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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2002.

Commission File Number 1-11397

ICN Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (714) 545-0100

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x  No  ¨

The aggregate market value of the Registrant’s voting stock held by non-affiliates of the Registrant on June 28, 2002, was approximately $1,984,252,835.

The number of outstanding shares of the Registrant’s common stock as of March 17, 2003 was 83,894,680.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in ICN Pharmaceuticals, Inc.’s definitive Proxy Statement for the 2003 Annual Meeting of Stockholders, to be filed not later than 120 days after the end of the fiscal year covered by this report, is incorporated by reference into Part III hereof.

TABLE OF CONTENTS

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PART I

Item 1.     Business

Introduction

ICN Pharmaceuticals, Inc. (the “Company”) is a research-based global pharmaceutical company that develops, manufactures and distributes a broad range of prescription and non-prescription pharmaceuticals under the ICN brand name. These pharmaceutical products treat viral and bacterial infections, diseases of the skin, neuromuscular disorders, cancer, cardiovascular disease, diabetes and psychiatric disorders. The Company’s research and new product development, which exists primarily in its majority owned subsidiary Ribapharm Inc. (“Ribapharm”), focuses on innovative treatments for dermatology, infectious diseases and cancer.

The Company’s internet address is www.icnpharm.com. On the Company’s website are posted links to the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendment to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934. All such filings are available through the Company’s website free of charge.

In April 2002, the Company sold through an initial public offering 29,900,000 shares of common stock of Ribapharm (the “Ribapharm Offering”), representing 19.93% of the 150,000,000 total outstanding shares of Ribapharm common stock. In connection with the Ribapharm Offering, the Company received net cash proceeds of $276,611,000. The Company continues to own 120,100,000 shares of Ribapharm common stock representing 80.07% of the total outstanding common stock as of December 31, 2002. Ribapharm performs research and development activities and holds the rights to a license agreement allowing Schering-Plough Ltd. (“Schering”) to market and sell ribavirin in combination therapy with Schering’s interferon products.

In 2002, the Company had revenues of $737 million and a net loss of $135 million. Based on the closing price of the Company’s common stock on the New York Stock Exchange on March 17, 2003, the Company had an equity market capitalization of approximately $751 million.

The Company pursues a strategy of international expansion which includes the acquisition of high margin products that complement existing product lines and can be introduced into new markets to meet the specific needs of those markets and the creation of a pipeline of new products through internal research and development, strategic partnerships, licensing arrangements and acquisitions. In executing this strategy, the Company believes that it is uniquely positioned to continue to exploit its basic competitive advantages: (i) large enough economies of scale in its global distribution network not enjoyed by smaller pharmaceutical companies that provide opportunities to develop and register multi-regional products; and (ii) small enough economies of scale in much of its manufacturing and production facilities and its local and regional sales and marketing groups that provide for higher profitability on the Company’s smaller, niche products that cannot be achieved by the larger pharmaceutical companies.

During 2002, the Company initiated and completed a strategic review of its operations. As a result of that review, the Company is emphasizing its specialty pharmaceuticals business, divesting itself of those businesses that do not fit the Company’s strategic growth plans and exerting efforts to bring its overall cost structure in line with industry standards. Key elements of the strategic repositioning include: (i) refocusing the Company’s specialty pharmaceuticals business in North America, Latin America, and Western and Central Europe, particularly Germany, Italy and Poland, with greater attention on selected therapeutic areas, (ii) bolstering the Company’s product development capabilities across the organization to broaden and develop its pipeline and extend existing product life cycles, (iii) divesting non-core businesses that do not fit the Company’s strategic growth plans, (iv) lowering costs, primarily in the Company’s corporate headquarters, (v) pursuing opportunities

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to rationalize the Company’s manufacturing network and improve product and supply chain operations and (vi) exploring its options with respect to the Company’s 80 percent ownership in Ribapharm.

In the Company’s North America Pharmaceuticals segment, the Company decided in the second quarter of 2002 to reduce the inventory levels of the Company’s products at wholesalers. The inventory levels at the wholesalers had accumulated over a period exceeding one year. This decision resulted in a significant decrease in revenues in the North America Pharmaceuticals segment in 2002 as compared to 2001. Assuming that customer demand for its products remains stable, management expects product sales to decline through the first half of 2003 as compared to the comparable period in the previous year, as the Company continues to reduce inventories of its products at wholesalers.

Based on a number of factors, including changes in market conditions and changes in strategic direction, the Company abandoned its previously announced intention to sell up to a 40% interest in ICN International AG.

The Company has made the decision to divest its Russian Pharmaceuticals segment, Biomedicals segment, Photonics business, raw materials businesses and manufacturing capability in Hungary and the Czech Republic and Circe unit. The Company has completed the divestiture of its Photonics business and Circe unit, and the other divestitures are expected to be completed in 2003. The results of operations and financial position of these entities have been reflected as discontinued operations in the consolidated financial statements in accordance with SFAS No. 144. The consolidated financial statements have been restated to conform to discontinued operations presentation for all historical periods presented.

Ribapharm’s research and development efforts are primarily focused on the discovery, development, acquisition and commercialization of innovative products for the treatment of diseases with significant unmet medical needs, principally in the antiviral and anticancer areas. Its current research and development program focuses on hepatitis C, hepatitis B, cancer and HIV/AIDS, each of which affects a large number of patients. Ribapharm seeks to capitalize on an extensive library of nucleoside analogs and other compounds that have already led to the discovery and development of ribavirin. Ribapharm’s revenues in 2002 consisted entirely of royalties under its license of ribavirin to Schering.

The Company’s continuing pharmaceutical businesses operate as four regional businesses: North America, Latin America, Western Europe (including Poland and Hungary) and Asia, Africa and Australia (“AAA”). The regional businesses are comprised of a number of local operating subsidiaries most of which are owned directly or indirectly through the Company’s principal operating company in the United States.

Ribapharm

The Company previously contributed to Ribapharm: (i) the Company’s right, title and interest under the Schering license, including the right to receive all of the royalties from Schering in connection with the sale of oral forms of ribavirin from the time Ribapharm became a separate publicly traded company; (ii) all the chemical compounds contained in the Company’s chemical compound library, along with all associated records, journals and data; (iii) all intellectual property rights, including all patents, copyrights and trademarks, related to Ribapharm’s business, including all intellectual property rights held by the Company at the time of contribution in ribavirin and excluding existing approved indications for use other than as contemplated in the Schering ribavirin license, Tiazole^™, Adenazole^™, Levovirin^™, Viramidine^™, and the chemical compounds in the Company’s nucleoside analog library; (iv) all of the equipment and furniture contained in, and personnel employed in, Ribapharm’s research and development department in the Costa Mesa facility; and (v) all other assets used in the conduct of Ribapharm’s business.

At the time of the Ribapharm Offering, the Company stated that it intended to pursue a tax-free distribution of its remaining interest in Ribapharm to the Company’s stockholders (a “Spin-Off”), although there was no obligation to do so. Following the Company’s 2002 annual meeting of stockholders, which led to significant changes in composition of the board of directors and leadership of the Company, the Company announced that it was re-evaluating its past restructuring plans, including whether to pursue a potential Spin-Off. The Company is currently evaluating its options with respect to Ribapharm.

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Upon completion of the Ribapharm Offering, Ribapharm became jointly and severally liable for the obligations under the Company’s 6 ¹/2% subordinated convertible notes. In addition, if the Spin-Off does occur, a holder of the subordinated convertible notes would receive shares of Ribapharm common stock upon conversion of notes. The number of shares received by the holder of the subordinated convertible notes will be the same number of shares of Ribapharm common stock as the holder would have received had the holder converted the notes immediately prior to the record date for the Spin-Off.

On December 23, 2002, the Company acted by written consent to remove Johnson Y.N. Lau, Kim Campbell, Arnold Kroll, Hans Thierstein and John Vierling (the “Former Directors”) as directors of Ribapharm, and to amend a bylaw provision adopted by Ribapharm’s Board requiring advance notice of actions to be taken by written stockholder consent. In its letter to Ribapharm, the Company expressed its concern over certain actions and inactions by Ribapharm’s Board of Directors and management. The disputes between the Company and the Former Directors are described in greater detail in the Information Statement on Form 14C filed by Ribapharm on January 7, 2003. The Company also filed suit in the Court of Chancery of the State of Delaware against the Ribapharm directors it sought to remove. On January 22, 2003, in connection with the settlement of that litigation, the Former Directors resigned as directors of Ribapharm. In addition, the executive officers of Ribapharm, consisting of Dr. Lau, Thomas Stankovich and Roger Loomis, also resigned. On January 23, 2003, Ribapharm’s Board, comprised of Roberts A. Smith, Ph.D., the sole remaining director, elected the following individuals to serve as directors of Ribapharm effective immediately: Daniel J. Paracka, Santo J. Costa, Esquire, Gregory F. Boron and James J. Pieczynski. Mr. Paracka was also elected to serve as Chairman of the Board. Ribapharm’s Board also appointed Kim D. Lamon, M.D., Ph.D., to the position of Ribapharm’s President and Chief Executive Officer, William M. Comer, Jr., CPA, to the position of Vice President and Chief Financial Officer, and Mel D. Deutsch, Esquire, to the position of Vice President, General Counsel, and Secretary. A sixth director, Andre C. Dimitriadis, Ph.D., was elected to Ribapharm’s Board on February 21, 2003. The bylaw amendment adopted by the Company’s written consent became effective January 27, 2003.

Acquisitions

The Company, as a fundamental aspect of its growth strategy, pursues acquisitions throughout its regions of operations. Currently, the Company has operations in nine of the top ten pharmaceutical markets, as measured by sales. Over the past three years, the Company has acquired a variety of products and a number of companies around the world. The following is a summary of the Company’s acquisitions.

In April 2002, the Company acquired Circe Biomedicals, Inc. a development stage company for $25.9 million, of which $5.9 was paid in cash and the balance in 629,849 shares of the Company’s common stock. The acquisition, which is included in discontinued operations, is not material to the financial position or results of operations of the Company.

In February 2002, the Company acquired certain assets from CoolTouch Corporation, a provider of non-ablative cosmetic lasers, for 1,492,331 shares of the Company’s common stock valued at approximately $14.5 million. The acquisition, which is included in discontinued operations, is not material to the financial position or results of operations of the Company.

Throughout 2002, the Company acquired the rights to certain products in Western Europe and Latin America from several companies for total consideration of $16.8 million. None of these product acquisitions are material to the financial position or results of operations of the Company.

Effective January 1, 2001, the Company acquired certain assets from Medical Alliance, Inc., a provider of office based surgical services, for $14.4 million in cash. The acquisition, which is included in discontinued operations, was accounted for as a purchase and is not material to the financial position or results of operations of the Company.

In August 2001, the Company acquired certain assets from an Argentine company, New Pharma S.A., for $8.4 million. The acquisition was accounted for as a purchase and is not material to the financial position or results of operations of the Company.

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In July 2000, the Company acquired the Swiss pharmaceutical company Solco Basel AG for $30.4 million, of which $25.2 million was paid in cash ($4 million of cash was received as part of the Solco assets) and the balance in 125,000 shares of the Company’s common stock at a fair market value of approximately $5.0 million.

