalf of us as well as an ICN
entity, ICN will be required to allocate these expenses in good faith between us
and the ICN entity. ICN will determine this allocation in the exercise of its
reasonable judgment.

For a transitional period, ICN will utilize a portion of our Costa Mesa
facilities. ICN will be responsible for reimbursing us for its share of our
depreciation, utilities, security, parking, building maintenance and cleaning
services. This share will be determined based upon the percentage of square feet
of space in the building used by ICN. ICN intends to relocate to new office
space as soon as practicable after completion of this offering, but not later
than December 2003.

The agreement provides for monthly invoicing of service charges. If the invoiced
amount is not paid within 60 days following receipt of the invoice, interest
will be required to be paid at a specified rate, unless the invoiced amount is
in dispute. ICN and we will be required to use reasonable efforts to resolve any
disputes promptly.

The management services and facilities agreement provides that the services
provided by ICN will be substantially similar in scope, quality and nature to
those services provided to us prior to the completion of this offering. ICN is
also required to provide the services to us through the same or similarly
qualified personnel, but the selection of personnel to perform the various
services will be within the sole control of ICN. In addition, ICN is not
required to increase materially the volume, scope or quality of the services
provided beyond the level at which they performed these services for us in the
past. The agreement provides that ICN may cause any third party to provide any
service to us that ICN is required to provide, but that ICN will remain
responsible for any services it causes to be provided in this manner. ICN is not
required to provide any service to the extent the performance of the service
becomes impracticable due to a cause outside the control of ICN, which could
include natural disasters, governmental actions or similar events of force
majeure. Similarly, ICN is not required to provide any service if doing so would
require ICN to violate any laws, rules or regulations. The management services
and facilities agreement also provides that ICN may provide additional services
to us upon our mutual agreement. We will mutually agree on the terms and costs
of these additional services. These additional services may include services
that were not provided to us prior to the completion of this offering.

Pursuant to the management services and facilities agreement, we have agreed to
indemnify and hold harmless ICN, each of its subsidiaries and their directors,
officers, agents and employees from any claims, damages and expenses arising out
of the services rendered to us. This indemnity would not apply to claims,
damages or expenses resulting from breach of contract, gross negligence or
willful misconduct on the part of ICN or its representatives. In addition, we
have agreed that these same persons shall be liable to us only for any claims,
damages or expenses resulting from breach of contract, gross negligence or
willful misconduct on their part.

The management services and facilities agreement will commence on the date of
this offering and will continue until December 31, 2003. We may terminate one or
more of the services provided under the agreement if we determine at any time
that we no longer require these services. ICN and we may, by mutual agreement,
provide for the continuation of some services after this termination date. In

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addition, either ICN or us will be able to terminate the management services and
facilities agreement with respect to one or more of the services provided under
the agreement:

+ if the other party has failed to perform any material obligation relating to
the terminated service; and

+ if the failure continues for a period of 30 days after the other party
receives notice of the failure from the terminating party.

CONFIDENTIALITY AGREEMENT

We and ICN entered into a confidentiality agreement with respect to confidential
and proprietary information, intellectual property and other matters and ICN
will agree to keep confidential and to cause our affiliates to keep
confidential, and not to use for any unauthorized purpose, confidential
information regarding the other party. Confidential information includes:

+ unpublished technology and know-how;

+ unpublished patent applications; and

+ other confidential or proprietary technical and business information.

Confidential information does not include any information that:

+ is already known to the other party from a third party source;

+ is or becomes publicly known;

+ is received from a third party without any obligations of confidentiality;

+ is disclosed to a third party without restrictions;

+ is independently developed by employees or consultants of the party receiving
the information; or

+ is approved for release by the disclosing party.

REGISTRATION RIGHTS AGREEMENT

We and ICN entered into a registration rights agreement to provide ICN with
registration rights relating to the shares of our common stock which it holds.
ICN will be able to require us to register under the Securities Act all or any
portion of our shares covered by the registration rights agreement on up to six
occasions. In addition, the registration rights agreement provides for various
piggyback registration rights for ICN. Whenever we propose to register any of
our securities under the Securities Act for ourselves or others, subject to
customary exceptions, we are required to provide prompt notice to ICN and
include in that registration all shares of our stock which ICN requests to be
included. The registration rights agreement sets forth customary registration
procedures, including a covenant by us to make available our employees and
personnel for road show presentations. All registration expenses incurred in
connection with the registration rights agreement will be paid by us other than
the underwriting commission. In addition, we are required to reimburse ICN for
the reasonable fees and disbursements of its outside counsel retained in
connection with any registration. The registration rights agreement also imposes
customary indemnification and contribution obligations on us for the benefit of
ICN and any underwriters with respect to liabilities resulting from untrue
statements or omissions in any registration statement used in any registration.
However, ICN must indemnify us for those liabilities resulting from information
provided by ICN. The registration rights under the

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RELATIONSHIP WITH ICN
--------------------------------------------------------------------------------

registration rights agreement will remain in effect with respect to the shares
covered by the agreement until:

+ those shares have been sold pursuant to an effective registration statement
under the Securities Act;

+ those shares have been sold to the public pursuant to Rule 144 under the
Securities Act;

+ those shares have been transferred and new certificates delivered, where the
new certificates do not bear a legend restricting further transfer and where
subsequent public distribution of those shares does not require registration
under the Securities Act; or

+ those shares cease to be outstanding.

TAX SHARING AGREEMENT

We are, and after this offering will continue to be, included in ICN's
consolidated federal income tax group. Our federal income tax liability will be
included in the consolidated federal income tax liability of ICN. We and ICN
have entered into a tax sharing agreement pursuant to which the amount of taxes
to be paid or received by us with respect to federal consolidated returns of ICN
in which we are included generally are determined as though we file separate
federal income tax returns. Also, we would pay ICN an amount of state and local
income taxes based upon ICN's worldwide apportionment schedule. Under the terms
of the tax sharing agreement, ICN is not required to make any payment to us for
the use of our tax attributes that come into existence until we would otherwise
be able to utilize these attributes. Under the agreement, ICN will:

+ continue to have all the rights of a parent of a consolidated group;

+ have sole and exclusive responsibility for the preparation and filing of
consolidated federal and consolidated or combined state, local and foreign
income tax returns (or amended returns); and

+ have the power, in its sole discretion, to contest or compromise any asserted
tax adjustment or deficiency and to file, litigate or compromise any claim
for refund relating to these returns.

We will be included in ICN's consolidated group for federal income tax purposes
for so long as ICN beneficially owns at least 80% of the combined voting power
and value of our outstanding stock. Each member of a consolidated group is
jointly and severally liable for the federal income tax liability of each other
member of the consolidated group. Accordingly, although the tax sharing
agreement allocates tax liabilities between us and ICN during the period in
which we are included in ICN's consolidated group, we could be liable in the
event that any federal tax liability is incurred, but not paid, by any other
member of ICN's consolidated group. See "Risk factors -- Risks Relating to Our
Separation from ICN -- Because we are a member of ICN's consolidated group for
federal income tax purposes, ICN will control decisions relating to payment of
taxes."

TAX-FREE SPIN-OFF

ICN created a two-class structure for our common stock to preserve its ability
to effect a tax-free spin-off to the extent that ICN has the ability to do so at
some point in the future. If all of the legal requirements for a tax-free
spin-off are met at some point in the future, ICN may choose to distribute its
interest in us to ICN's stockholders on a tax-free basis. It is possible that
ICN would not be in a position to spin-off its interest in us on a tax-free
basis until approximately five years after this offering. Moreover, proposed
legislation, if enacted, would not permit ICN to spin-off its interest in us on
a tax-free basis unless ICN maintains at least an 80% interest in both the
voting power and value of our stock. Under current law, ICN would need to own at
least 80% of the voting power of our stock to effect a tax-free spin-off.
Assuming no additional shares of Class A Common Stock are issued, other than as
a result of the conversion of Class B Common Stock into Class A Common Stock,
ICN

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RELATIONSHIP WITH ICN
--------------------------------------------------------------------------------

would continue to hold at least 80% of the voting power of our stock so long as
it owns at least approximately 63,500,000 shares of Class B Common Stock.

