Drug Maker Reacts to Devaluation of Yugoslavian Dinar
ICN Pharmaceuticals Inc. said Wednesday it will take a second-quarter charge of as much as $27 million in connection with a sharp devaluation of Yugoslavia’s currency.
The Costa Mesa-based drug maker said Yugoslavia’s 85% devaluation will affect $60 million worth of financial assets in the country.
ICN still expects to post a profit for the quarter, executives said. The company earned $21 million, or 34 cents a share, for the comparable period a year ago.
While ICN has focused on building its business in Eastern Europe and Russia, the devaluation re-emphasizes the risks of such a strategy.
“Everybody knows they’re in Eastern Europe and the political and currency risks are heightened there compared to other parts of the world,” said Eric Miller, a portfolio manager at Heartland Advisers, an ICN investor.
About 30% of the company’s overall sales of $752 million were generated in Yugoslavia last year.
ICN’s chairman and chief executive, Milan Panic, said Wednesday the company will seek price increases in Yugoslavia to offset the devaluation. The company also said its rapidly growing business in Russia and other European countries remains profitable.
Panic, a native of Yugoslavia, took a leave from ICN in 1992 to serve as the nation’s prime minister for seven months. He has spearheaded the company’s rapid expansion into Eastern Europe and Russia in recent years.
ICN stock fell $1.06 a share to $47.94 on the New York Stock Exchange. Early in the session, the stock was off $2.62 in heavy trading.
Miller added that ICN’s stock trades lower than other drug stocks partly because of the risks. However, Miller said ICN will be an increasingly attractive investment in the future, precisely because of its investment in Eastern Europe, where possibilities for business growth are enormous.
Panic said the company’s decision to seek price increases is the same strategy it used in 1995, the last time that Yugoslavia devalued the dinar.
Last year, he said, the company also took steps to reduce its risk of devaluation by converting some of its assets from the Yugoslavian currency to dollars.
Yugoslavia cut the exchange rate Wednesday from six dinars per dollar to 10.92 dinars per dollar, which reduced the value of any ICN receivables in dinars.