Schering License Agreement and Revenues

Royalty revenues represent amounts earned by the Company’s Ribapharm subsidiary under an Exclusive License and Supply Agreement (the “License Agreement”) with Schering. Under the License Agreement, Schering licensed all oral forms of ribavirin for the treatment of chronic hepatitis C (“HCV”) in combination with Schering’s alpha interferon (the “Combination Therapy”). In 1998, Schering received approval from the United States Food and Drug Administration (“FDA”) to market Rebetron^™ Combination Therapy. Rebetron^™ combines Rebetol^® (ribavirin) capsules and Intron^® A (interferon alfa-2b) injection, for the treatment of HCV in patients with compensated liver disease. In July 2001, the FDA granted Schering marketing approval for Rebetol^® capsules as a separately marketed product for use only in combination with Intron^® A injection for the treatment of HCV in patients with compensated liver disease previously untreated with alpha interferon (commonly referred to as treatment-naive patients) or who have relapsed following alpha interferon therapy. In August 2001, the FDA also granted Schering approval for Peg-Intron^™ (peginterferon alfa-2b), a longer lasting form of Intron^® A, for use in Combination Therapy with Rebetol^® for the treatment of HCV in treatment-naive patients with compensated liver disease who are at least 18 years of age.

In March 2001, the European Commission of the European Union (the “Commission”) granted Schering centralized marketing authorization for Peg-Intron^™ and Rebetol^® as Combination Therapy for the treatment of both relapsed and treatment-naïve adult patients with histologically proven HCV. Commission approval resulted in unified labeling that was immediately valid in all 15 EU-Member States.

In November 2001, Schering received marketing approval from the Ministry of Health, Labor and Welfare of Japan for ribavirin in combination with interferon alfa-2b for the treatment of HCV. The Combination Therapy is the first combination therapy approved in Japan for treating patients with HCV. In December 2001, Schering received pricing approval for this Combination Therapy in Japan.

Schering also markets the Combination Therapy in many other countries around the world based on the US and European Union regulatory approvals.

The Company and Ribapharm are involved in a dispute with Schering over the payment of royalties on products distributed as part of Schering’s indigent patient marketing program. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year Ended December 31, 2002 Compared to 2001.”

Royalty revenues under the License Agreement were $270.3 million, $137.0 million and $155.1 million for 2002, 2001 and 2000, respectively. All future royalties under the License Agreement will be paid to Ribapharm. These funds may not be readily available to the Company unless Ribapharm declares a dividend or loans funds to the Company.

In addition to the use of ribavirin in Combination Therapy, the Company markets ribavirin under its own trademark Virazole^® for commercial sale in over 40 countries for one or more of a variety of viral infections, including respiratory syncytial virus (“RSV”). In the United States and Europe, Virazole^® is approved for use in hospitalized infants and young children with severe lower respiratory tract infections due to RSV.

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Products

During 2002, the ten pharmaceutical products from the Company’s continuing operations generating the greatest sales volume for the Company represented approximately 36% of the Company’s worldwide pharmaceutical sales from continuing operations. The following table summarizes the Company’s top ten pharmaceutical products based on sales from continuing operations for 2002:

Antivirals

The Company sells its antiviral drug, ribavirin, under the tradename Virazole^® in North America and most European countries. Ribavirin is sold as Vilona^® and Virazide^® in Latin America and Virazide^® in Spain. Reference to the sale of Virazole^® includes sales made under the trademarks Vilona^® and Virazide^®. Ribavirin accounted for approximately 4%, 3% and 3% of the Company’s product sales from continuing operations, excluding royalty revenues for the years ended December 31, 2002, 2001 and 2000, respectively. Ribavirin is currently approved for sale in various pharmaceutical formulations in over 40 countries for the treatment of several different human viral diseases, including RSV, hepatitis, herpes, influenza, measles and chicken pox. In the United States and Canada, Virazole^® has been approved for hospital use in aerosolized form to treat infants and young children who have severe lower respiratory tract infections caused by RSV. In treating RSV, the drug is administered by a small particle aerosol generator, a system that permits direct delivery of ribavirin to the site of the infection. Similar approvals for ribavirin for use in the treatment of RSV have been granted by governmental authorities in 22 other countries.

Antibacterials

The Company sells antibacterial products which accounted for approximately 12%, 10% and 11% of the Company’s product sales from continuing operations, excluding royalty revenues for the years ended December 31, 2002, 2001 and 2000, respectively.

The major products in this group include Ancobon^®/Ancotil^®, Anapenil^® and Yectamicina^®. Ancobon^®/Ancotil^® is a systemic anti-fungal product that is used in the treatment of serious infections. Anapenil^® is an antibiotic product that is used in the treatment of susceptible infections. Yectamicina^® is a bactericidal aminoglycoside antibiotic that is used in the treatment of respiratory, urinary, gastrointestinal tract infections, sepsis, meningitis and bone infections due to Gram-negative and Gram-positive bacteria.

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Other Ethicals

The Company manufactures and/or markets a wide variety of other ethical pharmaceuticals, including analgesics, anticholinesterases, antirheumatics, cardiovasculars, dermatologicals, endocrine agents, gastrointestinals, hormonals and psychotropics. Other ethicals accounted for approximately 74%, 78% and 75% of the Company’s product sales from continuing operations, excluding royalty revenues for the years ended December 31, 2002, 2001 and 2000, respectively.

Dermatological products represent the Company’s largest selling product line among its other ethical pharmaceutical products. Dermatological products include Efudex^®/Efudix^®, Oxsoralen-Ultra^®, Kinerase^®, Glyquin^® and Solaquin Forte^®, which are principally used for actinic keratosis, psoriasis, reducing wrinkles and other signs of aging and pigmentation disorders.

Other ethical products include Mestinon^®, Librax^®, Bedoyecta^®, Dalmane^®/Dalmadorm^®, Fluorouracil injectable, Librium^® and Limbitrol^®.

OTC Products

OTC products encompass a broad range of ancillary products, which are sold through the Company’s existing distribution channels. OTC products accounted for approximately 10%, 9% and 11% of the Company’s product sales from continuing operations, excluding royalty revenues for the years ended December 31, 2002, 2001 and 2000, respectively.

Research and Development

The Company’s research and development effort, primarily performed by the Company’s Ribapharm subsidiary, seeks to discover, develop, acquire and commercialize innovative products for the treatment of diseases with significant unmet medical needs, principally in the antiviral and anticancer areas. Ribapharm’s current program areas focus on hepatitis C, hepatitis B, HIV/AIDS, and cancer, each of which affects a large number of patients. Ribapharm’s research and development activities are based upon the expertise accumulated in over 30 years of nucleic acids research focusing on the internal generation of novel molecules.

The research and development function works closely with corporate marketing on a global and regional basis. In connection with this arrangement, the Company and Ribapharm have entered into licensing arrangements with other larger pharmaceutical companies, as well as strategic partnerships to develop proprietary products, as discussed below. In addition, the Company develops innovative products targeted to address the specific needs of the its local markets.

The Company and Ribapharm spent approximately $3 million in 2002, $22 million in 2001 and $18 million in 2000 to update and modernize their research laboratories and equipment. This modernization will enable the Company and Ribapharm to accelerate its drug discovery and development process by utilizing advanced screening techniques and equipment, biological assays and sophisticated computer assisted drug design. The Company and Ribapharm currently employ approximately 150 employees devoted to research and development activities.

Near and Medium-Term Research and Development

The Company’s near-term development pipeline includes the registration of a number of products in regional markets, including, but not limited to, Latin America and Central and Eastern Europe. This ongoing activity introduces both high quality generic and licensed proprietary products into under-served markets.

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Virazole^® (ribavirin):    In addition to the use of ribavirin for HCV, clinical studies have been performed with ribavirin in various formulations for the treatment of several other viral diseases. Among diseases for which at least one governmental health regulatory agency, in countries other than the United States, has approved commercialization of ribavirin are herpes zoster, genital herpes, chickenpox, hemorrhagic fever with renal syndrome, measles and influenza. The Company is initiating focused clinical studies evaluating the use of ribavirin for early intervention against RSV infections in persons whose immune defenses are compromised as a consequence of bone marrow transplantation.

Ribapharm’s medium-term research and development pipeline involves the pre-clinical and clinical evaluation of certain nucleoside compounds which have broad market attractiveness and which have shown promise for successful commercialization. These compounds include:

Levovirin^™:    Levovirin^™ is a nucleoside analog that is being developed in oral form for the treatment of HCV. Ribapharm is exploring whether Levovirin^™ may stimulate an immune response to viral infections without a direct antiviral effect and without the anemia associated with ribavirin. Ribapharm completed chemical development and formulation studies, as well as the ancillary pharmacology and short-term toxicology studies on Levovirin^™, and filed an Investigational New Drug Application (“IND”) with the FDA in December 2000 to begin clinical testing of Levovirin^™ for use in combination with interferon alpha for the treatment of HCV. Ribapharm began Phase I clinical trials on Levovirin^™ in February 2001 in the United States. Ribapharm has submitted patent applications in the U.S. and many foreign countries for Levovirin^™ relating to both the compound and numerous indications and has a composition of matter patent from the U.S. Patent and Trademark Office. This patent expires in October 2016.

In June 2001, Ribapharm licensed Levovirin^™ to F. Hoffmann-La Roche (“Roche”) on an exclusive basis. Ribapharm received a one time licensing fee and is eligible to receive future payments based upon Roche achieving certain milestones. Roche will be responsible for all future development costs of Levovirin^™. If Levovirin^™ is successfully developed and receives regulatory approval, Ribapharm is entitled to receive royalty payments.

Viramidine^™:    Viramidine^™ is a nucleoside analog that Ribapharm intends to develop in oral form for the treatment of HCV. Ribapharm expects to test Viramidine’s^™ effect on the hepatitis C virus both on its own and in combination with interferon alpha or pegylated interferon alpha. Preclinical studies indicated that Viramidine^™, a liver-targeting prodrug of ribavirin, has antiviral and immunological activities (properties) similar to ribavirin. In an animal model of acute hepatitis, Viramidine^™ showed biologic activity similar to ribavirin. The liver-targeting properties of Viramidine^™ were also confirmed in two animal models. Short-term toxicology studies also showed that Viramidine^™ may be safer than ribavirin at the same dosage levels. This data suggests that Viramidine^™, as a liver-targeting prodrug of ribavirin, may have the potential of having better efficacy and less side effects compared to ribavirin.

In September 2001, Ribapharm initiated Phase I clinical trials on Viramidine^™ in Europe. Ribapharm filed an IND with the FDA in December 2001. In late March 2002, Ribapharm began additional Phase I clinical trials on Viramidine^™ in the United States, and Phase II clinical trials on Viramidine^™ in the United States began in December 2002.

The Company and Ribapharm have filed a number of patent applications for the novel use of Viramidine and its related compounds. The structure of Viramidine was disclosed many years ago, and it cannot be patented as a new chemical entity. Patent efforts are therefore directed to claiming related compounds, and novel indications including immunomodulatory activity and activity against specific viruses. The U.S. Patent and Trademark Office allowed a broad method of use patent for Viramidine hydrochloride in October 2001, including for the treatment of HCV. Another broad use patent application covering modifications of Viramidine was allowed in February 2002.

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Hepavir B^™:    Hepavir B^™ is a nucleoside analog Ribapharm licensed from Metabasis Therapeutics, Inc. (“Metabasis”) in October 2001. Ribapharm is exploring the possibilities of developing this compound into an oral once a day monotherapy for patients with chronic hepatitis B infection. The active molecule in this compound exhibits anti-hepatitis B activity against both the wild type and Lamivudine drug-resistant hepatitis B. Based on biologic and molecular modeling data, this compound binds to the active site of the hepatitis B replication enzyme so that the virus is prevented from utilizing the natural substrate from the host to replicate. A prodrug modification developed by Metabasis significantly improved the compound’s physiochemical properties and ability to target the liver. In preliminary experiments in rodents, the active molecule was delivered in significantly greater proportion to the targeted organ, the liver, as compared to the non-targeted organ, the kidney. The kidney is the organ responsible for the dose-limiting toxicity. In these experiments, the amount of metabasis-modified compound delivered to the liver versus kidneys was approximately 10 times greater than the amount of compound delivered by another well established process. Ribapharm is working on largescale synthesis of this compound and has commenced formulation studies. Ribapharm has also initiated additional biology, drug metabolism, pharmacokinetic, and toxicology studies. Ribapharm initiated a Phase I clinical trial of Hepavir B^™ in Europe in August 2002 and filed an IND with the FDA in October 2002.

