Costa Mesa’s ICN Pharmaceuticals, 3 Affiliates Approve Merger Plan

Creating a corporation with $500 million in annual sales, shareholders of ICN Pharmaceuticals and three affiliates on Tuesday approved a merger of the four into a single company.

ICN said it expects federal regulators to give their approval next week for its combination with Viratek Inc., SPI Pharmaceuticals and ICN Biomedicals. The new company will operate under the name ICN Pharmaceuticals, and its stock will be traded on the New York Stock Exchange.

The merger, said Milan Panic, chairman of all four companies, will save at least $30 million a year by streamlining management, reducing accounting and auditing fees, and lowering income taxes.

Even critics of the company’s current management conceded Tuesday that the deal makes sense.

“In general, I think the merger is a good plan because it will reduce the tax rate and lower expenses,” said Rafi Khan, a dissident investor who waged a proxy battle earlier this year for control of ICN. “It looks like ICN’s management is getting shareholder-oriented.”

In response to the news, Standard & Poor’s Corp. raised its ratings of ICN’s unsecured and subordinated debt based on the expectation of savings and, thus, improved profitability.

ICN Pharmaceuticals is the holding company for SPI, Viratek and ICN Biomedicals. Viratek is the research and development arm of the organization. SPI provides manufacturing, marketing and distribution services for the company’s pharmaceuticals. And ICN Biomedicals provides goods and services to the biomedical technology industry.

Under the merger plan, ICN and Viratek stockholders would receive one share of the new company for about two of their current shares. SPI stockholders would receive one new share for each old share, and ICN Biomedicals investors would get one new share for five existing shares.

Analysts and shareholders applauded the merger, saying increased operating efficiencies might snap ICN out of a slump. For the first nine months of this year, ICN reported a loss of $14.2 million on revenue of $48.2 million.

Panic has blamed the company’s losses on the poor performance of its Yugoslavia venture, drug manufacturer ICN Galenika. Since 1992, ICN Galenika has broken even or reported only small profits. ICN Galenika sales represent 35% of ICN’s worldwide revenue.

But analysts pointed out Tuesday that the merger would be only one step toward profitability for ICN. The company, they said, needs a bigger boost, such as winning federal approval to sell Ribavirin, a drug that it is hoping to market as a treatment for chronic hepatitis C.

Dennis Roth, an analyst with Northeast Securities in Westbury, N.Y., said Ribavirin has good market potential, but the company has lost its edge because its clinical-testing phase lasted too long. Also, in its clinical trials the company has yet to find the results it was seeking, Roth said. “So far, it has not succeeded in getting patients into remission,” he said, “and that is really what they are looking for. And for that to happen, they will have to test it in combination with another drug.”

ICN spokesman David Calef said the drug was submitted for FDA approval on June 1 and is under review. ICN has no plans now to conduct further tests in combination with other drugs, he said.