SPI Gets Controlling Stake in Russia’s Oldest Drug Firm : Transaction: Costa Mesa-based company’s deal, worth at least $43 million, gives it foothold in the region.
SPI Pharmaceuticals Inc. said Thursday it has begun the second phase of its two-step purchase of Russia’s oldest drug firm.
SPI’s controlling interest in St. Petersburg-based Leningrad Industrial Chemical and Pharmaceutical Assn., known as Oktyabr, establishes the Costa Mesa drug company more securely in Eastern Europe.
The cash and stock deal, estimated by analysts to be worth at least $43 million, also marks the first time that Russian citizens have owned a stake in a U.S. corporation. In a ceremony Thursday, St. Petersburg Mayor Anatoly A. Sobchak hailed the transaction and pointed out that, for the first time since the 1917 Bolshevik Revolution, American stocks were used to fund a business transaction in his city.
SPI spokesman David Calef said Thursday in St. Petersburg that the deal “is a significant step in the march toward capitalism.”
With former Yugoslavia Prime Minister Milan Panic at SPI’s helm, observers said, the company is poised for further expansion in the region once dominated by the communist East Bloc.
“It’s a very good thing for the company,” said Dennis Roth, an analyst with New York brokerage Lew Leiberbaum & Co. Panic “has a lot of contacts there and can take advantage of situations.”
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Roth said that the deal to buy Oktyabr, founded in 1714 by Czar Peter the Great, could be followed this year by other takeover announcements. SPI has agreements pending in Poland and Hungary. But Roth noted that the region still has political and economic turmoil.
SPI, for instance, has suffered financially from its 1992 purchase of ICN Galenika, a drug maker based in Belgrade, Serbia. At first profitable, Galenika has suffered from the Balkan civil wars in the former Yugoslavia.
But as capitalism grows in Eastern Europe, SPI’s gamble will likely pay off. Analysts estimate that the potential pharmaceuticals market in the former Soviet bloc countries is as much as $9 billion a year.
They also point out that the company is buying into a market where there is virtually no competition from other Western pharmaceutical companies.
“It’s always a risk,” Roth said. But Panic “is a great entrepreneur,” he said.
A recent decision by Moscow allows the sale in Russia of U.S. drugs that have been approved by the U.S. Food and Drug Administration. That decision, Calef said, should allow SPI to begin making and selling pharmaceuticals in St. Petersburg for distribution across Russia within months, if not weeks.
“We see the potential immediately,” Calef said. “And we want to take advantage of that opportunity.”
SPI, the chief subsidiary of ICN Pharmaceuticals Inc., announced in October, 1992, that it was buying Oktyabr. At that time, SPI officials said they were signing a joint-venture agreement with the city of St. Petersburg, which shares ownership of Oktyabr with the company’s 2,175 workers.
According to that agreement, SPI assumed a 75% stake in the joint venture and agreed to invest about $40 million to build a new facility near Oktyabr’s existing factory. That construction has not yet begun.
At the same time, SPI has pursued another agreement to gain an 88% stake in Oktyabr’s existing plant. Thursday’s announcement brings that pursuit closer to reality.
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Under terms of the deal, SPI has transferred 30,000 shares of its common stock--valued at $16.875 a share--to St. Petersburg in exchange for 15% of Oktyabr. Within the next two weeks, SPI will gain an additional 33% of Oktyabr from the city in exchange for training workers, providing equipment to Oktyabr and funding a feasibility study on Oktyabr’s future.
SPI has also invited Oktyabr workers to turn in their ownership stakes in Oktyabr--awarded to them after the breakdown of the Soviet Union--for 137,025 shares of SPI stock now held by SPI’s parent company, ICN Pharmaceuticals.
The workers’ stake accounts for about 40% of the company. It was not immediately clear how many of the workers, who would be SPI employees once the deal is finalized, are planning to trade ownership for stock in the U.S. company.
Trading SPI shares for Oktyabr ownership has not been without hassles. “We’ve had some problems, maybe more than we should have,” Panic said Thursday.
Company officials said that getting SPI dividends to Russian shareholders will also be a problem, for most Russians do not have bank accounts. Dollar accounts do not exist for the vast majority, and most closed their ruble accounts long ago. Inflation, which was 900% in Russia last year, makes saving money unprofitable.
But SPI spokesman Calef said that the same program--trading stock for workers’ ownership--worked well in Belgrade, where virtually all of ICN Galenika’s workers opted for the transaction. About one in four of those workers eventually sold their SPI stock for cash, he said.
In Thursday’s trading on the American Stock Exchange, SPI’s stock closed at $16.625 a share, down 25 cents.
SPI’s Russian, Eastern European Connections
Costa Mesa-based SPI Pharmaceuticals has purchased Russia’s oldest drug firm and is moving forward with other purchases in Eastern Europe. It already owns a controlling interest in a drug company in Belgrade, the capital of Serbia. Details on the purchases:
OKTYABR
(name changing to ICN Oktyabr)
* Founded: 1714, by Peter the Great
* Location: St. Petersburg, Russia
* Business: One of Russia’s oldest companies. Manufactures antihistamines, sedatives, anesthetics, antiseptics and cardiovasculars.
Deals in Progress
ICN has signed letters of intent to form joint ventures with these Eastern European firms:
AKALOIDA
* Founded: 1927
* Location: Tiszavasvari, Hungary; 100 miles northeast of Budapest
* Business: One of only five companies worldwide manufacturing medicinal morphine. Also manufactures cardiovascular compounds, non-steroid anti-rheumatics, antacids, anti-asthmatics and anti-malarials and other pharmaceuticals.
* Scope: Sells products in Hungary and more than 80 foreign countries, including the United States.
* Estimated annual sales: $90 million
* Employees: 2,100
PHARMACEUTICAL WORKS POLFA
* Founded: 1823
* Location: Tarchomin, Poland; near Warsaw
* Business: Manufactures insulin, antibiotics, anti-anxiety medications and veterinary medicines.
* Scope: Half of its products are sold to countries in the former Soviet Union.
* Estimated annual sales: $100 million
* Employees: 2,600
Source: SPI Pharmaceuticals; Researched by JANICE L. JONES / Los Angeles Times
Times correspondent Matt Bivens in St. Petersburg contributed to this report.