Metabasis has one issued U.S. patent on the structure of this compound and is in the process of preparing patent applications on this compound in other countries.

IL-12:    IL-12 is a developmental compound for the treatment of cancer and allergies. On June 29, 2001, Roche exclusively licensed to the Company and Ribapharm both its own rights in IL-12 and the non-exclusive rights to IL-12 that Roche had previously licensed from Genetics Institute. At the time, Roche had completed Phase I clinical trials on IL-12. The Company contributed all of its rights under this license agreement to Ribapharm. The June 2001 agreement contemplated that the parties would negotiate and execute a revised definitive agreement, which was completed in the third quarter of 2002. Ribapharm applied with the FDA to reactivate the IND to initiate human clinical trials of IL-12 during December 2002. Although Ribapharm has not received formal notification from the FDA regarding the status of the its application, the 30-day waiting period has elapsed, thus reactivating the IND. Under the license agreement, Roche is entitled to milestone payments from Ribapharm of up to $24 million in connection with drug development and regulatory approvals, and royalty payments from the Company if the drug is commercialized. Ribapharm is responsible for the development costs of this compound. The patent applications underlying the licensed rights have not yet been issued. Ribapharm has the right to terminate the agreement at any time without cause with six months’ prior written notice. The license agreement will expire 10 years after the first commercial sale of any human pharmaceutical product containing IL-12 or after the expiration or invalidation of licensed patents used in connection with this agreement, whichever occurs later. Ribapharm may also need to pursue a license agreement from Genetics Institute to proceed with development of this compound.

Tiazole (Tiazofurin):    Tiazole is a nucleoside analog Ribapharm has evaluated for the treatment of chronic myelogenous leukemia in blast crisis and ovarian cancer. Ribapharm has conducted Phase 3 testing in the United States for treatment of chronic myelogenous leukemia in blast crisis and Phase 2 testing in Russia for treatment of ovarian cancer through a Russian subsidiary of the Company. In May 2001, Novartis announced that it received FDA approval to market its product, Gleevec, for the treatment of chronic myelogenous leukemia, including blast crisis stage. As a result of this development and the uncertainty over the Company’s rights to this compound pending the outcome of the on-going arbitration between the Company and certain Serbian governmental entities which concerns rights in Tiazole, Ribapharm has decided to terminate and cancel these clinical studies.

Adenazole^® (8-CI cAMP, Toclasdenine):    Adenazole is a nucleoside analog Ribapharm evaluated for the treatment of colon cancer. Ribapharm initiated a Phase 1 study in the United States in September 2000, following earlier clinical tests by the Company in Europe. However, Ribapharm has no plans to further

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The rights to the compounds Tiazole^™ and Adenazole^™ were among the assets which the Company contributed to ICN Yugoslavia, upon the formation of that joint venture in 1991. The resolution of the ongoing matter with the Yugoslavian government may affect the status of these compounds with the Company. See Note 13 to Notes to Consolidated Financial Statements.

The Company has contributed the Hepavir B^™ license and its rights to the compounds Levovirin^™, Viramidine^™, Tiazole^™ and Adenazole^™ to Ribapharm.

Long-Term Research and Development

Ribapharm’s long-term research and development activities are focused on the identification and development of novel therapeutic compounds for the treatment of viral diseases and cancer. Ribapharm’s research focus is based on extending the library of nucleoside analogs through new synthesis and screening efforts. This is a proven approach that led to the identification of ribavirin by the Company and to other nucleoside therapeutics, in particular, antiviral and anticancer drugs, by other companies. Given the success of the use of nucleoside analogs in the areas of antiviral and anticancer research, the Company is focusing its research and development efforts in these two therapeutic areas.

There can be no assurance of the results of any of the Company’s and Ribapharm’s research and development efforts or the ultimate commercial success of any of the products in development.

Discontinued Operations

The Company has made the decision to divest its Russian Pharmaceuticals segment, Biomedicals segment, Photonics business, raw materials businesses and manufacturing capability in Central Europe and Circe unit. The results of operations and financial position of these entities have been reflected as discontinued operations in the consolidated financial statements in accordance with SFAS No. 144.

Biomedical Products

The Company’s Biomedicals segment operates in thee primary areas: dosimetry, research chemicals and diagnostics.

Dosimetry:    The Company is a supplier of analytical monitoring services to detect personal occupational exposure to radiation. This service is provided to dentists, veterinarians, chiropractors, podiatrists, hospitals, universities, government institutions, nuclear power plants, small office practitioners and others exposed to ionizing radiation.

Research Chemicals:    The Company serves life science researchers throughout the world primarily through a catalog sales operation. The Company’s catalog lists approximately 55,000 products which are used by medical and scientific researchers. A majority of these products are purchased from third party manufacturers and distributed by the Company. Products include biochemicals, immunobiologicals, radiochemicals, tissue culture products and organic, rare and fine chemicals.

Diagnostics: Among the diagnostics marketed by the Company are reagents that are routinely used by physicians and medical laboratories to accurately and quickly diagnose hundreds of patient samples for a variety of disease conditions.

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Russia

The Company’s operations in Russia have historically been affected by economic developments in the region. While the Russian economy continues to show improvement since the financial crisis that began in August 1998, the economy continues to experience difficulties. In 1998, the ruble fell sharply from a rate of 6.3 rubles to $1 to a rate of 27.5 rubles to $1 by the end of 1999. To date, while the ruble has continued to devalue, it has devalued at a steady, and recently, slowing rate. There is continued volatility in the debt and equity market, high inflation persists, confidence in the banking sector has yet to be restored and there continues to be a general lack of liquidity in the economy. In addition, laws and regulations affecting businesses operating within Russia continue to evolve. Russia’s return to economic stability is dependent to a large extent on the effectiveness of the measures taken by the government, decisions of international lending organizations, and other actions, including regulatory and political developments, which are beyond the Company’s control.

At December 31, 2002, the ruble exchange rate was 31.8 rubles to $1 as compared with the rate of 30.1 rubles to $1 and 28.2 rubles to $1 as of December 31, 2001 and 2000, respectively. As a result of the change in the ruble exchange rate, the Company recorded translation and exchange losses of $1.4 million, $1.5 million and $3.5 million, related to its Russian operations during 2002, 2001 and 2000, respectively. As of December 31, 2002, ICN Russia had a net monetary asset position of approximately $16.1 million, which is subject to foreign exchange loss as further declines in the value of the ruble in relation to the dollar occur. Due to the fluctuation in the ruble exchange rate, the ultimate amount of any future translation and exchange loss the Company may incur cannot presently be determined. The Company’s management continues to manage its net monetary exposure.

The Company believes that the economic and political environment in Russia has affected the pharmaceutical industry in the region. Many Russian companies, including many of the Company’s customers, continue to experience liquidity problems as monetary policies have limited the money supply, and Russian companies often lack access to an effective banking system. As a result, many Russian companies have limited ability to pay their debts, which has led to a number of business failures in the region. In addition, the devaluation has reduced the purchasing power of Russian companies and consumers, thus increasing pressure on the Company and other producers to limit price increases in hard currency terms.

Other Discontinued Operations

The Company’s raw materials businesses in Central Europe consists of the manufacture and sale of non-finished form pharmaceutical products in Hungary and the Czech Republic. The Company intends to divest this business and all other manufacturing facilities in Hungary and the Czech Republic.

The Company’s Photonics business consisted of laser-based products, sold under the N-Lite^™ and CoolTouch^™ brands, for the reduction of wrinkles. The Photonics business included the acquisitions of Medical Alliance, Inc., which occurred in January 2001 and CoolTouch^™ Corporation, which occurred in February 2002. The Company disposed of its Photonics business in two stages. First, it discontinued the medical services business in September 2002. Second, the Company sold the laser device business in February 2003 for approximately $505,000. The Company recorded a loss on disposal of discontinued operations of $37,909,000 in 2002, related to the disposal of the Photonics business. These amounts are included in income (loss) from discontinued operations.

On March 11, 2002 the Company acquired Circe Biomedical, Inc. (“Circe”), a development stage company for $26,000,000 in cash and stock. The Company disposed of the Circe unit in the fourth quarter of 2002 for a nominal sales price. The Company recorded a loss on disposal of discontinued operations charge of $22,943,000 in 2002, which is included in income (loss) from discontinued operations.

The Company is currently actively marketing for sale its Russian Pharmaceuticals segment, Biomedicals segment and raw materials businesses and manufacturing capability in Hungary and the Czech Republic. Based on this event, the Company performed an analysis of these businesses in accordance with SFAS No. 144. As a

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result of this analysis, the Company recorded an impairment charge of $147,351,000 in 2002, which represents the excess of the carrying value of the long-lived assets over their fair value, as determined using discounted cash flows analysis, appraisals and purchase offers. The Company expects all of its discontinued operations will be sold by the end of 2003.

Marketing and Customers

The Company markets its pharmaceutical products in some of the most developed pharmaceutical markets, as well as many developing markets. The Company adjusts its marketing strategies according to the individual markets in which it operates. The Company believes its marketing strategy is distinguished by flexibility, allowing the Company to successfully market a wide array of pharmaceutical products within diverse regional markets, as well as certain drugs on a worldwide basis.

The Company plans to focus on the major markets that represent approximately 85% of the worldwide pharmaceutical market share, namely the U.S., Germany, Spain, Italy, Poland, France, U.K., Canada and Mexico.

The Company has a marketing and sales staff of approximately 3,100 persons (1,800 persons in businesses to be divested) who promote its pharmaceutical products. As part of its marketing program for pharmaceuticals, the Company uses direct mailings, advertises in trade and medical periodicals, exhibits products at medical conventions, sponsors medical education symposia and sells through distributors in countries where it does not have its own sales staff.

In the United States, the Company currently promotes its pharmaceutical products to physicians through its own sales force. These products are distributed to drug stores and hospitals through wholesalers. In Canada, the Company has its own sales force and promotes and sells directly to physicians, hospitals, wholesalers and large drug store chains. In Latin America, principally Mexico, Argentina and Brazil, the Company promotes to physicians and distributes products either directly or indirectly to hospitals and pharmacies. In Western Europe the Company promotes and sells pharmaceutical products through its own sales forces to physicians, hospitals, retail outlets, pharmacies and wholesalers.

Competition

The Company operates in a highly competitive environment. The Company’s competitors, many of whom have substantially greater capital resources and marketing capabilities and larger research and development staffs and facilities, are actively engaged in marketing similar products and developing new products similar to those proposed to be developed by the Company. The Company believes that many of its competitors spend significantly more on research and development related activities. Competitive factors vary by product line and customer and include service, product availability and performance, price and technical capabilities. Others may succeed in developing products that are more effective than those presently marketed or proposed for development by the Company. Progress by other researchers in areas similar to those explored by the Company may result in further competitive challenges.

The Company and Ribapharm also face increased competition from manufacturers of generic pharmaceutical products when patents covering certain of their currently marketed products expire. These competitors may also seek to challenge the validity of the Company’s and Ribapharm’s patents. An adverse result in a patent dispute may preclude commercialization of the Company’s products, or negatively impact sales of existing products. In January 2003, Ribapharm settled litigation with Roche challenging validity of Ribapharm’s ribavirin patents. The terms of this settlement include a license by Ribapharm of ribavirin to Roche, under which Roche will pay a royalty on sales of ribavirin. See “Business—Licenses, Patents, and Trademarks (Proprietary Rights)”. In addition, three generic pharmaceutical companies have filed abbreviated NDAs with the FDA to market generic forms of ribavirin in combination therapy for the treatment of HCV. See “Business—Licenses, Patents, and Trademarks (Proprietary Rights)”. The Company and Ribapharm have sued these companies to prevent them from marketing a generic form of ribavirin. The results of these actions are uncertain.

