SPI Pharmaceutical’s Yugoslav Merger Deal May Cost $100 Million

SPI Pharmaceuticals Inc.’s planned merger with Yugoslavia’s second-largest drug maker, Galenika, is on track, SPI’s chairman said Tuesday, but ironing out details of the deal will take another three to six months.

The acquisition, announced in February, is expected to cost SPI between $50 million and $100 million, including the expected cost of renovating Galenika’s pharmaceutical plants in Yugoslavia, SPI Chairman Milan Panic said.

SPI’s “financial standing can allow it to take on $72 million to $100 million (in) debt,” Panic said, adding that this amount will be sufficient for the company to finance the acquisition. Panic made his remarks in an interview after SPI’s annual shareholders meeting.

But the deal, which the company views as its entry into the potentially lucrative Eastern European market, faces several hurdles before it is completed. SPI still must obtain bank financing for the deal, arrange a method for taking any profits gained through the venture out of Yugoslavia and gain final approval from the Yugoslavian government.

Despite these hurdles, “the opportunity is enormous,” Panic said. “The deal will allow us to expand in Eastern Europe in one move. The acquisition is perfect.”

Belgrade-based Galenika, which makes analgesics, antibiotics and other pharmaceuticals, has annual sales of about $150 million. SPI, the Costa Mesa-based prescription and non-prescription drug maker, posted 1989 sales of $124 million.

Panic said the $50 million to $100 million investment planned by SPI will primarily go toward modernizing Galenika’s five plants in the cities of Cetinje, Nova Varos, Kladovo, Kovin and Surdulica; and four plants in Belgrade.

He said SPI’s investment will be insured by the Overseas Private Insurance Corp., a U.S. government agency that insures companies for unexpected changes in a foreign nation’s political situation or government seizure of a company’s assets.

“All we want is a guarantee” that profit from this merger can be sent back to the United States, said Panic, adding that the deal with Galenika dictates that the company’s drugs, if purchased by other Eastern European nations, will have to be paid for in hard currency.

Also at Tuesday’s annual meeting, SPI, the marketing subsidiary of ICN Pharmaceuticals Inc. of Costa Mesa, reported that its first-quarter revenue rose 14% to a record $33.7 million, from $29.6 million in the corresponding period a year earlier.

For its fiscal 1990 first quarter ended Feb. 28, SPI earned $2.8 million, compared to $2.6 million for the year-earlier quarter.

SPI attributed the gains to the rapid sale in Mexico of its antibiotic drugs, Vilona and Virazid, which treat infant viral diseases.