CONTRACT SERVICES AGREEMENT WITH ICN

From time to time, if we determine that it is in our best interest to do so, we
will seek to enter into arrangements with ICN and foreign affiliates of ICN to
conduct studies on our product candidates. ICN will have no obligation to enter
into any of these arrangements. We believe that ICN's ability to conduct these
studies in Eastern Europe may provide us with a substantial cost advantage over
many of our domestic competitors who do not have foreign affiliates. By
conducting these studies in Eastern Europe, we will be able to determine
preliminarily the safety and efficacy of product candidates prior to incurring
the expense of full clinical trials in the United States.

OPTION GRANTS TO ICN EMPLOYEES

We intend to grant options under the 2000 Stock Option Plan to some ICN officers
and/or employees who will not become our employees. Under generally accepted
accounting principles, we will be required to expense the value of these options
ratably over their vesting terms. This value will be determined using the
Black-Scholes option pricing model adapted for use in valuing executive stock
options. See "Management -- Employee Benefit Plans -- 2000 Stock Option and
Award Plan."

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--------------------------------------------------------------------------------

Principal and selling stockholders

Prior to this offering, we were a wholly owned subsidiary of ICN. Upon
completion of this offering, ICN will own all of the outstanding shares of Class
B Common Stock. These shares will represent approximately 97% of the combined
voting power and 87% of the value of our outstanding shares of common stock.

The following table presents selected information regarding ICN's beneficial
ownership of our Class A Common Stock and Class B Common Stock. None of our
officers or directors beneficially own any shares of common stock other than
shares of Class A Common Stock beneficially owned through stock options granted
under our 2000 Stock Option Plan.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK OUTSTANDING SHARES
BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED OF COMMON STOCK
PRIOR TO OFFERING BEING OFFERED AFTER OFFERING AFTER OFFERING
------------------------ -------------------- ------------------------ ---------------------
BENEFICIAL OWNER CLASS A(1) CLASS B CLASS A CLASS B CLASS A(1) CLASS B CLASS A(1) CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
ICN......................... -- 142,857,142 18,000,000 -- -- 124,857,142 -- 100%

PERCENTAGE
OF TOTAL
VOTING
BENEFICIAL OWNER POWER
<S> <C>
----------------------------
ICN......................... 97.2%
</TABLE>

---------------

(1) Under the terms of our charter, any Class B Common Stock sold by ICN is
automatically converted into Class A Common Stock on a one-for-one basis.
Accordingly, while ICN owns no Class A Common Stock, it is able to sell
18,000,000 shares of Class A Common Stock because 18,000,000 shares of Class
B Common Stock owned by it will be converted into Class A Common Stock
contemporaneously with the sale. The number of shares of Class A Common
Stock shown as being beneficially owned by ICN in the above table does not
include shares of Class A Common Stock issuable upon conversion of Class B
Common Stock. The Class B Common Stock is convertible into Class A Common
Stock at the option of ICN at any time.

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<PAGE> 66

--------------------------------------------------------------------------------

Description of securities

AUTHORIZED CAPITAL STOCK

We presently have a single class of common stock. ICN currently owns all of
these outstanding shares. Before the completion of this offering, we will effect
a recapitalization of our capital stock. In this recapitalization, the existing
shares of common stock held by ICN will be reclassified into shares of Class B
Common Stock. Effective as of the completion of this offering, our certificate
of incorporation will provide for authorized capital stock of 534,857,142
shares, including 400,000,000 shares of Class A Common Stock, $.01 par value per
share, 124,857,142 shares of Class B Common Stock, $.01 par value per share, and
10,000,000 shares of preferred stock, $.01 par value per share. Upon completion
of this offering, no preferred stock will be outstanding and ICN will own all of
the outstanding shares of Class B Common Stock. See "Principal and selling
stockholders."

COMMON STOCK

The relative rights of the Class A Common Stock and Class B Common Stock are
substantially identical in all respects, except for voting rights and conversion
rights.

VOTING

Holders of Class A Common Stock have one vote per share while holders of Class B
Common Stock have five votes per share on all matters submitted to a vote of our
stockholders, including the election of directors. Except as otherwise required
by law or provided in any resolution adopted by the board of directors with
respect to any series of Preferred Stock, the holders of Class A Common Stock
and Class B Common Stock will possess all voting power. Generally, all matters
voted on by stockholders must be approved by a majority or, in the case of
election of directors, by a plurality of the votes entitled to be cast by all
shares of Class A Common Stock and Class B Common Stock that are present in
person or represented by proxy, voting together as a single class, subject to
any voting rights granted to holders of any Preferred Stock. However, in the
case of some amendments to our certificate of incorporation, the requisite
approval percentage will be 80% of the votes entitled to be cast by all
outstanding shares of Class A Common Stock and Class B Common Stock, voting
together as a single class. Amendments to our certificate of incorporation that
would alter or change the powers, preferences or special rights of the Class A
Common Stock or Class B Common Stock so as to adversely affect them must also be
approved by a majority of the outstanding shares of the class that is adversely
affected by that amendment, voting as a separate class. Special voting rights
may be granted to holders of any preferred stock that we issue in the future.
Our certificate of incorporation will not provide for cumulative voting in the
election of directors.

CONVERSION OF CLASS B COMMON STOCK

ICN will be entitled, from time to time, to convert all or any portion of its
shares of Class B Common Stock into shares of Class A Common Stock on a
one-for-one basis. Any shares of Class B Common Stock transferred by ICN or any
of its subsidiaries to any person, other than ICN or any of its subsidiaries,
will automatically be converted into shares of Class A Common Stock on a
one-for-one basis, except in connection with a tax-free spin-off of ICN's
ownership interest in us to its stockholders, as described below. All shares of
Class B Common Stock will automatically convert into shares of Class A Common
Stock on a one-for-one basis if the number of outstanding shares of Class B
Common Stock falls below 20% of the aggregate number of outstanding shares of
Class A Common Stock and Class B Common Stock. This automatic conversion feature
will prevent ICN from

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DESCRIPTION OF SECURITIES
--------------------------------------------------------------------------------

decreasing its economic interest in us to less than 20% while still retaining
control of approximately 50% of the combined voting power of our outstanding
shares of common stock, assuming no additional shares of common stock are issued
after this offering.

Following a tax-free spin-off, shares of Class B Common Stock will not be
convertible into shares of Class A Common Stock.

DIVIDENDS
Subject to any preferential rights of any outstanding series of Preferred Stock
created by our board of directors from time to time, the holders of shares of
Class A Common Stock and Class B Common Stock will be entitled to cash dividends
as may be declared from time to time by the board of directors from funds
available therefor. Dividends are required to be declared pro-rata on both
classes. In addition, in connection with any stock dividend that may be declared
by our board of directors from time to time, holders of Class A Common Stock
will be entitled to receive these dividends only in shares of Class A Common
Stock while holders of Class B Common Stock will be entitled to receive these
dividends either in shares of Class A Common Stock or in shares of Class B
Common Stock as may be determined by our board of directors. Neither the shares
of Class A Common Stock nor the shares of Class B Common Stock may be
reclassified, subdivided or combined unless the reclassification, subdivision or
combination occurs simultaneously and in the same proportion for each class.

LIQUIDATION
Subject to any preferential rights of any outstanding series of Preferred Stock
created from time to time by our board of directors, upon our liquidation,
dissolution or winding up, the holders of shares of Class A Common Stock and
Class B Common Stock will be entitled to receive pro rata all our assets
available for distribution to these holders.