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Manufacturing

The Company manufactures most of its pharmaceutical products at its manufacturing plants around the world. The Company believes it has sufficient manufacturing facilities to meet its needs for the foreseeable future. The Company has indicated that as a part of its strategy to improve operational performance, all manufacturing operations not otherwise included in discontinued operations are being assessed for potential consolidation with other Company operated facilities. All of the manufacturing facilities that require certification from the FDA or foreign agencies have obtained such approval.

In order to meet the demand for some of its markets, the Company subcontracts the manufacturing of some of its products, including products under the rights acquired from other pharmaceutical companies. Generally, acquired products continue to be produced for a specific period of time by the selling company. During that time, the Company integrates the products into its own manufacturing facilities or initiates toll manufacturing agreements with third parties. As a result of the acquisition of products from Roche, the Company is in the process of transferring technology that will allow the Company to assume the production of the acquired products. However, there can be no assurance that the Company will be successful in its efforts to manufacture such products or that such products will continue to be available from outside suppliers.

Employees

As of December 31, 2002, the Company employed 11,625 persons. These employees included approximately 7,050 in production, 3,100 persons in sales and marketing, 150 in research and development, and 1,330 in general and administrative matters. The Company employed approximately 7,800 persons in businesses to be divested as of December 31, 2002. The majority of the Company’s employees in Mexico, Spain, Poland and Hungary are covered by collective bargaining or similar agreements. Substantially all of the employees in the Czech Republic, Poland and Hungary are covered by national labor laws which establish the rights of employees, including the amount of wages and benefits paid and, in certain cases, severance and similar benefits. The Company currently considers its relations with its employees to be satisfactory and has not experienced any work stoppages, slowdowns or other serious labor problems that have materially impeded its business operations.

Licenses, Patents and Trademarks (Proprietary Rights)

Ribavirin

Ribapharm has three U.S. patents related to ribavirin. These patents claim uses of ribavirin, including treatment of hepatitis C alone and in combination therapy with interferon alpha. These patents expire in 2016.

Schering has five U.S. patents covering specific formulations of ribavirin. These patents expire in 2017. Schering also has at least three U.S. patents covering the use of ribavirin with interferon alpha-2b in combination therapy for the treatment of HCV. These patents expire between 2015 and 2018. Schering has advised the Company and Ribapharm that it has licensed its patents relating to ribavirin as part of a combination therapy for the treatment of HCV to Roche and also announced licensing its U.S. patents relating to ribavirin to three generic manufacturers, as described below.

Ribapharm has a European Union patent claiming methods of using of ribavirin for medical treatment for arboviruses, including the virus responsible for hepatitis C. This patent expires in 2005. The Company and Ribapharm have filed for an extension of this patent until 2010 in the relevant countries of the European Union, Switzerland and Japan.

In September 2002, the European Union granted Roche approval to market Copegus, its version of ribavirin, in combination with Pegasys, its version of pegylated interferon alfa-2b, for both relapsed and treatment-naïve adult HCV patients. In the United States, Copegus was approved in combination with Roche’s Pegasys on

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December 3, 2002. Roche made various regulatory filings seeking to invalidate certain of Ribapharm’s patents relating to ribavirin, and the Company and Ribapharm and Roche initiated various legal actions against each other in the United States and Europe relating to Ribapharm’s patents

On January 6, 2003, the Company, Ribapharm and Roche reached agreement on a settlement of these patent disputes. The companies agreed to stop all legal actions between them regarding ribavirin. Under the settlement, Roche will continue to register and commercialize Copegus, globally. The terms of this settlement agreement include a license by Ribapharm of ribavirin to Roche. The license authorizes Roche to make, have made and to sell Copegus under Ribapharm’s patents. Roche will pay royalty fees to Ribapharm on all sales of Copegus for use in combination therapy with interferon alpha or pegylated interferon alpha-2b beginning in 2003. No royalties under the Roche agreement were earned by or paid to Ribapharm in fiscal year 2002. The Company and Ribapharm understand that Roche sells ribavirin at prices below those charged by Schering. As a result, Ribapharm could experience a decline in royalty revenues from Schering, and it is uncertain if royalty revenues from Roche will offset the effect of any such decline.

The Company and Ribapharm believe others cannot manufacture, import or sell ribavirin for the treatment of HCV in the U.S., designated countries of the European Union or Japan without infringing on Ribapharm’s patent rights unless those patents are invalidated or they obtain a license from Ribapharm.

Three generic pharmaceutical companies, Geneva Pharmaceuticals Technology Corporation, which was recently merged into its parent, Geneva Pharmaceuticals, Inc. (“Geneva”) an indirect subsidiary of Novartis, Three Rivers Pharmaceuticals, LLC and Teva Pharmaceuticals USA, Inc. submitted abbreviated NDA’s for generic forms of ribavirin in combination therapy for the treatment of HCV. The Company and Ribapharm have sued all three companies to prevent them from marketing a generic form of ribavirin. The cases are all before the same judge, and have been coordinated with respect to a common trial date, which is currently set for June 2, 2003. In general, the Federal Food, Drug and Cosmetic Act, as amended by the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, prohibits the FDA from giving final marketing approval to these abbreviated NDAs until 30 months after the applicants notify Ribapharm of their intent to seek approval from the FDA. However, the FDA could grant marketing approval prior to expiration of this period if a court rules that Ribapharm’s patents are invalid or unenforceable, or that a generic manufacturer of ribavirin would not infringe Ribapharm’s patents, or if a court determines that a party has unreasonably delayed the progress of the patent litigation. The defendants have asserted in the litigation that Ribapharm patents are not infringed, and that the claims of the patents are invalid.

Schering also sued all three generic pharmaceutical companies to prevent them from marketing a generic form of ribavirin. However, Schering has announced it has entered into license agreements with each of the three companies that settled all litigation between them regarding Schering’s U.S. patents for ribavirin and its use in treating HCV. Under terms of the agreements, Schering granted to each company a non-exclusive, non-sublicensable license to its U.S. ribavirin patents. The agreements do not affect the three companies’ litigation with the Company and Ribapharm. The Company and Ribapharm believe their patent position to be unchanged by Schering’s settlements with the three generic pharmaceutical companies.

The Company’s Approach

As a general policy, the Company and Ribapharm expect to seek patents, where available, on inventions concerning novel drugs, techniques, processes or other products that they may develop or acquire in the future. However, there can be no assurance that any patents applied for will be granted, or that, if granted, they will have commercial value; also there can be no assurance as to their breadth or the degree of protection which these patents, if issued, will afford the Company and Ribapharm. In some instances, the Company and Ribapharm intend to rely substantially on their unpatented proprietary know-how, but there can be no assurance that others

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will not develop substantially equivalent proprietary information or otherwise obtain access to the Company’s and Ribapharm’s know-how. Patents for pharmaceutical compounds are not available in certain countries in which the Company and Ribapharm market their products. Marketing approvals in certain foreign countries provide an additional level of protection for products approved for sale in such countries.

Other organizations may in the future apply for and be issued patents or own proprietary rights covering technology that may become useful to the Company’s and Ribapharm’s business. The extent to which the Company and Ribapharm at some future date may need to obtain licenses from others is not known.

November 2000 Schering Agreement

In November 2000, the Company and Ribapharm entered into an agreement that provides Schering and an affiliate with certain rights to license various products the Company and Ribapharm may develop. Under the terms of the agreement, Schering has the option to exclusively license on a worldwide basis up to three compounds that the Company or Ribapharm may develop for the treatment of hepatitis C on terms specified in the agreement. The option does not apply to Levovirin or Viramidine. The option is exercisable as to a particular compound at any time prior to the start of Phase II clinical studies for that compound. Once it exercises the option with respect to a compound, Schering is required to take over all developmental costs and responsibility for regulatory approval for that compound.

Under the terms of the agreement, the Company and Ribapharm also granted Schering the right of first/last refusal to license compounds relating to the treatment of infectious diseases (other than hepatitis C) or cancer or other oncology indications as well as the right of first/last refusal with respect to Levovirin and Viramidine (collectively, the “Refusal Rights”). Under the terms of the Refusal Rights, the Company and Ribapharm must notify Schering if they intend to offer a license or other rights with respect to any of these compounds to a third party. At Schering’s request, the Company or Ribapharm, as the case may be, must negotiate in good faith on an exclusive basis the terms of a mutually acceptable exclusive worldwide license or other form of agreement on commercial terms to be mutually agreed upon. If the Company or Ribapharm cannot reach an agreement with Schering, they are permitted to negotiate a license agreement or other arrangement with a third party. Prior to entering into any final arrangement with the third party, the Company or Ribapharm, as the case may be, must offer substantially similar terms to Schering, which terms Schering has the right to match.

If Schering does not exercise its option or Refusal Rights as to a particular compound, the Company or Ribapharm may continue to develop that compound or license that compound to other third parties. The agreement with Schering will terminate the later of 12 years from the date of the agreement or the termination of the License Agreement with Schering. The agreement was entered into as part of the resolution of claims asserted by Schering against the Company and Ribapharm, including claims regarding the Company’s and Ribapharm’s alleged improper hiring of former Schering research and development personnel and claims that they were not permitted to conduct hepatitis C research.

In June 2001, the Company and Ribapharm licensed Levovirin to Roche. The November 2000 agreement with Schering granted Schering Refusal Rights for Levovirin. Although the Company and Ribapharm believe they have complied with the Refusal Rights, Schering may allege that the Company and Ribapharm have not complied with the Refusal Rights as to Levovirin.

Government Regulation

The Company is subject to licensing and other regulatory control by the FDA, the Nuclear Regulatory Commission, other Federal and state agencies, and comparable foreign governmental agencies.

FDA approval must be obtained in the United States and approval must be obtained from comparable agencies in other countries prior to marketing or manufacturing new pharmaceutical products for use by humans.

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Obtaining FDA approval for new products and manufacturing processes can take a number of years and involve the expenditure of substantial resources. To obtain FDA approval for the commercial sale of a therapeutic agent, the potential product must undergo testing programs on animals, the data from which is used to file an IND with the FDA. In addition, there are three phases of human testing. Phase I safety tests for human clinical experiments, generally in normal, healthy people; Phase II expanded safety tests conducted in people who are sick with the particular disease condition that the drug is designed to treat; and Phase III greatly expanded clinical trials to determine the effectiveness of the drug at a particular dosage level in the affected patient population. The data from these tests is combined with data regarding chemistry, manufacturing and animal toxicology and is then submitted in the form of a NDA to the FDA. The preparation of a NDA requires the expenditure of substantial funds and the commitment of substantial resources. The review by the FDA could take up to several years. If the FDA determines that the drug is safe and effective, the NDA is approved. No assurance can be given that authorization for commercial sale by the Company of any new drugs or compounds for any application will be secured in the United States or any other country, or that, if such authorization is secured, those drugs or compounds will be commercially successful. The FDA in the United States and other regulatory agencies in other countries also periodically review approved drugs and inspect manufacturing facilities.

The Company is subject to price control restrictions on its pharmaceutical products in many countries in which it operates. The Company has been affected in the past by pricing adjustments in Spain and by the lag in allowed price increases in Russia and Mexico, which has created lower sales in United States dollars and reductions in gross profit. Future sales and gross profit could be materially affected if the Company is unable to obtain price increases commensurate with the levels of inflation.

Litigation, Government Investigations and Other Matters

Litigation:  See Note 13 and 17 of Notes to Consolidated Financial Statements for a description of the Company’s litigation and government investigations.

Product Liability Insurance:  The Company is currently self-insured with respect to product liability claims. The Company 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 Company, a substantial claim, if successful, could have a negative impact on the Company’s results of operations and cash flows.

