ICN Owns 7.3% of Hoffman-La Roche : Costa Mesa Firm Raises Share of Huge Stake in Swiss Drug Company

Times Staff Writer

ICN Pharmaceuticals of Costa Mesa said Tuesday it has boosted to 7.3% its stake in F. Hoffman-La Roche & Co., the giant Swiss drug and chemical firm that made a $4.2-billion tender offer Monday for Sterling Drug Inc. of New York.

The sequence of events stirred speculation among several securities analysts that ICN may be interested in acquiring La Roche and that the Swiss company's bid for Sterling may be designed in part to keep ICN at bay.

But Frederic Spar, a spokesman for Hoffman-La Roche, said the company's offer for Sterling Drug was sound business strategy and "has absolutely nothing to do with ICN."

Other industry analysts said a takeover of Hoffman-La Roche by ICN would be highly unlikely because ICN lacks the financial resources and because members of the Hoffman family hold a controlling interest in the Swiss company.

Hoffman-La Roche's tender offer sent Sterling's stock sharply higher and helped bolster other drug company shares in the belief that the bid could be the first of many this year as foreign firms take advantage of the weak dollar to snap up U.S. companies.

Sterling Drug stock soared $17.25 to close at $74.125, a gain of 30% that made it

the biggest advancer on the New York Stock Exchange. It was also the most active issue on the Big Board on volume of 3.7 million shares.

Milan Panic, ICN's chairman, president and chief executive, declined to discuss ICN's intent regarding Hoffman-La Roche or the Swiss company's bid for Sterling, but he acknowledged that ICN is interested in acquiring another drug company.

"For two years we have said we would look to buy a large pharmaceutical company with marketing capabilities" to distribute ICN's anti-viral drug, ribavirin, Panic said.

Over that period, he said, ICN raised about $500 million from the sale of stock and debentures to help finance such an acquisition.

ICN spokesman Jack Sholl said that since September, ICN has acquired 167 more shares of Hoffman-La Roche's voting stock for about $30 million, increasing its ownership to 7.3% from 6.3%.

ICN now owns 1,167 shares of Hoffman-La Roche stock worth about $216 million. The stock, which is traded on the Zurich stock exchange, closed Tuesday at $185,000 per share, Panic said.

With sales of $103 million in fiscal 1986, ICN is dwarfed by Hoffman-La Roche, a worldwide leader in the pharmaceutical industry with sales of more than $6 billion. The company's products include the widely prescribed tranquilizer Valium.

ICN's major product is ribavirin, a drug used to treat a fatal respiratory virus in babies. ICN is trying to win approval from the Food and Drug Administration to use ribavirin as a treatment for acquired immune deficiency syndrome in its early stages.

Suggestions that ICN could acquire Hoffman-La Roche were discounted by several analysts, who noted that the Hoffman family's share ownership would make it virtually impossible to acquire a controlling stake in the Swiss firm.

Robert Hodgson, a drug industry analyst at the New York brokerage firm of Oppenheimer & Co., said the family members are prohibited from selling shares outright because a family trust has been established to hold the stock.

Even though some family members, including internationally renowned orchestra conductor Paul Sacher, are in their 80s and 90s, they do not appear willing to sell their stock, according to some analysts.

"There is no dissension. The family is very close," said Jonathan Gelles, a drug industry analyst at the investment banking firm of Wertheim & Co. in New York.

Neil Sweig, a drug industry analyst with Prudential-Bache Securities in New York, said: "You might be able to find a few shares every now and then from an institution. But there's virtually no float of shares."

But Eugene Melnitchenko, a health care analyst for the regional brokerage of Eppler, Guerin & Turner in Dallas, said he is convinced that ICN has a good shot at buying Hoffman-La Roche and that the Swiss company is pursuing Sterling to prevent ICN from proceeding.

"I believe Hoffman is doing this as a defensive measure," Melnitchenko said.

He said Hoffman-La Roche typically "would not go after (a company) without permission. It is not their character."

Melnitchenko said he has reason to believe that ICN has already made a tentative takeover offer to Hoffman-La Roche.

Melnitchenko said he believes that ICN might be able to acquire some Hoffman family stock, which he said is held by distant relatives and is managed in some cases by banks and consulting firms who may not be satisfied with the company's current executives.

In recent years, Melnitchenko said, Hoffman-La Roche's stock has not performed as well as the shares of other large Swiss pharmaceutical firms.

He called Hoffman-La Roche "the most mismanaged pharmaceutical company in Switzerland." He said the company has failed to develop many newer drugs since the introduction of Valium and Librium years ago.

Craig Dickson, an analyst with Interstate Securities in Charlotte, N.C., said: "I think ICN has been considering Hoffman-La Roche as a potential acquisition for a long time. Whether they have made an offer, I don't know."

Sterling Drug's closing price of $74.125 per share--above the tender offer level of $72--apparently reflects expectations that the bid will have to be raised, analysts said.

David Saks, a drug analyst for Saks Healthcare Advisers in Rivervale, N.J., said the offer by Hoffman-La Roche could spark a bidding war for Sterling, which might seek a white knight. He said Unilever N.V., the big Anglo-Dutch consumer products company, Procter & Gamble and Revlon Group could join a contest for Sterling.

One analyst said Sterling, whose brand names include Bayer aspirin, Phillips Milk of Magnesia and the Lysol line of disinfectants, could be worth up to $5.4 billion.

Analysts note that the drug industry is highly fragmented. Industry leader Merck & Co., for example, holds less than a 5% share of the $35-billion world pharmaceutical market. The top 25 drug companies in the world account for just a 42% share of the world market.

But the industry could now change dramatically.

Drug industry officials said they had been expecting takeovers in the business following the beating U.S. pharmaceutical companies took in October's stock market collapse and the instability of the dollar.

A marketing executive at another large U.S. drug company said that he expected the hostile offer for Sterling to begin a "game of musical chairs" in the industry. "There has been a lot of general talk recently about these kinds of things, and the whole industry could become consolidated," he said.

Times staff writer John Charles Tighe and Reuters contributed to this report.

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