PREFERRED STOCK

Pursuant to our certificate of incorporation, our board of directors will have
the authority, without further action by our stockholders, to issue up to
10,000,000 shares of preferred stock, in one or more series. Our board shall
determine the rights, preferences, privileges and restrictions of the preferred
stock, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of any series. The issuance of
preferred stock could adversely affect the voting power of holders of common
stock, and the likelihood that holders of preferred stock will receive dividend
payments and payments upon liquidation may have the effect of delaying,
deferring or preventing a change in control of us, which could depress the
market price of our common stock. We have no present plan to issue any shares of
preferred stock.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION
AND BYLAWS

A number of provisions in Delaware Law and our certificate of incorporation and
bylaws may make it more difficult to acquire control of us. These provisions
could deprive our stockholders of opportunities to realize a premium on the
shares of common stock owned by them. Amendments to many of the provisions in
our certificate of incorporation require approval of 80% of our outstanding

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DESCRIPTION OF SECURITIES
--------------------------------------------------------------------------------

voting securities. In addition, these provisions may adversely affect the
prevailing market price of the common stock. These provisions may:

+ enhance the likelihood of continuity and stability in the composition of the
board and in the policies formulated by the board;

+ discourage specified types of transactions which may involve an actual or
threatened change in control of us;

+ discourage tactics that may be used in proxy fights; and

+ encourage persons seeking to acquire control of us to consult first with the
board of directors to negotiate the terms of any proposed business
combination or offer.

STAGGERED BOARD

Our certificate of incorporation and bylaws will provide that the number of our
directors shall be fixed from time to time by a resolution of a majority of our
board of directors. Our certificate of incorporation and bylaws also divides the
board of directors into three classes. The members of each class of directors
will serve for staggered three-year terms. Our directors may only be removed for
cause. Pursuant to our certificate of incorporation, ICN will not have the
ability to amend our certificate of incorporation to permit the removal of
directors without cause without the approval of the holders of a majority of the
outstanding shares of Class A Common Stock.

The classification of the board has the effect of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of the members of
the board. Subject to the rights of the holders of any outstanding series of
preferred stock, vacancies on the board of directors may be filled only by a
majority of the remaining directors, or by the sole remaining director, or by
the stockholders if the vacancy was caused by removal of the director by the
stockholders. This provision could prevent a stockholder from obtaining majority
representation on the board by enlarging the board of directors and filling the
new directorships with its own nominees.

The holders of the Class B Common Stock have the right to elect one director.
This director will be elected on an annual basis and initially will be Roger
Guillemin, MD, PhD.

ADVANCE NOTICE PROCEDURES FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

Our bylaws will provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice generally must be
delivered to or mailed and received at our principal executive offices not less
than 45 or more than 75 days prior to the first anniversary of the date on which
we first mailed our proxy materials for the preceding year's annual meeting of
stockholders. However, if the date of the annual meeting is advanced more than
30 days prior to or delayed by more than 30 days after the anniversary of the
preceding year's annual meeting, to be timely, notice by the stockholder may be
delivered not later than the close of business on the later of the 90th day
prior to the annual meeting or the 10th day following the day on which public
announcement of the date of the meeting is first made. The bylaws will also
specify requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.

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DESCRIPTION OF SECURITIES
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STOCKHOLDER ACTION BY WRITTEN CONSENT

Our certificate of incorporation provides that stockholders may not take action
by written consent.

PREFERRED STOCK
The ability of our board to establish the rights and issue substantial amounts
of preferred stock without the need for stockholder approval, while providing
desirable flexibility in connection with possible acquisitions, financing, and
other corporate transactions, may among other things, discourage, delay, defer,
or prevent a change in control of us.

AUTHORIZED BUT UNISSUED SHARES OF COMMON STOCK
The authorized but unissued shares of common stock are available for future
issuance without stockholder approval. These additional shares may be utilized
for a variety of corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions, and employee benefit plans. The
existence of authorized but unissued shares of common stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.

DELAWARE SECTION 203

Our certificate of incorporation provides that we have opted out of the
provisions of Section 203 of the Delaware General Corporation Law. In general,
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Because we have opted out in the manner permitted under Delaware law, the
restrictions of this provision will not apply to us.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A Common Stock is American Stock
Transfer and Trust Company.

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<PAGE> 70

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Shares eligible for future sale

Prior to this offering, there has been no public market for our Class A Common
Stock. Future sales of substantial amounts of our Class A Common Stock in the
public market, or the perception that these sales could occur, could adversely
affect prevailing market prices.

Upon completion of this offering, we will have outstanding an aggregate of
18,000,000 shares of Class A Common Stock, assuming no exercise of the
underwriters' over-allotment option, and 124,857,142 shares of Class B Common
Stock. Of these shares, all of the shares of Class A Common Stock sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless our affiliates purchase these shares. The
shares of Class B Common Stock held by ICN are restricted securities. Restricted
securities may be sold in the public market only if registered or if the sale
qualified for an exemption from registration.

ICN and all of our officers and directors have agreed not to transfer or dispose
of, directly or indirectly, any shares of our common stock or any securities
convertible into shares or exercisable or exchangeable for shares of our common
stock, for a period of at least 180 days after the date of this prospectus.
Transfers or dispositions can be made sooner only with the prior written consent
of UBS Warburg LLC.

Following this offering, we intend to file a registration statement on Form S-8
under the Securities Act covering the shares of Class A Common Stock reserved
for issuance under our 2000 Stock Option Plan. Accordingly, shares registered
under that registration statement will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market after the
filing, except those shares subject to lock-up agreements.

In general, under Rule 144 as currently in effect, after the expiration of the
lock-up agreements, a person who has beneficially owned restricted securities
for at least one year, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:

+ 1% of the number of shares of our Class A Common Stock then outstanding,
which will equal approximately 180,000 shares immediately after this
offering; and

+ the average weekly trading volume of our Class A Common Stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.

Sales under Rule 144 are also subject to requirements with respect to manner of
sale, notice and the availability of current public information about us.

Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell these
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 144, the holding period
of any prior owner is aggregated, except if the transferee was an affiliate of
ours.

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<PAGE> 71

--------------------------------------------------------------------------------

Underwriting

We, ICN and the underwriters of this offering named below have entered into an
underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase from ICN the
number of shares indicated in the following table. UBS Warburg LLC and CIBC
World Markets Corp. are the representatives of the underwriters.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
------------------------------------------------------------------------
UBS Warburg LLC.............................................
CIBC World Markets Corp. ...................................
----------
Total............................................. 18,000,000
==========
</TABLE>

If the underwriters sell more shares of Class A Common Stock than the total
number set forth in the table above, the underwriters have a 30-day option to by
from ICN up to an additional 2,700,000 shares at the initial public offering
price less the underwriting discounts and commissions to cover these sales. If
any shares of Class A Common Stock are purchased under this over-allotment
option, the underwriters will severally purchase shares in approximately the
same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts and
commissions ICN will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option.

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
------------------------------------------------------------------------------------------
Per share................................................... $ $
Total................................................ $ $
</TABLE>

We estimate that the total expenses of the offering payable by ICN will be
approximately $ .

Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of
these securities dealers may resell any shares purchased from the underwriters
to other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.

The underwriters have informed us that they do not expect sales to accounts over
which they exercise investment discretion to exceed 5% of the shares of Class A
Common Stock sold in this offering.

We, our directors and officers and ICN have agreed with the underwriters not to
offer, sell, contract to sell, hedge or otherwise dispose of, directly or
indirectly, or file with the SEC, a registration statement under the Securities
Act relating to any shares of Class A Common Stock or securities convertible
into or exchangeable for shares of Class A Common Stock during the period from
the date of this prospectus continuing through the date 180 days after the date
of this prospectus, without the prior written consent of UBS Warburg LLC. This
lockup provision does not limit our ability to grant options to purchase Class A
Common Stock under stock option plans or to issue Class A Common Stock under our
employee stock purchase plan.

The underwriters have reserved for sale, at the initial public offering price,
up to 900,000 shares of Class A Common Stock to some of our directors, officers,
employees and friends and to some of the

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UNDERWRITING
--------------------------------------------------------------------------------

officers and employees of ICN. The number of shares available for sale to the
general public in this offering will be reduced to the extent these persons
purchase reserved shares. Any reserved shares not so purchased will be offered
by the underwriters to the general public on the same terms as the other shares
in this offering.