Eastern European Developments

During 1999, the Company’s operations in Eastern Europe were adversely affected by economic and political developments in the region, including the Yugoslavian government’s seizure of the Company’s Yugoslavian operations.

On February 6, 1999, the government of the Federal Republic of Yugoslavia, acting through the Federal Ministry of Health and/or the Ministry of Health of Serbia, seized control of the Company’s 75% owned subsidiary, ICN Yugoslavia. This action, based on a decision by the Ministry for Economic and Property Transformation that was reached on November 26, 1998, effectively reduced the Company’s equity ownership of ICN Yugoslavia from 75% to 35%. The Ministry of Economic and Property Transformation decision was based on a unilaterally imposed recalculation of the Company’s original capital contribution to ICN Yugoslavia. Subsequent to the seizure, the Commercial Court of Belgrade issued an order stating that a change in control had occurred. These actions were taken, contrary to Yugoslavian law, without any notification to or representation by the Company. As a result, the Company had and continues to have no effective control over the operating and financial affairs of ICN Yugoslavia. Accordingly, the Company has deconsolidated the financial statements of ICN Yugoslavia as of November 26, 1998, and reduced the carrying value of its investment in ICN Yugoslavia to fair value, estimated to be zero. The Company did not recognize any income or losses from ICN Yugoslavia in the years ended 2002, 2001 and 2000.

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The Company is currently engaged in arbitration proceedings through the International Chamber of Commerce International Court of Arbitration with the Republic of Serbia and the State Health Fund of Serbia in which the Company is seeking declaratory relief and damages arising out of the unlawful taking of the Company’s majority interest in ICN Yugoslavia. The State Health Fund of Serbia is seeking injunctive relief and damages based on alleged breaches of the 1990 Foundation Agreement which led to the formation of ICN Yugoslavia. The resolution of these matters may affect the status of certain compounds contributed to ICN Yugoslavia by the Company in accordance with the Foundation Agreement. See Item 1 “Business — Research and Development.”

Foreign Operations

The Company operates directly and through distributors in North America, Latin America (principally Mexico), Western Europe (including Poland, Hungary and the Czech Republic) and through distributors elsewhere in the world. For financial information about domestic and foreign operations, see Note 14 of Notes to Consolidated Financial Statements.

Approximately 54%, 60%, and 59% of the Company’s revenues from continuing operations for the years ended December 31, 2002, 2001 and 2000 were generated from operations outside the United States Foreign operations are subject to certain risks inherent in conducting business abroad, including possible nationalization or expropriation, price and exchange controls, limitations on foreign participation in local enterprises, health-care regulation and other restrictive governmental action. Changes in the relative values of currencies take place from time to time and may materially affect the Company’s results of operations. Their effects on the Company’s future operations are not predictable. The Company does not currently provide a hedge on its foreign currency exposure and, in certain countries in which the Company operates, no effective hedging program is available.

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Item 2.     Properties

The following are the principal facilities of the Company and its subsidiaries:

In the opinion of the Company’s management, all facilities occupied by the Company are adequate for present requirements, and the Company’s current equipment is considered to be in good condition and suitable for the operations involved.

*  These facilities are included in the Consolidated Financial Statements in discontinued operations.

Item 3.     Legal Proceedings

See Note 13 of Notes to Consolidated Financial Statements.

Item 4.     Submission of Matters to a Vote of Security Holders

The Registrant did not submit any matters to a vote of security holders during the quarter ended December 31, 2002.

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PART II

Item 5.     Market for Registrant’s Common Equity and Related Stockholder Matters

Price Range of Common Stock

The Company’s common stock is traded on the New York Stock Exchange (Symbol: ICN). As of March 17, 2003, there were 6,326 holders of record of the Company’s common stock.

The following table sets forth the high and low sales prices of the Company’s common stock on the New York Stock Exchange—Composite Transactions reporting system.

Dividend Policy

In June 2001, the Board of Directors increased the quarterly dividend to 7.5 cents per share. In March 2002, the Board of Directors increased the quarterly dividend to 7.75 cents per share.

The Board of Directors will continue to review the Company’s dividend policy. The amount and timing of any future dividends will depend upon the financial condition and profitability of the Company, the need to retain earnings for use in the development of the Company’s business, contractual restrictions and other factors. In view of the completion of the Ribapharm public offering, the Company’s consideration of its structural and strategic initiatives and other factors, the Company is reconsidering its cash dividend policy and may determine to reduce or eliminate its cash dividend.

Recent Sales of Unregistered Securities

In 2002, 2001 and 2000, the Company issued the following equity securities that were not registered under the Securities Act of 1933. In each instance the securities were issued pursuant to the private placement exemptions under Section 4(2) of the Securities Act of 1933 and/or Regulation D promulgated thereunder, based on the securities being issued to a limited number of purchasers subject to restrictions on resale:

In April 2002, the Company acquired Circe Biomedicals, Inc. a development stage company for $25.9 million, of which $5.9 was paid in cash and the balance in 565,010 unregistered shares of the Company’s common stock. The shares were registered under the Securities Act of 1933 in August 2002.

In February 2002, the Company acquired certain assets from CoolTouch Corporation, a provider of non-ablative cosmetic lasers, for 1,492,331 unregistered shares of the Company’s common stock valued at approximately $14.5 million. The shares were registered under the Securities Act of 1933 in August 2002.

In July 2001, the Company completed an offering of $525 million of 6 ¹/2% convertible subordinated notes due 2008 for net proceeds of approximately $507 million, which were sold to UBS Warburg as initial purchaser. The notes are convertible into 15,326,010 shares of the Company’s common stock at a conversion rate of 29.1924 shares per $1,000 principal amount of notes or $34.26 per share, subject to anti-dilution adjustments. As a result of the Ribapharm Offering, Ribapharm became jointly and severally liable for the principal and interest obligations under the notes. In the event of a spin-off of Ribapharm, converting note holders would receive the Company’s common stock and the number of shares of Ribapharm common stock the note holders would have received had the notes been converted immediately prior to the spin-off. A resale registration for the notes under the Securities Act of 1933 was declared effective by the SEC in November 2001.

In February 2001, the Company issued 92,275 unregistered shares of the Company’s common stock valued at approximately $2.7 million to Roche in settlement of a stock price guarantee.

In July 2000, the Company acquired the Swiss pharmaceutical company Solco Basel AG for $30.4 million, of which $25.2 million was paid in cash and the balance in 125,000 unregistered shares of the Company’s common stock valued at approximately $5 million.

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Item 6.     Selected Financial Data

The following table sets forth certain consolidated financial data for the five years in the period ended December 31, 2002. The Company’s selected historical financial data for each of the years in the five year period ended December 31, 2002 were derived from the audited consolidated financial statements of the Company. The trends in the Company’s revenues and net income (loss) are affected by several business combinations completed in fiscal years 1998 through 2002. During 2002, the Company made the decision to divest its Russian Pharmaceuticals segment, Biomedicals segment, raw materials business and manufacturing capability in Central Europe, Photonics business and Circe unit. The results of operations and the financial position of the divested businesses have been reflected as discontinued operations. The consolidated financial data for each of the years in the five year period ended December 31, 2002 have been restated to conform to discontinued operations presentation. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements included elsewhere in this Form 10-K.

See accompanying Notes to Selected Financial Data.

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Notes to Selected Financial Data:

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Recent Developments

ICN Pharmaceuticals, Inc. (the “Company”) is a research-based global pharmaceutical company that develops, manufactures and distributes a broad range of prescription and non-prescription pharmaceuticals under the ICN brand name. The Company has four reportable pharmaceutical segments comprising the pharmaceutical operations in North America, Latin America, Western Europe and Asia, Africa and Australia. In addition, the Company has a majority-owned subsidiary, Ribapharm Inc. (“Ribapharm”). In April 2002, the Company sold, through an initial public offering, 29,900,000 shares of common stock of Ribapharm, representing 19.93% of Ribapharm’s 150,000,000 outstanding shares of common stock. The Company continues to own 120,100,000 shares of common stock of Ribapharm, representing 80.07% of the total outstanding common stock as of December 31, 2002.

As a result of the May 29, 2002 Annual Meeting of Stockholders, three persons nominated by Franklin Mutual Advisors, LLC and Iridian Asset Management LLC were elected to the Board of Directors. Under the terms of employment agreements with some key executives, a long-term stock incentive plan and the Company’s Amended and Restated 1998 Stock Option Plan, the results of the 2002 election, together with the results of the 2001 election, constitute a change of control, which triggered certain rights on the part of the key executives and holders of stock options and restricted stock awards. See Note 4 to Notes to Consolidated Financial Statements.

On June 18, 2002, Mr. Milan Panic, the Company’s former Chief Executive Officer and Chairman of the Board, resigned with immediate effect from his positions as Chairman and Chief Executive Officer and from all positions he held as a director or officer of the Company’s affiliates. Mr. Panic also resigned as one of the Company’s employees effective June 30, 2002. Mr. Panic remains as one of the Company’s directors. The Company’s Board of Directors appointed Mr. Robert W. O’Leary as interim Chief Executive Officer and as Chairman of the Board effective June 19, 2002. On November 7, 2002, Mr. O’Leary was appointed to the permanent position of Chief Executive Officer and Chairman of the Board. In November 2002 the Company appointed Mr. Timothy C. Tyson as President and Chief Operating Officer and Mr. Bary G. Bailey as Executive Vice President and Chief Financial Officer.

Restructuring

During 2002, the Company conducted a strategic review of its operations. As a result of that review, the Company now intends to emphasize its specialty pharmaceuticals business, to divest itself of those businesses that do not fit the Company’s strategic growth plans and to exert efforts to bring its overall cost structure in line with industry averages. Key elements of the strategic repositioning include the following:

As a result of this strategic review, the Company made the decision to divest its Russian Pharmaceuticals segment, Biomedicals segment, Photonics business, raw materials business and manufacturing capability in Hungary and the Czech Republic and Circe unit. The results of these operations and the related financial position

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have been reflected as discontinued operations in the Company’s consolidated financial statements in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The consolidated financial statements have been restated to conform to the discontinued operations presentation for all historical periods presented.

At the time of the Ribapharm Offering, the Company stated that it intended to pursue a tax-free distribution of its remaining interest in Ribapharm to the Company’s stockholders (a “Spin-Off”), although there was no obligation to do so. Following the Company’s 2002 annual meeting of stockholders, which led to significant changes in composition of the board of directors and leadership of the Company, the Company announced that it was re-evaluating its past restructuring plans, including whether to pursue a potential Spin-Off. The Company is currently evaluating its options with respect to Ribapharm.

Critical accounting policies and estimates

The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these statements requires the Company’s 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. On an on-going basis, the Company evaluates its estimates, including those related to product returns, collectibility of receivables, inventories, intangible assets, income taxes and contingencies and litigation. The Company’s actual results could differ from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. The Company recognizes revenue from product sales when the goods are shipped and title and risk of loss transfer to the customer. Allowances for returns are provided for based upon an analysis of the Company’s historical patterns of returns matched against the sales from which they originated. The sales return is recorded as a reduction of product sales. The Company earns royalty revenue at the time the products subject to the royalty are sold by a third party. Accordingly the Company accrues for earned royalty net of estimated returns and discounts. Royalty payments received from Schering-Plough Ltd. (“Schering”) are reduced by Schering’s cash payments for discounts, rebates and similar deductions. The Company evaluates the collectibility of its receivables at least quarterly. The Company’s methodology for establishing the allowance for bad debts varies with the regions in which it operates. The allowance for bad debts is based upon specific identification of customer accounts and the Company’s best estimate of the likelihood of potential loss, taking into account such factors as the financial condition and payment history of major customers. The Company also evaluates the carrying value of its inventories at least quarterly, taking into account such factors as historical and anticipated future sales compared with quantities on hand, the price the Company expects to obtain for its products in their respective markets compared with historical cost and the remaining shelf life of goods on hand. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company considers future taxable income and other expected future amounts in determining the amount of valuation allowance necessary. In the event the Company determines that actual taxable income will be less than expected or other future events will not occur, an adjustment to the valuation allowance would be charged to income in the period such determination was made. The Company periodically evaluates the carrying value of intangibles including the related amortization periods. In evaluating acquired product rights and other intangible assets, the Company determines whether there has been impairment by comparing the anticipated undiscounted future operating income of the product line with its carrying value. If the undiscounted operating income is less than the carrying value, the amount of the impairment, if any, will be determined by comparing the carrying value of each intangible asset with its fair value. Fair value is generally based on a discounted cash flows analysis. The Company evaluated the businesses included in discontinued operations by comparing the carrying value of the long-lived assets to their fair value, as determined using discounted cash flows analysis, appraisals and purchase offers.

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Results of Operations

Certain financial information for the Company’s business segments is set forth below. This discussion should be read in conjunction with the consolidated financial statements of the Company included elsewhere in this document. For additional financial information by business segment, see Note 14 of Notes to Consolidated Financial Statements.

Year Ended December 31, 2002 Compared to 2001

Ribapharm Royalty Revenues:  Royalty revenues represent amounts earned by the Company’s Ribapharm subsidiary under the License and Supply Agreement (the “License Agreement”) with Schering. Under the License Agreement, Schering licensed all oral forms of ribavirin for the treatment of chronic hepatitis C (“HCV”) in combination with Schering’s alpha interferon (the “Combination Therapy”).

Schering has informed the Company and Ribapharm that it believes royalties paid under the License Agreement should not include royalties on products distributed as part of its indigent patient marketing program. Schering claims that because it receives no revenue from products given to indigent patients, it should not have to pay royalties on these products under the License Agreement. In August 2001, Schering withheld approximately $11,628,000 from its royalty payment relating to the second quarter of 2001. The amount withheld was purportedly intended by Schering to be a retroactive adjustment of royalties previously paid to the Company and Ribapharm through the third quarter of 2000 on products distributed as part of this indigent patient marketing program. Since the fourth quarter of 2000, Schering has withheld on a current basis all royalty payments purportedly related to this indigent patient marketing program. The Company and Ribapharm recognized the $11,628,000 of withheld royalty payments for the retroactive adjustment and $3,050,000 of royalty payments withheld for the fourth quarter of 2000 and the first quarter of 2001 as income. The Company and Ribapharm have not established a reserve for these amounts, because, in the opinion of management, collectibility is reasonably assured based upon Ribapharm management’s interpretation of the License Agreement and its understanding of the circumstances. Since the second quarter of 2001, the Company and Ribapharm no longer recognize any of these withheld royalty payments as income, as such amounts can no longer be determined due to a lack of information provided by Schering. The Company and Ribapharm have commenced arbitration with Schering to collect these royalties and prevent Schering from withholding royalty payments on sales under the indigent patient marketing program in the future. The parties selected an arbitrator, discovery has commenced and arbitration hearings are currently expected to begin in May or June 2003. If the Company and Ribapharm do not succeed in this arbitration, Ribapharm may have to write off all or a portion of this receivable. If the Company and Ribapharm do succeed, Ribapharm will be entitled to receive the royalty payments on these indigent sales withheld by Schering.

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Schering recently entered into license agreements with three generic pharmaceutical companies, which granted to the three companies non-exclusive, non-sublicensable licenses to Schering’s U.S. ribavirin patents. The outcome of the dispute regarding royalties from the indigent marketing program and Schering’s licenses to the three generic pharmaceutical companies could have a material negative impact on Ribapharm’s future royalty revenues.

In April 2002, Schering asserted a counterclaim against the Company and Ribapharm in this arbitration based on the Company’s alleged failure to assist Schering in securing certain distribution rights in Egypt. The Company and Ribapharm intend to vigorously contest this counterclaim.

Schering announced that it was served with two grand jury subpoenas by the United States Attorney for the District of Massachusetts which has been investigating certain of Schering’s sales and marketing practices. Among other information, the subpoenas seek a broad range of information concerning Schering’s sales, marketing and clinical trial practices and programs with respect to Rebetron, its sales and marketing contacts with managed care organizations and doctors and its offering or provision of grants, honorariums or other items or services of value to managed care organizations, physician groups, doctors and educational institutions. According to Schering, it is not possible to predict the outcome of the investigation, which could include the commencement of civil or criminal proceedings involving the imposition of fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs, nor whether the investigation will affect Schering’s marketing, sales or clinical trial practices.

The Company, which is not a party to, or otherwise involved in this investigation of Schering, cannot predict the impact, if any, of this investigation on royalty revenues under the License Agreement with Schering.

On January 6, 2003, the Company, Ribapharm and F. Hoffmann-La Roche Ltd. (“Roche”) reached agreement on a settlement regarding pending patent disputes over Roche’s combination anti-viral product containing Roche’s version of ribavirin, known as Copegus. Under the agreement, Roche may continue to register and commercialize Copegus globally. The financial terms of this settlement agreement includes a license by Ribapharm of ribavirin to Roche. The license authorizes Roche to make or have made and to sell Copegus under Ribapharm’s patents. Roche will pay royalty fees to Ribapharm on all sales of Copegus for use in combination with interferon alfa or pegylated interferon alfa. No royalties under the Roche agreement were earned by, or paid to, the Company and Ribapharm in fiscal year 2002.

Royalties for the year ended December 31, 2002 were $270,265,000 compared to $136,989,000 for the same period of 2001, an increase of $133,276,000 (97%). Revenues for 2002 are net of approximately $9,829,000 for estimated rebates and price concessions related to current period sales of ribavirin that are projected to be paid in subsequent periods. The increase is due to the launch in the United States of pegylated interferon alpha-2b and ribavirin combination therapy by Schering in October 2001 and the launch in Japan of ribavirin and interferon alpha-2b combination therapy by Schering in December 2001.

Revenues:  In the North America Pharmaceuticals segment, revenues for the year ended December 31, 2002 were $90,011,000, compared to $134,580,000 for the same period of 2001, a decrease of $44,569,000 (33%). The decrease in 2002 sales is primarily due to reduced sales to wholesalers beginning in the second quarter of 2002 in order to reduce inventories of the Company’s products at the wholesalers, which had accumulated over a period exceeding one year, and the Company’s decision to reduce shipments of its Mestinon^® product in anticipation of the possibility of generic competition.

Assuming that customer demand for its products remains stable, management expects product sales to decline through the first half of 2003 as compared to the comparable period in the previous years, as the Company continues to reduce inventories of its products at wholesalers.

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In the Latin America Pharmaceuticals segment, revenues for the year ended December 31, 2002 were $135,527,000, compared to $128,218,000 for the same period of 2001, an increase of $7,309,000 (6%). The increase is primarily due to an increase in sales in Mexico of $13,836,000, which included an increase in sales of Bedoyecta^® and Virazole^® of $6,120,000. The increase in sales was partially offset by an aggregate 13% devaluation in currencies in the region.

In the Western Europe Pharmaceuticals segment, revenues for the year ended December 31, 2002 were $189,925,000 compared to $171,210,000 for the same period of 2001, an increase of $18,715,000 (11%). The increase is primarily due to an increase in sales in Italy and Germany of $9,912,000, primarily due to new product acquisitions, and an increase in sales in Poland of $6,531,000.

In the Asia, Africa and Australia (“AAA”) Pharmaceuticals segment, revenues for the year ended December 31, 2002 were $51,346,000 compared to $49,826,000 for the same period of 2001, an increase of $1,520,000 (3%). The increase is primarily due to an increase in Solcoseryl and Coraceten^® product sales.

Gross Profit:  Gross profit margin on product sales from continuing operations decreased from 69% for the year ended December 31, 2001, to 66% for the same period of 2002. The decrease in gross profit is primarily due to reduced sales of higher margin products in the North America Pharmaceuticals segment, which lowered the Company’s overall gross profit margin.

Selling, General and Administrative Expenses:  Selling, general and administrative expenses were $530,953,000 for the year ended December 31, 2002, compared to $219,003,000 for the same period in 2001, an increase of $311,950,000. Included in selling, general and administrative expenses for the year ended December 31, 2002, are non-recurring and other unusual charges of $241,543,000, which primarily include stock compensation costs related to the change of control of the Company under the Company’s Amended and Restated 1998 Stock Option Plan ($61,400,000); severance costs related to cash severance payments to former executives of the Company and Ribapharm, the termination of Mr. Panic and employee severance benefits ($54,216,000); incentive compensation costs related to the acceleration of vesting of restricted stock upon the change of control ($12,022,000); executive and director bonuses paid in connection with the Ribapharm Offering ($47,839,000); professional fees related to the Ribapharm Offering ($13,000,000); the write-off of ICN International AG capitalized offering costs ($18,295,000); the write-down of certain assets ($15,045,000); costs incurred in the Company’s recent proxy contest ($9,850,000); environmental related expenses ($8,298,000); and Czech flood damages ($1,578,000). During the year ended December 31, 2001, the Company recorded non-recurring and other unusual charges of $4,034,000, related to the Company’s 2001 proxy contest.

The remaining increase excluding non-recurring items of $74,441,000 reflects increased selling and advertising expenses of $26,165,000 incurred throughout all regions to promote the Company’s products. General and administrative expenses increased by $48,276,000 primarily due to increased legal and professional fees of $19,784,000, a compensation charge of $2,968,000 for the exercise of stock options, severance costs of $3,664,000, the write-off of deferred acquisition costs of $2,356,000, higher general and administrative expenses at Ribapharm of $7,907,000, write-down of assets of $2,696,000 and expenses of $3,391,000 related to the ICN International headquarters in Basel, Switzerland.

Research and Development:  Research and development expenses for the year ended December 31, 2002 were $49,531,000, compared to $28,706,000 for the same period in 2001, an increase of $20,825,000. The increase reflects Ribapharm’s expanded and intensified research and development efforts, primarily in the areas of antiviral and anticancer drugs. Ribapharm increased spending on the antiviral drug Viramidine, which is in Phase I clinical trials, and on the antiviral drug Hepavir B, which is in Phase I clinical trials in Europe. The Company commenced Phase II clinical trials on Viramidine during December 2002. Additionally, the Company increased research and development expenses on other initiatives, including work on anti-hepatitis C, anti-hepatitis C, anti-hepatitis B and anticancer compounds.

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Other (Income) Loss, Net Including Translation and Exchange:  Other (income) loss, net including translation and exchange was ($8,707,000) for the year ended December 31, 2002 compared to ($3,084,000) for the same period in 2001. In the year ended December 31, 2002, the Company recorded translation gains related to the Company’s dollar denominated net assets in Latin America of $6,004,000 and $1,521,000 related to the AAA operations. In the same period of 2001, the Company recorded other income in connection with the licensing of Levovirin^™ to Roche offset by translation and exchange losses of $1,916,000 primarily related to the AAA operations.

Gain on Sale of Subsidiary Stock:  In April 2002, the Company sold, through an initial public offering, 29,900,000 shares of common stock representing 19.93% of the total outstanding common stock of Ribapharm (the “Ribapharm Offering”). In connection with the Ribapharm Offering, the Company received net cash proceeds of $276,611,000 and recorded a gain on the sale of Ribapharm’s stock of $261,937,000, net of offering costs.

Loss on Early Extinguishment of Debt:  Loss on early extinguishment of debt for the year ended December 31, 2002 was $25,730,000 compared to $32,916,000 for the same period of 2001. In 2002, the Company recorded a loss on extinguishment for debt of $43,268,000 in connection with a tender offer and consent solicitation for all of its outstanding 8¾% Senior Notes due 2008 (“8¾% Senior Notes”), which was partially offset by a gain on early extinguishment of debt of $17,538,000 on the repurchase of $59,410,000 principal amount of 6½% Convertible Subordinated Notes due 2008. In 2001, the Company recorded a loss on extinguishment of debt of $32,916,000 related to the redemption and repurchase of its 8¾% Senior Notes and 9¼% Senior Notes due 2005 (“9¼% Senior Notes”).