Prior to this offering, there has been no public market for our Class A Common
Stock. The initial public offering price will be negotiated by ICN, us and the
representatives. The principal factors to be considered in determining the
initial public offering price include:

+ the information set forth in this prospectus and otherwise available to the
representatives;

+ the history and the prospects for the industry in which we compete;

+ the ability of our management;

+ our prospects for future earnings, the present state of our development and
our current financial position;

+ the general condition of the securities markets at the time of this offering;
and

+ the recent market prices of, and the demand for, publicly traded common stock
of generally comparable companies.

In connection with this offering, the underwriters may purchase and sell shares
of Class A Common Stock in the open market. These transactions may include
stabilizing transactions. Stabilizing transactions consist of bids or purchases
made for the purpose of preventing or retarding a decline in the market price of
the Class A Common Stock while this offering is in progress. These transactions
may also include short sales and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Short sales may be
either "covered short sales" or "naked short sales." Covered short sales are
sales made in an amount not greater than the underwriters' over-allotment option
to purchase additional shares in the offering. The underwriters may close out
any covered short position by either exercising their over-allotment option or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. Naked short sales are sales in excess of the
over-allotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering.

The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the Class A Common Stock. As a result, the price of the
Class A Common Stock may be higher than the price that otherwise might exist in
the open market. If these activities are commenced, they may be discontinued by
the underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

We and ICN have agreed to indemnify the several underwriters against some
liabilities, including liabilities under the Securities Act of 1933 and to
contribute to payments that the underwriters may be required to make in respect
thereof.

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69
<PAGE> 73
UNDERWRITING
--------------------------------------------------------------------------------

UBS Warburg LLC and some of its affiliates have provided investment banking and
other services to ICN in the past.

Concurrently with this offering, UBS Warburg LLC is acting as dealer manager for
a tender offer and consent solicitation relating to all of ICN's outstanding
debt securities. In addition, an affiliate of UBS Warburg LLC will act as lead
arranger in connection with bank and other financings to be entered into by ICN.
The proceeds of these financings will be used to repay ICN's existing debt as
contemplated by the debt tender offer and consent solicitation referred to
above. Furthermore, it is contemplated that an affiliate of UBS Warburg LLC will
act as lead underwriter in connection with a proposed initial public offering of
ICN's operations outside of North and South America.

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Legal matters

Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York, will pass upon the validity of the Class A
Common Stock offered under this prospectus. Fried, Frank, Harris, Shriver &
Jacobson has in the past provided, and may continue to provide, legal services
to ICN and its affiliates. Dewey Ballantine LLP, New York, New York, will pass
upon the validity of the Class A Common Stock for the underwriters.

Experts

The financial statements as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 included in this Registration
Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

--------------------------------------------------------------------------------
71
<PAGE> 75
--------------------------------------------------------------------------------

Where you can find more information

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered under this
prospectus. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule to the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and to the exhibits and schedule to
registration statement. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and in each instance, we refer you to the copy of the contract or
other document filed as an exhibit to the registration statement. Each of these
statements is qualified in all respects by this reference. You may inspect a
copy of the registration statement without charge at the SEC's principal office
in Washington, D.C., and copies of all or any part of the registration statement
may be obtained from the Public Reference Section of the SEC, located at 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of fees prescribed by
the SEC. The SEC maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. The address of the Web site is http://www.sec.gov.
The SEC's toll free investor information service can be reached at
1-800-SEC-0330.

Upon completion of this offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, and we will file
reports, proxy statements and other information with the SEC.

Our telephone number is (714) 545-0100.

------------------------------------

You should rely only on the information contained in this prospectus. Neither we
nor ICN has authorized anyone to provide you with information different from
that contained in this prospectus. Offers to sell the Class A Common Stock are
being made, and offers to buy the Class A Common Stock are being sought, only in
jurisdictions that permit offers and sales. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of the prospectus or of any sale of the Class A Common Stock.

--------------------------------------------------------------------------------
72
<PAGE> 76

RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
--------------------------------------------------------------------------------

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
------------------------------------------------------------------
<S> <C>
Report of Independent Accountants........................... F-2

Balance Sheets at December 31, 1998 and 1999 and at June 30,
2000 (unaudited).......................................... F-3

Statements of Income for the years ended December 31, 1997,
1998 and 1999 and for the six months ended June 30, 1999
and 2000 (unaudited)...................................... F-4

Statements of Equity for the years ended December 31, 1997,
1998 and 1999 and for the six months ended June 30, 2000
(unaudited)............................................... F-5

Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 and for the six months ended June 30,
1999 and 2000 (unaudited)................................. F-6

Notes to Financial Statements............................... F-7
</TABLE>

--------------------------------------------------------------------------------
F- 1
<PAGE> 77

RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
--------------------------------------------------------------------------------

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of ICN Pharmaceuticals, Inc.:

In our opinion, the accompanying balance sheets and the related statements of
income, of division equity and of cash flows present fairly, in all material
respects, the financial position of Ribapharm (the "Division"), a division of
ICN Pharmaceuticals, Inc., at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31,1999 in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Division's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Newport Beach, California
June 12, 2000

--------------------------------------------------------------------------------
F- 2
<PAGE> 78

RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
--------------------------------------------------------------------------------

BALANCE SHEETS

DECEMBER 31, 1998 AND 1999 AND JUNE 30, 2000 (UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999 2000
------------------------------------------------------------------------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Property, plant and equipment, net........................ $21,218 $20,715 $22,014
------- ------- -------
Total assets.............................................. $21,218 $20,715 $22,014
======= ======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Trade payables.......................................... $ 409 $ 362 $ 33
Accrued liabilities..................................... 217 750 1,071
Current portion of mortgage payable..................... 828 -- --
------- ------- -------
Total current liabilities................................. 1,454 1,112 1,104
Mortgage payable, less current portion.................... 6,800 -- --
Deferred license and royalty income....................... 4,323 -- --
Deferred income taxes payable............................. 1,014 2,665 2,712
Commitments and contingencies
Division equity........................................... 7,627 16,938 18,198
------- ------- -------
Total liabilities and division equity..................... $21,218 $20,715 $22,014
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

--------------------------------------------------------------------------------
F- 3
<PAGE> 79

RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
--------------------------------------------------------------------------------

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1999 1999 2000
------------------------------------------------------------------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Royalties....................... $ 3,223 $36,830 $109,592 $45,929
$76,594
-------- ------- -------- ------- -------
Costs and expenses:
Research and development........ 7,011 9,530 5,523 2,574 4,078
General and administrative...... 9,676 7,392 5,608 2,320 1,822
-------- ------- -------- ------- -------
Total expenses.................... 16,687 16,922 11,131 4,894 5,900
-------- ------- -------- ------- -------
Income (loss) from operations..... (13,464) 19,908 98,461 41,035 70,694
Interest expense.................. 683 609 396 272 --
-------- ------- -------- ------- -------
Income (loss) before income
taxes........................... (14,147) 19,299 98,065 40,763 70,694
Provision (benefit) for income
taxes........................... (5,093) 6,948 35,303 14,675 25,450
-------- ------- -------- ------- -------
Net income (loss)................. $ (9,054) $12,351 $ 62,762 $26,088 $45,244
======== ======= ======== ======= =======
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Unaudited as adjusted data:
Basic and diluted earnings per
share, as adjusted........... $ .44 $ .32
======== ========
As adjusted shares used in
computation.................. 142,857 142,857
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

--------------------------------------------------------------------------------
F- 4
<PAGE> 80

RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
--------------------------------------------------------------------------------

STATEMENTS OF DIVISION EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND

FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
ADVANCES
DUE TO RETAINED
(FROM) EARNINGS DIVISION
ICN (DEFICIT) EQUITY
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1996............................... $11,606 $(14,412) $ (2,806)
Net loss.................................................. -- (9,054) (9,054)
Advances due to ICN, net.................................. 10,509 -- 10,509
-------------------------------
Balances at December 31, 1997............................... 22,115 (23,466) (1,351)
Net income................................................ -- 12,351 12,351
Advances due to ICN, net.................................. (3,373) -- (3,373)
-------------------------------
Balances at December 31, 1998............................... 18,742 (11,115) 7,627
Net income................................................ -- 62,762 62,762
Advances due from ICN, net................................ (53,451) -- (53,451)
-------------------------------
Balances at December 31, 1999............................... (34,709) 51,647 16,938
Net income................................................ -- 45,244 45,244
Advances due from ICN, net................................ (43,984) -- (43,984)
-------------------------------
Balances at June 30, 2000................................... $(78,693) $ 96,891 $ 18,198
===============================
</TABLE>

The accompanying notes are an integral part of these financial statements.