Interest Income and Expense:  Interest expense during the year ended December 31, 2002 decreased $12,809,000 compared to the same period in 2001. The decrease was the result of the repurchase of $194,611,000 of 8¾% Senior Notes in April 2002 and repurchases and redemption of the Company’s 9 ¹/4% Senior Notes and 8¾% Senior Notes which occurred throughout 2001, partially offset by the interest expense incurred on the 6½% Convertible Subordinated Notes due 2008 issued in July 2001. Interest income decreased from $9,473,000 in 2001 to $5,644,000 in 2002, as a result of the decrease in cash balance and the decline in interest rates during 2002 as compared to the same period of 2001.

Income Taxes:  The Company’s effective income tax rate for the year ended December 31, 2002 was 42% compared to 35% for 2001. The increase in the effective tax rate is primarily from non-deductible expenses the Company incurred in 2002, a shift in the mix of earnings to higher tax rate jurisdictions and losses incurred by foreign subsidiaries for which the Company currently receives no tax benefit. In connection with the Ribapharm Offering, the Company utilized its capital loss carryforwards of $72,736,000 and a portion of its net operating loss carryforwards to partially off-set the tax gain.

Loss from Discontinued Operations, Net of Taxes:  Loss from discontinued operations relates to the Company’s Russian Pharmaceuticals segment, Biomedicals segment, Photonics business, raw materials businesses and manufacturing capabilities in Hungary and the Czech Republic and Circe unit and was $197,288,000 for the year ended December 31, 2002 compared to $12,417,000 for the same period in 2001. The loss for 2002 includes a loss on disposal of $160,010,000, net of taxes of $48,193,000, which reflects impairment charges for the write-down of assets to their fair market values less costs of disposal. Excluding impairment charges, the loss from discontinued operations for the year ended December 31, 2002 was $37,278,000. The increase in loss on discontinued operations for 2002 is primarily due to increased losses in the Photonics business and raw materials businesses and manufacturing capabilities in Hungary and the Czech Republic.

Cumulative Effect of Change in Accounting Principle:  During 2002, the Company completed the transitional impairment test required by SFAS 142. As a result, the Company recorded an impairment loss of $25,332,000 which was offset by a benefit of $3,541,000 for the write-off of negative goodwill. The net amount of $21,791,000 has been recorded as a cumulative effect of change in accounting principle.

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Year Ended December 31, 2001 Compared to 2000

Ribapharm Royalty Revenues:  Ribapharm royalty revenues for the year ended December 31, 2001 were $136,989,000 compared to $155,100,000 for 2000, a decrease of 12%. The Company believes the decrease is primarily reflective of a slowdown in sales of Rebetron^™ by Schering as physicians awaited marketing authorization pending FDA review and clearance for the use of pegylated interferon with ribavirin, which occurred in August 2001. The launch of this combination therapy was delayed until October 2001. Royalties for the fourth quarter of 2001 increased by $23,989,000 as compared to the similar period in 2000.

Revenues:  In the North America Pharmaceuticals segment, revenues for the year ended December 31, 2001 were $134,580,000, compared to $112,712,000 for 2000, an increase of $21,868,000 (19%). North American revenues benefited from an increase of $18,900,000 (37%) from sales of dermatalogical products, including Efudix/Efudex^®, Kinerase^®, bleaches and Oxsoralen. The increase in sales of dermatological products included the introduction of Glyquin^® in the fourth quarter of 2000, which contributed $7,270,000 to the increase.

In the Latin America Pharmaceuticals segment, revenues for the year ended December 31, 2001 were $128,218,000, compared to $127,485,000 for 2000. The increase of $733,000 includes sales of $2,806,000 attributable to the acquisition of New Pharma S.A. in August 2001. This increase is partially offset by a decrease in sales volume.

In the Western Europe Pharmaceuticals segment, revenues for the year ended December 31, 2001 were $171,210,000 compared to $156,227,000 for 2000, an increase of $14,983,000 (or 10%). The increase is primarily due to new product acquisitions of $4,902,000, revenues of $7,487,000 attributable to the 2000 acquisition of Solco Basel AG and an increase in sales in Poland of $8,367,000. The increase in Poland is primarily due to stronger sales of the cardiology drugs Aclotin^® and Bisocard^® of $2,751,000 and price increases of other products. The increase in revenues in 2001 was partially off-set by a decrease in sales in Hungary of $4,459,000.

In the AAA Pharmaceuticals segment, revenues for the year ended December 31, 2001 were $49,826,000 compared to $45,133,000 for 2000, an increase of $4,693,000 (or 10%). The increase includes revenues of $5,872,000 attributable to the 2000 acquisition of Solco Basel AG, partially offset by lower sales of Ancobon^® and Fluorouracil^® due to interruptions in supplies of products caused by transitioning these products from third party manufacturers to in-house manufacturing.

Gross Profit:  Gross profit margin on product sales increased to 69% for the year ended December 31, 2001 compared to 68% for 2000. The gross profit margin for all regions was relatively consistent for 2001 and 2000.

Selling, General and Administrative Expenses:  Selling, general and administrative expenses were $219,003,000 for the year ended December 31, 2001, compared to $224,651,000 for 2000, a decrease of $5,648,000 (3%). The decrease reflects a reduction in legal and professional fees, which were higher in 2000 due to the Department of Justice investigation and Securities and Exchange Commission litigation, partially off-set by an increase in selling general and administrative expenses of $5,659,000 related to the acquisitions completed in 2001 and in the third quarter of 2000.

Research and Development:  Research and development expenses for the year ended December 31, 2001 were $28,706,000, compared to $16,383,000 in 2000. The increase of $12,323,000 reflects the continued expansion of research and development efforts, primarily in the areas of antiviral and anticancer drugs. Total research and development spending for 2001 and 2000 was $50,909,000 and $36,686,000, respectively, which included capital for new equipment and facilities, as well as accelerated research programs to focus on the pipeline and new product development.

Other (Income) Loss, Net, Including Translation and Exchange:  Other (income) loss, net, including translation and exchange was ($3,084,000) for the year ended December 31, 2001 compared to $2,077,000 for

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2000. In 2001, the Company recorded other income in connection with the licensing of Levovirin^™ to Roche offset by translation and exchange losses of $1,916,000. In 2000, translation losses principally consisted of transaction losses of $1,649,000.

Interest Income and Expense:  Interest expense during the year ended December 31, 2001 decreased $4,583,000 compared to 2000, primarily due to the repurchase and redemption of the 8 ³/4% and 9 ¹/4% Senior Notes during the fourth quarter of 2000 and in the second and third quarters of 2001. Interest income decreased from $12,483,000 in 2000 to $9,473,000 in 2001 as a result of the decrease in cash balance and decline in interest rates during 2001 as compared to 2000.

Income Taxes:  The Company’s effective income tax rate for the year ended December 31, 2001 was 35% compared to 25% for 2000. The increase in the effective tax rate is primarily due to the recognition, during the second quarter of 2000, of deferred tax assets through the reduction of the related valuation allowance for capital loss carryforwards amounting to $12,250,000. Excluding this reduction in valuation allowance the effective rate in 2000 would have been 34%.

Loss from Discontinued Operations, Net of Taxes:  Loss from discontinued operations relates to the Company’s Russian Pharmaceuticals segment, Biomedicals segment, Photonics business, raw materials businesses and manufacturing capabilities in Hungary and the Czech Republic and Circe unit and was $12,417,000 for the year ended December 31, 2001 compared to $12,604,000 for the same period in 2000.

Liquidity and Capital Resources

Cash and cash equivalents totaled $245,184,000 at December 31, 2002 compared to $317,011,000 at December 31, 2001. Working capital was $397,070,000 at December 31, 2002 compared to $509,601,000 at December 31, 2001. The decrease in working capital of $112,531,000 is primarily due from a $71,827,000 decrease in cash and cash equivalents and an increase in accrued liabilities of $61,606,000 resulting from severance, legal and environmental reserves established in 2002 offset by an increase in taxes receivable of $15,669,000, and prepaid expenses of $6,885,000.

During the year ended December 31, 2002, cash provided by operating activities totaled $22,530,000, compared to cash provided by operating activities of $138,112,000 in 2001. During the year ended December 31, 2002, cash flow from operating activities was negatively impacted by certain non-recurring and other unusual cash payments. Those cash payments included cash paid for the compensation costs related to the change of control of the Company under the Company’s Stock Option Plan of approximately $61,400,000, costs incurred in the Company’s recent proxy contest of $9,850,000, professional fees related to the Ribapharm Offering of $13,000,000 and executive and director bonuses paid in connection with the Ribapharm Offering of $47,839,000.

Cash provided by investing activities was $222,053,000 for the year ended December 31, 2002 compared to cash used in investing activities in the amount of $119,065,000 for the same period of 2001. In 2002, net cash provided by investing activities principally consisted of proceeds from the Ribapharm Offering of $276,611,000, offset by payments for capital expenditures of $19,420,000 and acquisitions of license rights, product lines and businesses primarily in Western Europe and Latin America of $37,164,000. In 2001, net cash used in investing activities principally consisted of acquisitions of license rights, product lines and businesses totaling $49,981,000 and payments for capital expenditures of $47,689,000, principally representing an increase in the investment in research and development facilities in North America and distribution facilities in Western Europe.

Cash used in financing activities totaled $318,074,000 for the year ended December 31, 2002, including payments on long-term debt of $271,154,000 principally consisting of the repurchase of $194,611,000 principal of the Company’s outstanding 8¾% Senior Notes, the repurchase of $59,410,000 principal of the Company’s 6½% Convertible Subordinated Notes due 2008, the repurchase of an aggregate 1,146,000 shares of the Company’s common stock for $31,955,000 and cash dividends paid on common stock of $25,520,000. During

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2001, cash provided by financing activities totaled $150,722,000. Proceeds from issuance of long-term debt totaled $507,430,000 including net proceeds from an offering of $525,000,000 of 6½% convertible subordinated notes due 2008, which the company completed in July 2001. The Company used cash for payments on long-term debt of $344,712,000 principally consisting of the repurchase of $190,645,000 principal of its outstanding 9¼% Senior Notes and $117,559,000 principal of its outstanding 8¾% Senior Notes. Cash dividends paid on common stock totaled $24,002,000.

Management believes that the Company’s existing cash and cash equivalents and funds generated from operations will be sufficient to meet its operating requirements at least through December 31, 2003, to fund anticipated acquisitions, capital expenditures and increase research and development expenditures. The Company may also seek additional debt financing or issue additional equity securities to finance future acquisitions. Exclusive of the debt repurchases described above, the Company funds its cash requirements primarily from cash provided by its operating activities. Its sources of liquidity are its cash and cash equivalent balances and its cash flow from operations.

As of December 31, 2002, the Company loaned cash of $35,000,000 to Ribapharm under a line of credit. Borrowings on this line of credit are payable on December 31, 2003. Ribapharm has a payable to the Company of $56,330,000 as of December 31, 2002, which includes the line of credit. As of December 31, 2002, $79,750,000 of cash and cash equivalents was retained by Ribapharm. These funds may not be readily available to the Company unless Ribapharm declares a dividend or loans funds to the Company.

The Company contributed to Ribapharm the License Agreement with Schering and Ribapharm will receive all royalty payments which will reduce cash available to the Company and its other operations. The Company and Ribapharm are jointly and severally liable for the principal and interest obligations under the $525,000,000 Subordinated Convertible Notes due 2008 issued in July 2001. Under terms contained in an inter-debtor agreement between the Company and Ribapharm, the Company has agreed to make all interest and principal payments on the convertible notes.