--------------------------------------------------------------------------------
F- 5
<PAGE> 81

RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND

FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1999 1999 2000
---------------------------------------------------------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ (9,054) $ 12,351 $ 62,762 $ 26,088 $ 45,244
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation........................ 859 560 556 272 270
Deferred income..................... (930) (13,619) (4,323) (4,323) --
Deferred income taxes............... 429 4,998 1,651 1,604 47
Compensation expense related to
extension of stock options....... -- 1,625 -- -- --
Increase in royalty receivable
transferred to ICN............... (708) (6,875) (26,119) (21,223) (7,860)
Change in trade payables and accrued
liabilities......................... (674) 664 486 (324) (8)
Net cash provided by (used in)
operating activities................ (10,078) (296) 35,013 2,094 37,693
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (346) (103) (53) (26) (1,569)
-------- -------- -------- -------- --------
Net cash used in investing
activities.......................... (346) (103) (53) (26) (1,569)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage payable.......... (793) (1,478) (7,628) (449) --
Cash payments from (to) ICN........... 11,217 1,877 (27,332) (1,619) (36,124)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities................ 10,424 399 (34,960) (2,068) (36,124)
-------- -------- -------- -------- --------
Net change in cash and cash
equivalents......................... -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at beginning
of period........................... -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period.............................. $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Cash paid for interest................ $ 683 $ 609 $ 396 $ 272 $ --
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

--------------------------------------------------------------------------------
F- 6
<PAGE> 82

RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:

Ribapharm (the "Division") is a division of ICN Pharmaceuticals, Inc. ("ICN")
and seeks to discover, develop and commercialize innovative products for the
treatment of significant unmet medical needs, principally in the antiviral and
anticancer areas. The Division's primary product, ribavirin, is an antiviral
drug that was licensed to Schering-Plough Ltd. ("Schering-Plough") for the
treatment of chronic hepatitis C ("HCV") in combination with Schering-Plough's
interferon alfa-2b. All of the Division's revenue is currently derived from this
licensing agreement. The accompanying financial statements are derived from the
historical books and records of ICN and present the assets and liabilities,
results of operations and cash flows applicable to the Division. The financial
statements of the Division have been prepared for inclusion in a registration
statement relating to the public offering of a portion of the common stock (the
"Offering") of Ribapharm Inc. ("Ribapharm"), a wholly-owned subsidiary of ICN
which was incorporated in April 2000. Prior to the planned initial public
offering, substantially all of the assets and liabilities of the Division will
be transferred to Ribapharm at historical cost.

Prior to the completion of the Offering, Ribapharm will effect a
recapitalization of its capital stock. In this recapitalization, the existing
shares of common stock held by ICN will be reclassified into shares of Class B
Common Stock. Additionally, the certificate of incorporation will provide for
authorized capital stock of 534,857,142 shares, including 400,000,000 shares of
Class A Common Stock, $.01 par value per share, 124,857,142 shares of Class B
Common Stock, $.01 par value per share, and 10,000,000 shares of preferred
stock, $.01 par value per share. Upon completion of the Offering, no preferred
stock will be outstanding, ICN will own all of the 124,857,142 outstanding
shares of Class B Common Stock and the public will hold 18,000,000 shares of
Class A Common Stock.

The balance sheets have been prepared using the historical basis of accounting
and include all of the assets and liabilities specifically identifiable to the
Division. The statements of income include all revenue and costs attributable to
the Division, including a corporate allocation of costs of shared services
(including legal, finance, corporate development, information systems and
corporate office expenses). These costs are allocated to the Division on a basis
that is considered by management to reflect most fairly or reasonably the
utilization of services provided to or the benefit obtained by the Division,
such as the square footage, headcount, or actual utilization. Management
believes the methods used to allocate these amounts are reasonable. However, the
financial information included herein does not necessarily reflect what the
financial position or results of operation would have been had it operated as a
stand-alone public entity during the periods covered, and may not be indicative
of future results of operations or financial position. For the years ended
December 31, 1997, 1998 and 1999, such allocated costs amounted to $9,542,000,
$5,146,000, and $4,852,000, and are included in operating expenses. For the six
months ended June 30, 1999 and 2000, such allocated costs amounted

--------------------------------------------------------------------------------
F- 7
<PAGE> 83
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

to $1,856,000 and $1,548,000. The details of the allocation for the years ended
December 31, 1997, 1998 and 1999 and for the six months ended June 30, 1999 and
2000 were as follows (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Legal expenses........................... $7,155 $2,460 $2,844 $1,102 $ 830
Facility and central service costs....... 2,167 2,376 1,963 717 621
Information systems...................... 220 310 45 37 18
Corporate development.................... -- -- -- -- 79
------ ------ ------ ------ ------
$9,542 $5,146 $4,852 $1,856 $1,548
====== ====== ====== ====== ======
</TABLE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost.
The Division primarily uses the straight-line method for depreciating property,
plant and equipment over their estimated useful lives. The building and its
related improvements are depreciated over a period of 40 years, and equipment
from 3 - 10 years.

The Division follows the policy of capitalizing expenditures that materially
increase the lives of the related assets and charges maintenance and repairs to
expense. Upon sale or retirement, the costs and related accumulated depreciation
or amortization are eliminated from the respective accounts and the resulting
gain or loss is included in income.

REVENUE RECOGNITION: The Division earns royalties as a result of the sale of
product rights and technologies to third parties. Royalty revenue is recorded at
the time the products subject to the royalty are sold by the third party.

RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred.

INCOME TAXES: The Division is not a separate taxable entity for federal, state
or local income tax purposes. The Division's operations are included in the
consolidated ICN tax returns. Income tax provisions and benefits have been
calculated on a separate return basis for federal income tax purposes and based
upon ICN's worldwide apportionment California State rate of 1%. Prior to the
consummation of the Offering, the Division intends to enter into a tax sharing
agreement as described in Note 4.

Deferred income taxes are calculated using the estimated future tax effects or
difference between financial statement carrying amounts and the tax bases of
assets and liabilities.

CONCENTRATION OF CREDIT RISK: Financial instruments that subject the Division
to concentrations of credit risk consist principally of accounts receivable. The
Division performs an ongoing credit evaluation of its customers' financial
condition and generally does not require collateral to secure accounts
receivable. The Division's exposure to credit risk associated with nonpayment is
affected principally by conditions or occurrences within its sole customer. The
Division historically has not experienced losses relating to accounts receivable
from its customer. All revenues for the three years in the period ended December
31, 1999 and for the six months ended June 30, 2000 were derived from one
customer.

--------------------------------------------------------------------------------
F- 8
<PAGE> 84
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

STOCK-BASED COMPENSATION: The Division participates in ICN's stock-based
compensation plans. In accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", the Division has elected to account for stock-based compensation
plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), and related interpretations. The
Division discloses the summary of pro forma effects to reported net income
(loss) for fiscal 1997, 1998 and 1999, as if the Division had elected to
recognize compensation cost based on the fair value of the options granted by
ICN to employees of the Division as prescribed by SFAS No. 123.

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

COMPREHENSIVE INCOME: The Division has adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income, which establishes standards for the reporting
and display of comprehensive income and its components. For all periods
presented, there were no differences between comprehensive and net income.

EARNINGS PER SHARE, AS ADJUSTED: Unaudited earnings per share, as adjusted, has
been calculated using the 142,857,000 shares that will be outstanding at the
completion of the Offering. Historical earnings per share are not presented in
the accompanying financial statements as such amounts are not considered
meaningful.

UNAUDITED INTERIM FINANCIAL STATEMENTS: The accompanying financial information
as of June 30, 2000 and for the six-month periods ended June 30, 1999 and 2000
is unaudited. The unaudited interim financial information has been prepared on
the same basis as the accompanying annual financial statements. In the opinion
of management, such interim financial information reflects adjustments
consisting of normal and recurring adjustments necessary for a fair presentation
of such financial information. The unaudited results of operations for the
interim periods ended June 30, 1999 and 2000 are not necessarily indicative of
the results of operations to be expected for any other interim period or for the
full year.

NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
becomes effective for the Division for the first quarter of 2001. The Division
does not currently engage in any program of hedging or hold derivative
instruments and consequently the Division does not expect the adoption of SFAS
No. 133 to have a material effect on the Division's financial position, cash
flows or results of operations.

3. AGREEMENT WITH SCHERING-PLOUGH:

On July 28, 1995, ICN entered into an Exclusive License and Supply Agreement
(the "License Agreement") with Schering-Plough. Under the License Agreement,
Schering-Plough licensed all oral forms of ribavirin for the treatment of HCV in
combination with Schering-Plough's interferon alfa-2b. The License Agreement
provided ICN an initial non-refundable payment and future royalty payments from
sales of ribavirin by Schering-Plough, including certain minimum royalty rates.
As part of the

--------------------------------------------------------------------------------
F- 9
<PAGE> 85
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

initial License Agreement, ICN retained the right to co-market ribavirin
capsules in the European Union under its trademark Virazole. In 1998, ICN and
the Division received a one-time payment of $16,500,000 from Schering-Plough of
which the Division received $13,467,000 for settlement of past royalties due on
samples and free product distributed by Schering-Plough ($8,467,000) and
forgiveness of a $5,000,000 obligation to them. In addition, the Division gave
up the right to co-market in the European Union in exchange for an increase in
worldwide royalty rates.

In conjunction with the License Agreement, Schering-Plough entered into a stock
purchase agreement under which Schering-Plough purchased $42,000,000 of ICN's
common stock upon the achievement of certain regulatory milestones.

As part of ICN's contribution, ICN intends to assign to Ribapharm its rights
under the License Agreement.

4. RELATED PARTY TRANSACTIONS:

These financial statements have been prepared for inclusion in a registration
statement relating to the planned initial public offering of a portion of the
common stock of Ribapharm. ICN will continue to beneficially own more than 80%
of the outstanding shares of common stock after the offering.

Effective upon the closing of this offering, Ribapharm and ICN will be subject
to an affiliation agreement, which requires Ribapharm to comply with the terms
of ICN's indentures, places restrictions on Ribapharm's ability to issue capital
stock to ensure that Ribapharm remains part of ICN's consolidated group for tax
purposes, and details ICN's commitment to elect independent directors to
Ribapharm's board of directors; a management services and facilities agreement,
which details ICN's agreement to provide Ribapharm with interim administrative
and corporate services and Ribapharm's agreement to provide ICN with interim
facilities; a confidentiality agreement, which provides that Ribapharm and ICN
will not disclose to third parties confidential and proprietary information
concerning each other; a registration rights agreement, which grants ICN rights
to require Ribapharm to register shares of Ribapharm common stock owned by ICN;
and a tax sharing agreement, which will govern Ribapharm's commitment to remain
part of ICN's consolidated tax group.

At the end of each period, all amounts receivable from Schering-Plough relating
to the License Agreement are transferred to ICN. Additionally, all excess cash
remaining after payment by the Division of its costs is retained by ICN.

Following is a summary of transactions between the Division and ICN for each of
the years ended December 31, 1997, 1998 and 1999 and for the six months ended
June 30, 1999 and 2000 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1999 1999 2000
-------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Allocation of costs of shared
services (Note 1)................ $ (9,542) $(5,146) $ (4,852) $ (1,856) $ (1,548)
Allocation of income tax benefit
(expense)........................ 5,522 (1,950) (33,652) (13,071) (25,403)
Capital expenditures............... (346) -- -- -- --
Operating expenses................. (5,375) -- -- -- --
</TABLE>

--------------------------------------------------------------------------------
F- 10
<PAGE> 86
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1999 1999 2000
-------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Payments on long-term debt......... (793) -- -- -- --
Interest paid...................... (683) -- -- -- --
Increase in royalty receivable
transferred to ICN............... 708 6,875 26,119 21,223 7,860
Cash retained by ICN............... -- 3,594 65,836 16,546 63,075
-------- ------- -------- -------- --------
Total.............................. $(10,509) $ 3,373 $ 53,451 $ 22,842 $ 43,984
======== ======= ======== ======== ========
</TABLE>

Effective upon the closing of the Offering, the advances due to (from) ICN will
be eliminated and recorded as a component of the new capital structure.

5. INCOME TAXES:

The income tax (benefit) provision for each of the years ended December 31,
1997, 1998 and 1999, and for each of the six months ended June 30, 1999 and 2000
(unaudited), consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1999 1999 2000
--------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Current................................ $(5,522) $1,950 $33,652 $13,071 $25,403
Deferred............................... 429 4,998 1,651 1,604 47
------- ------ ------- ------- -------
$(5,093) $6,948 $35,303 $14,675 $25,450
======= ====== ======= ======= =======
</TABLE>

The Division is not a separate taxable entity for federal, state or local income
tax purposes. The Division's operations are included in the consolidated ICN tax
returns. Income tax provisions and benefits have been calculated on a separate
return basis for federal income tax purposes and based upon ICN's worldwide
apportionment California State rate of 1%. Prior to the consummation of the
Offering, the Division intends to enter into a tax sharing agreement with ICN.

The primary components of the Division's net deferred taxes were (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999 2000
------------------------------------------------------------------------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment..................................... $(2,570) $(2,665) $ (2,712)
Schering-Plough deferred income and obligation............. 1,556 -- --
------- ------- -----------
Net deferred tax liability................................. $(1,014) $(2,665) $ (2,712)
======= ======= ===========
</TABLE>

The Division's effective tax rate for each of years ended 1997, 1998 and 1999
and for each of the six months ended June 30, 1999 and 2000 was 36%. This rate
is equal to the federal statutory rate and ICN's worldwide apportionment
California State rate of 1%.

--------------------------------------------------------------------------------
F- 11
<PAGE> 87
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

6. DETAIL OF CERTAIN ACCOUNTS (IN THOUSANDS):

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999 2000
------------------------------------------------------------------------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, NET:
Land.................................................... $10,859 $10,859 $10,859
Building and building improvements...................... 10,121 10,121 10,121
Equipment............................................... 3,346 3,399 3,497
------- ------- -------
$24,326 24,379 24,477
Accumulated depreciation.................................. (3,108) (3,664) (3,934)
Construction in progress.................................. -- -- 1,471
------- ------- -------
$21,218 $20,715 $22,014
======= ======= =======
Accrued Liabilities Payroll and related items............. $ 96 $ 93 $ 138
Other................................................... 121 657 933
------- ------- -------
$ 217 $ 750 $ 1,071
======= ======= =======
</TABLE>

7. MORTGAGE PAYABLE (IN THOUSANDS):

<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------------------
<S> <C>
MORTGAGE PAYABLE:
U.S. mortgage with variable interest at rates ranging from
6.7% to 7.1%; interest and principal payable monthly through
2022........................................................ $7,628
Less current portion........................................ 828
------
Mortgage payable, less current portion...................... $6,800
======
</TABLE>

In September 1999, the Division repaid the remaining balances of the mortgage in
the amount of $7,129,000. There were no borrowings outstanding at December 31,
1999 or June 30, 2000.

8. COMMON STOCK PLANS:

During 1998, the Board of Directors and the stockholders of ICN approved ICN's
Amended and Restated 1998 Stock Option Plan (the "Stock Option Plan"). The Stock
Option Plan, as amended, provides for the granting of options to purchase a
maximum of 7,854,000 shares (including 3,000,000 shares authorized in 1998) of
ICN's common stock to key employees, officers, directors, consultants and
advisors of ICN. Options granted under the Stock Option Plan must have an option
price not less than 85% of the fair market value of ICN's common stock at the
date of the grant, and a term not exceeding 10 years. Options vest ratably over
a four-year period from the date of the grant. Certain ICN employees who will
become employees of Ribapharm were granted options under the Stock Option Plan.