The Company is currently self-insured with respect to product liability claims. While to date no material adverse claim for personal injury resulting from allegedly defective products has been successfully maintained against the Company, a substantial claim, if successful, could have a negative impact on the Company’s liquidity and financial performance.

The following summarizes the Company’s contractual obligations of continuing operations at December 31, 2002, and the effect such obligations are expected to have on its liquidity and cash flow in future periods (in thousands):

The Company is in compliance with all covenants or other requirements set forth in its credit agreements or indentures. Further, the Company does not have any rating downgrade triggers that would accelerate the maturity dates of its debt. However, a downgrade in the Company’s credit rating could adversely affect the Company’s ability to obtain access to new credit facilities in the future and could increase the cost of such facilities.

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Costs of Products in Development

The Company, through its Ribapharm subsidiary, expects its research and development expenses to increase in the future, of which a large percentage will be to support product development programs for Viramidine, Hepavir B and IL-12. The Company and Ribapharm have conducted Phase I clinical trials on Viramidine in Europe and the United States and Ribapharm commenced Phase II clinical trials on Viramidine in the United States during December 2002. Ribapharm’s external research and development expenses for Viramidine are approximately $13,400,000 from inception of the project through December 31, 2002. Ribapharm initiated a Phase I clinical trial of Hepavir B in Europe in August 2002 and filed an investigational new drug application with the FDA in October 2002. Ribapharm’s external research and development expenses for Hepavir B are approximately $10,700,000 from inception through December 31, 2002. On December 19, 2002, Ribapharm applied to the FDA to reactivate the investigational new drug application to initiate human clinical trials for IL-12. Ribapharm is in the process of manufacturing IL-12.

Ribapharm licensed Levovirin to Roche in June 2001 on an exclusive basis. Roche is responsible for all future development costs of Levovirin.

It is not unusual for the clinical development of these types of products to take five years or more and to cost over $200,000,000. The time and cost of completing the clinical development of these product candidates will depend on a number of factors, including the disease or medical condition to be treated, clinical trial design, availability of patients to participate in trials and the relative efficacy of the product versus treatments already approved and whether or when the Company or Ribapharm license the product candidates to third parties. Due to these many uncertainties, the Company and Ribapharm are unable to estimate the length of time or the costs that will be required to complete the development of these product candidates. In addition, there are no assurances that any of these product candidates will receive regulatory approval for use for the proposed indications or that these product candidates will be commercially successful.

Foreign Operations

Approximately 54%, 60%, and 59% of the Company’s revenues from continuing operations for the years ended December 31, 2002, 2001, and 2000, respectively, were generated from operations outside the United States. All of the Company’s foreign operations are subject to certain risks inherent in conducting business abroad, including possible nationalization or expropriation, price and currency exchange controls, fluctuations in the relative values of currencies, political instability and restrictive governmental actions. Changes in the relative values of currencies occur from time to time have and may, in certain instances, materially affect the Company’s results of operations. The effect of these risks remains difficult to predict. The Company does not currently provide any hedges on its foreign currency exposure and, in certain countries in which the Company operates, no effective hedging programs are available.

Russia

While the Russian economy continues to show improvement since the financial crisis that began in 1998, the economy continues to experience difficulties. In 1998, the ruble fell sharply from a rate of 6.3 rubles to $1 to a rate of 20.7 rubles to $1 at December 31, 1998. Throughout 1999, 2000 and 2001, the ruble continued to fluctuate, there is continued volatility in the debt and equity market, hyperinflation persists, confidence in the banking sector has yet to be restored and there continues to be general lack of liquidity in the economy. In addition, laws and regulations affecting businesses operating within Russia continue to evolve. Russia’s return to economic stability is dependent to a large extent on the effectiveness of the measures taken by the government, decisions of international lending organizations, and other actions, including regulatory and political developments, which are beyond the Company’s control.

At December 31, 2002, the ruble exchange rate was 31.8 rubles to $1 as compared with the rate of 30.1 rubles to $1 and 28.2 rubles to $1 as of December 31, 2001 and 2000, respectively. As a result of the change

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in the ruble exchange rate, the Company recorded translation losses of $1,386,000, $1,500,000 and $3,525,000, included in loss on discounted operations related to its Russian operations during 2002, 2001 and 2000, respectively. As of December 31, 2002, ICN Russia had a net monetary asset position of approximately $16,120,000, which is subject to foreign exchange loss as further declines in the value of the ruble in relation to the dollar occur. Due to the fluctuation in the ruble exchange rate, the ultimate amount of any future translation and exchange loss the Company may incur cannot presently be determined and such loss may have a negative impact on the Company’s results of operations. The Company’s management continues to work to manage its net monetary exposure. However, there can be no assurance that such efforts will be successful.

The Company’s Russian subsidiaries periodically engage in barter transactions related to the sale of its products in exchange for raw materials, other finished goods and costs or services incurred in the conduct of its operations. For each of the periods ended December 31, 2002, 2001, 2000, the Company’s Russian subsidiaries recorded approximately $1,000,000, $4,000,000 and $3,000,000, respectively, in revenue related to barter transactions.

The Company’s collections on accounts receivable in Russia have been adversely affected by the Russian economic situation. Prior to the August 1998 devaluation of the ruble, the Company had favorable experience with the collection of receivables from its customers in the region. Subsequently, the Company has taken additional steps to ensure the creditworthiness of its customers and the collectibility of accounts receivable by tightening its credit policies in the region. These steps include a shortening of credit periods, suspension of sales to customers with past-due balances and discounts for cash sales.

Yugoslavia

On February 6, 1999, the government of the Federal Republic of Yugoslavia, acting through the Federal Ministry of Health and/or the Ministry of Health of Serbia, seized control of the Company’s 75% owned subsidiary, ICN Yugoslavia. See “Business—Eastern European Developments.” As a result, the Company had and continues to have no effective control over the operating and financial affairs of ICN Yugoslavia. Accordingly, the Company has deconsolidated the financial statements of ICN Yugoslavia as of November 26, 1998, and reduced the carrying value of its investment in ICN Yugoslavia to fair value, estimated to be zero.

Argentina

At December 31, 2002, the Company’s Argentine subsidiary recorded a foreign currency translation adjustment of $4,094,000 on its net assets reflecting a 55% devaluation of the Argentine peso. This non-cash adjustment reduced stockholder’s equity. In addition, the Company’s Argentine subsidiary recognized a translation loss of $2,052,000, included in other loss, on net assets denominated in non-peso currencies.

Acquired Products

The majority of products acquired by the Company are mature products with no effective patents, either because of expirations or the absence of legal protections provided by the local governments in the respective markets. Under the Company’s ownership, price increases and additional advertising and promotions were planned for selected products, as the Company believes they were not marketed to their greatest potential. The Company believes some of these products in specific markets have an adequate growth potential, and intends to develop a product strategy for such products.

The Company believes these products will continue to generate significant sales even without patent protection because the trademarks under which they are marketed are well-established and enjoy substantial customer brand-loyalty. Moreover, the relatively small sales volumes and market sizes for some of these products pose significant barriers to entry of generic competition.

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The Company estimated the remaining life of these products based on anticipated future profits assuming a constant profit margin for the remaining product cycle. It should be noted, however, any sales growth or increase in profitability attained by additional marketing efforts is expected to be relatively short-lived. After a temporary boost, these products will revert to their gradually declining trend in accordance with the product cycle model. The acquired products’ historical operating results demonstrated their ability to earn substantial excess profits. Excess profits are directly related to their competitive advantage primarily attributable to the product quality and reputation. The useful life was defined as the number of years for the forecasted annual product sales to reach 50% of the cumulative historical amount through the date of acquisition. During the forecasted period, only gradual declines are expected due to the absence of immediate threats from competition of generic or/and alternative products. Based upon the Company’s analysis, the useful lives of products acquired were estimated to be in the range of 10-18 years depending on the product acquired.

Inflation and Changing Prices

The effects of inflation are experienced by the Company through increases in the costs of labor, services and raw materials. The Company is subject to price control restrictions on its pharmaceutical products in the majority of countries in which it operates. While the Company attempts to raise selling prices in anticipation of inflation, the Company operates in some markets which have price controls that may limit its ability to raise prices in a timely fashion. Future sales and gross profit will be reduced if the Company is unable to obtain price increases commensurate with the levels of inflation.

New Accounting Pronouncements

On January 1, 2002, the Company adopted the provisions of Emerging Issues Task Force (EITF) Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products). EITF Issue No. 01-09 requires the costs of certain vendor consideration to be classified as a reduction of revenue rather than as a marketing expense. The Company reclassified $6,069,000 and $6,731,000 of such costs in its statements of income for the years ended December 31, 2001 and 2000 respectively, from selling, general and administrative expenses to a reduction in revenues. These reclassifications have no effect on net income.

In April 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 eliminates the exception to applying Accounting Principles Board Opinion No. 30 to all gains and losses related to extinguishments of debt. The Company adopted SFAS No. 145 for the year ended December 31, 2002. Losses on extinguishment of debt have been reclassified from extraordinary item for all periods presented.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Currently, the Company recognizes a liability for an exit cost at the date the Company commits to an exit plan. The Company is required to adopt SFAS No. 146 in fiscal year 2003.

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Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

The Company’s business and financial results are affected by fluctuations in world financial markets. The Company evaluates its exposure to such risks on an ongoing basis, and reviews its risk management policy to manage these risks to an acceptable level, based on management’s judgment of the appropriate trade-off between risk, opportunity and costs. The Company does not hold any significant amount of market risk sensitive instruments whose value is subject to market price and currency risk. The Company seeks to manage its foreign currency exposure by maintaining the majority of cash balances at foreign subsidiaries in the U.S. dollar and through operational means by managing local currency revenues in relation to local currency costs. The Company does not currently provide any hedges on its foreign currency exposure.

In the normal course of business, the Company also faces risks that are either non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk and are not discussed or quantified in the following analysis.

Interest Rate Risk:  The Company currently does not hold financial instruments for trading or speculative purposes. The financial assets of the Company are not subject to significant interest rate risk due to their short duration. At December 31, 2002, the Company had $12,472,000 of foreign denominated debt that would subject it to both interest and currency risk. The principal financial liabilities of the Company that are subject to interest rate risk are its fixed-rate long-term debt (principally its 6 ¹/2% Subordinated Convertible Notes due 2008) totaling $465,590,000. The Company does not use any derivatives or similar instruments to manage its interest rate risk. A 100 basis-point increase in interest rates (approximately 15% of the Company’s weighted average interest rate on fixed-rate debt) affecting the Company’s financial instruments would have an immaterial effect on the Company’s 2002 pretax earnings. However, such a change would reduce the fair value of the Company’s fixed-rate debt instruments by approximately $16,100,000 as of December 31, 2002.

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FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains statements that constitute forward looking statements. Those statements appear in a number of places in this Annual Report on Form 10-K. Examples of forward-looking statements include statements regarding, among other matters, the Company’s strategic review and repositioning, the Company’s acquisition strategy, the Company’s reorganization plans, the Company’s expectations regarding sales of products by the North America Pharmaceutical segment, expectations regarding research and development costs and other factors affecting the Company’s financial condition or results of operations. In some cases, forward looking statements may be identified by terminology such as “may,” “will,” “intends,” “should,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those terms or comparable terminology. Similarly, statements that describe the Company’s plans, strategies, intentions, expectations, objectives, goals or prospects are forward looking.

The forward looking statements in this and other reports generally assume a stable economic climate in the United States and other countries in which the Company operates and assumes that losses will not result from any risks to which the Company is subject, including the following:

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Item 8.    Financial Statements and Supplementary Data

QUARTERLY FINANCIAL DATA

Following is a summary of quarterly financial data for the years ended December 31, 2002 and 2001 (in thousands, except per share amounts):