--------------------------------------------------------------------------------
F- 12
<PAGE> 88
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

The Division has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for options granted under
the Stock Option Plan. Had compensation cost for ICN's Stock Option Plan been
determined based on the fair value at the grant date for awards in 1997, 1998
and 1999 consistent with the provisions of SFAS No. 123, the Division's
unaudited pro forma net income (loss) would have been ($9,193,000), $11,992,000
and $62,400,000, for the years ended December 31, 1997, 1998 and 1999,
respectively

The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions:

<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average life (years)............................... 5.0 5.0 4.4
Volatility.................................................. 46% 56% 54%
Expected dividend per share................................. $0.24 $ 0.36 $ 0.36
Risk-free interest rate..................................... 6.33% 5.15% 5.4%
Weighted-average fair value of options granted.............. $6.52 $23.57 $13.11
</TABLE>

The following table sets forth information relating to ICN stock option plans
for Division employees during the years ended December 31, 1997, 1998 and 1999
(in thousands, except per share data):

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-----------------------------
<S> <C> <C>
Shares under option, December 31, 1996 246 $12.61
Granted................................................... 3 13.66
Exercised................................................. (17) 11.06
Canceled.................................................. -- --
--- ------
Shares under option, December 31, 1997...................... 232 12.73
Granted................................................... 93 45.25
Exercised................................................. (51) 15.69
Canceled.................................................. -- --
--- ------
Shares under option, December 31, 1998...................... 274 23.22
Granted................................................... 26 26.88
Exercised................................................. (69) 11.06
Canceled.................................................. (9) 45.24
--- ------
Shares under option, December 31, 1999...................... 222 $26.54
=== ======
Exercisable at December 31, 1997............................ 120 $10.44
=== ======
Exercisable at December 31, 1998............................ 96 $ 7.97
=== ======
Exercisable at December 31, 1999............................ 155 $21.65
=== ======
</TABLE>

--------------------------------------------------------------------------------
F- 13
<PAGE> 89
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

The schedule below reflects the number of outstanding and exercisable options
for employees of the Division as of December 31, 1999 segregated by price range
(in thousands, except per share data):

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE AVERAGE
OF EXERCISE NUMBER OF EXERCISE REMAINING
RANGE OF EXERCISE PRICES SHARES PRICE SHARES PRICE LIFE (YEARS)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2.91 to $13.67 62 $ 9.16 61 $9.11 4.0
13.92 to 26.88 76 19.98 50 16.46 6.7
27.61 to 46.25 84 45.25 44 45.25 8.3
--- ---
222 155
=== ===
</TABLE>

During 1998, ICN extended by one year the term of options to purchase an
aggregate of 103,475 shares of common stock which are held by a director of ICN
who was acting as the Senior Vice President of Research and Development. The
Division was allocated non-cash compensation expense of $1,625,000 related to
these options.

2000 STOCK OPTION AND AWARD PLAN: Prior to completion of the Offering, the 2000
Stock Option and Award Plan will be adopted by Ribapharm's Board of Directors
and approved by the sole shareholder. The Stock Option and Award Plan will
provide for the granting of options to purchase a maximum of 21,000,000 shares
of Ribapharm's Class A Common Stock to the Ribapharm's directors, officers,
employees and consultants as well as directors, officers and employees of ICN
and its other affiliates. Options granted under the Stock Option and Award Plan
will have an option price not less than 85% of the fair market value of
Ribapharm's Common Stock at the date of grant and a term not exceeding 10 years.
Options will vest ratably over a four year period from the date of the grant.

2000 EMPLOYEE STOCK PURCHASE PLAN: Prior to completion of the Offering, the
2000 Employee Stock Purchase Plan will be adopted by Ribapharm's Board of
Directors. The Stock Purchase Plan will allow Ribapharm's employees to purchase
shares of the Ribapharm's Class A Common Stock on the Nasdaq National Market at
the then current market price. Employees electing to participate in this program
will pay for these purchases through payroll deductions.

9. COMMITMENTS AND CONTINGENCIES:

CONTINGENCIES: On August 11, 1999, the United States Securities and Exchange
Commission filed a complaint in the United States District Court against ICN,
the Chairman (Milan Panic) and one current and one former officer of ICN and the
Division (the "SEC Complaint"). The SEC Complaint alleges that ICN and the
individual named defendants made untrue statements of material fact or omitted
to state material facts necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading and
engaged in acts, practices, and courses of business which operated as a fraud
and deceit upon other persons in violation of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The action concerns
the status and disposition of the Division's 1994 new drug application for
Virazole(R) as a monotherapy treatment for hepatitis C (the "NDA"). The SEC
Complaint seeks injunctive relief, unspecified civil penalties, and an order
barring Mr. Panic from acting as an officer or director of any publicly-traded
company.

--------------------------------------------------------------------------------
F- 14
<PAGE> 90
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

ICN has received subpoenas from a Grand Jury in the United States District Court
for the Central District of California requesting the production of documents
covering a broad range of matters over various time periods. ICN understands
that ICN, Mr. Panic, two current senior executive officers, a former senior
officer, a current employee, and a former employee of ICN are targets of the
investigation. ICN also understands that a senior executive officer and a
director of ICN are subjects of the investigation. The United States Attorney's
office has advised counsel for ICN that the areas of its investigation include
disclosures made and not made concerning the NDA to the public and other third
parties; stock sales for the benefit of Mr. Panic following receipt on November
28, 1994 of a letter from the FDA informing ICN that the NDA had been found not
approvable; possible violations of the economic embargo imposed by the United
States upon the Federal Republic of Yugoslavia, based upon alleged sales by ICN
and Mr. Panic of stock belonging to ICN employees; and, with respect to Mr.
Panic, personal disposition of assets of entities associated with Yugoslavia,
including possible misstatements and/or omissions in federal tax filings. ICN
has, and continues to, cooperate in the Grand Jury investigation. A number of
current and former employees of ICN have been interviewed by the government in
connection with the investigation. The United States Attorney's office has
issued subpoenas requiring various current and former officers and employees of
ICN to testify before the Grand Jury. Certain current and former officers and
employees of ICN testified before the Grand Jury beginning in July 1998.

As a division controlled by ICN, any adverse judgment or settlement of the
pending Securities and Exchange Commission and government actions against ICN
can impose restrictions on the conduct of the Division's business. Furthermore,
the pending Commission action seeks to bar ICN's chairman from acting as an
officer or director of any publicly traded company, which would include
Ribapharm.

BENEFITS PLANS: ICN has a defined contribution plan that provides all U.S.
employees the opportunity to defer a portion of their compensation for pay out
at a subsequent date. ICN can voluntarily make matching contributions on behalf
of participating and eligible employees. Certain of the employees of ICN who
will become employees of Ribapharm participate in this plan. The Division's
expense related to such defined contribution plan was not material in 1999, 1998
and 1997.

PRODUCT LIABILITY INSURANCE: The Division is currently self-insured with
respect to product liability claims and could be exposed to possible claims for
personal injury resulting from allegedly defective products. While to date no
material adverse claim for personal injury resulting from allegedly defective
products has been successfully maintained against the Division, a substantial
claim, if successful, could have a negative impact on the Division's results of
operations and cash flows.

LONG-TERM INCENTIVE PLAN: ICN has a long-term incentive plan, which provides
for the issuance of shares of ICN's common stock to senior executives, certain
of whom are employees of the Division. Shares issued under the long-term
incentive plan are restricted and vest over a four-year period. Although certain
current employees of the Division may be eligible for grants under the plan, no
such grants have been made.

OTHER: Milan Panic, ICN's Chairman of the Board and Chief Executive Officer, is
employed under a contract expiring December 31, 2002 that provides for, among
other things, certain health and retirement benefits. The contract is
automatically extended at the end of each term for successive one-year periods
unless either ICN or Mr. Panic terminates the contract upon six months prior
written notice. Mr. Panic, at his option, may provide consulting services upon
his retirement and will be entitled, when serving as a consultant, to
participate in ICN medical and dental plans. The consulting fee shall not at any
time exceed the annual compensation, as adjusted, paid to Mr. Panic. Upon

--------------------------------------------------------------------------------
F- 15
<PAGE> 91
RIBAPHARM
(A DIVISION OF ICN PHARMACEUTICALS, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------

Mr. Panic's retirement, the consulting fee shall not be subject to further
cost-of-living adjustments. To date, Mr. Panic has devoted substantially all of
his efforts to ICN.

ICN has employment agreements with eight key executives which contain "change in
control" benefits, two of whom are employees of the Division. Upon a "change in
control" of ICN as defined in the contract, the employee shall receive severance
benefits equal to three times salary and other benefits.

--------------------------------------------------------------------------------
F- 16
<PAGE> 92

--------------------------------------------------------------------------------

Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the Class A Common Stock
registered hereby, all of which expenses, except for the SEC registration fee,
the National Association of Securities Dealers, Inc. filing fee, and the Nasdaq
National Market listing fee, are estimated.

<S> <C>
------------------------------------------------------------------------
Securities and Exchange Commission registration fee......... $ 81,972
NASD filing fee.............................................
Nasdaq National Market listing application fee..............
Printing and engraving fees and expenses....................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue Sky fees and expenses..................................
Transfer Agent and Registrar fees and expenses..............
Miscellaneous expenses......................................
----------
Total.............................................
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

In connection with the consummation of this offering, we will adopt and file an
amended and restated certificate of incorporation and amended and restated
bylaws. As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:

+ for any breach of duty of loyalty to us or to our stockholders;

+ for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

+ for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law or for
any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation further provides that we
must indemnify our directors to the fullest extent permitted by Delaware law. In
addition, our amended and restated bylaws provide that:

+ we are required to indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to limited exceptions;

+ we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise prohibited by law, our
amended and restated certificate of incorporation, our amended and restated
bylaws or agreements;

--------------------------------------------------------------------------------
II- 1
<PAGE> 93
PART II
--------------------------------------------------------------------------------

+ we are required to advance expenses to our directors and executive officers
as incurred in connection with legal proceedings against them for which they
may be indemnified; and

+ the rights conferred in the amended and restated bylaws are not exclusive.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the three years preceding the filing of this registration statement,
Ribapharm has not sold any of its securities without registration under the
Securities Act of 1933, except for the issuance of 100 shares of common stock to
ICN on May 1, 2000 for $1.00 per share.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

The following exhibits are filed with this registration statement.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement, by and among ICN
Pharmaceuticals, Inc., Ribapharm Inc. and the underwriters
named therein.**
3.1 Form of Amended and Restated Certificate of Incorporation of
Ribapharm Inc.**
3.2 Amended and Restated Bylaws of Ribapharm Inc.**
4.1 Form of Class A Common Stock Certificate.**
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.**
10.1 Ribapharm Inc. 2000 Employee Stock Option and Award Plan and
form of Stock Option Agreement.**
10.2 Ribapharm Inc. 2000 Employee Stock Purchase Plan.**
10.3 Affiliation Agreement, dated as of , 2000,
between ICN Pharmaceuticals, Inc. and Ribapharm Inc.**
10.4 Management Services and Facilities Agreement, dated as of
, 2000, between ICN Pharmaceuticals, Inc. and
Ribapharm Inc.**
10.5 Confidentiality Agreement, dated as of , 2000,
between ICN Pharmaceuticals, Inc. and Ribapharm Inc.**
10.6 Registration Rights Agreement, dated as of ,
2000, between ICN Pharmaceuticals, Inc. and Ribapharm Inc.**
10.7 Tax Sharing Agreement, dated as of , 2000,
between ICN Pharmaceuticals, Inc. and Ribapharm Inc.**
10.8 Form of Indemnification Agreement between Ribapharm Inc. and
its directors and executive officers.**
</TABLE>

--------------------------------------------------------------------------------
II- 2
<PAGE> 94
PART II
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------
<S> <C>
10.9 Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd. dated July
28, 1995.**
10.10 Amendment to Exclusive License and Supply Agreement between
ICN Pharmaceuticals, Inc. and Schering-Plough Ltd.**
11.1 Computation of Earnings per Common Share.**
23.1 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in the opinion filed as Exhibit 5.1).**
23.2 Consent of PricewaterhouseCoopers LLP.*
24.1 Power of Attorney.***
27.1 Financial Data Schedule.*
99.1 Consent of director-designee.**
99.2 Consent of director-designee.**
</TABLE>

-------------------------
* Filed herewith.

** To be filed by amendment.

*** Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES

All the schedules are omitted because they are not required, are not applicable
or the information is included in the selected consolidated financial data or
notes contained in this Registration Statement.

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in the
denominations and registered in the names as required by the underwriters to
permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
this indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against these liabilities (other than the payment by the registrant of expenses
incurred or paid by the director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by any director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether this indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of this issue.

(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to

--------------------------------------------------------------------------------
II- 3
<PAGE> 95
PART II
--------------------------------------------------------------------------------

Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall
be deemed to be the initial bona fide offering thereof.

--------------------------------------------------------------------------------
II- 4
<PAGE> 96
PART II
--------------------------------------------------------------------------------

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Costa Mesa,
State of California, on the 23rd day of August, 2000.

RIBAPHARM INC.

By: /s/ BILL A. MACDONALD
--------------------------------------
Name: Bill A. MacDonald
Title: Vice President, Chief
Financial Officer and
Treasurer

Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed below by the following persons in the
capacities indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Director August 23, 2000
-------------------------------------------------------- (Principal Executive
Milan Panic Officer)

* Vice President, Chief August 23, 2000
-------------------------------------------------------- Financial Officer and
Bill A. MacDonald Treasurer
(Principal Financial
Officer and
Principal Accounting
Officer)

* Director August 23, 2000
--------------------------------------------------------
David C. Watt

*By: /s/ DAVID C. WATT
---------------------------------------------------
David C. Watt
Attorney-in-fact
</TABLE>

--------------------------------------------------------------------------------
II- 5
<PAGE> 97

EXHIBIT INDEX

<TABLE>
<CAPTION>
NO. DESCRIPTION PAGE
-------------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement, by and among ICN
Pharmaceuticals, Inc., Ribapharm Inc. and the underwriters
named therein.**
3.1 Form of Amended and Restated Certificate of Incorporation of
Ribapharma Technologies, Inc.**
3.2 Amended and Restated Bylaws of Ribapharm Inc.**
4.1 Form of Class A Common Stock Certificate.**
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.**
10.1 Ribapharm Inc. 2000 Employee Stock Option and Award Plan and
form of Stock Option Agreement.**
10.2 Ribapharm Inc. 2000 Employee Stock Purchase Plan.**
10.3 Affiliation Agreement, dated as of , 2000,
between ICN Pharmaceuticals, Inc. and Ribapharm Inc.**
10.4 Management Services and Facilities Agreement, dated as of
, 2000, between ICN Pharmaceuticals, Inc. and
Ribapharm Inc.**
10.5 Confidentiality Agreement, dated as of , 2000,
between ICN Pharmaceuticals, Inc. and Ribapharm Inc.**
10.6 Registration Rights Agreement, dated as of ,
2000, between ICN Pharmaceuticals, Inc. and Ribapharm Inc.**
10.7 Tax Sharing Agreement, dated as of , 2000,
between ICN Pharmaceuticals, Inc. and Ribapharm Inc.**
10.8 Form of Indemnification Agreement between Ribapharm Inc. and
its directors and executive officers.**
10.9 Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd. dated July
28, 1995.**
10.10 Amendment to Exclusive License and Supply Agreement between
ICN Pharmaceuticals, Inc. and Schering-Plough Ltd.**
11.1 Computation of Earnings per Common Share.**
23.1 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in the opinion filed as Exhibit 5.1).**
23.2 Consent of PricewaterhouseCoopers LLP.*
24.1 Power of Attorney.***
27.1 Financial Data Schedule.*
99.1 Consent of director-designee.**
99.2 Consent of director-designee.**
</TABLE>

-------------------------
* Filed herewith.

** To be filed by amendment.

*** Previously filed.