O.C.’s ICN Has Seen Its Future, and It’s in Russia

Proclaiming Russia the most promising market for medicines on the planet, ICN Pharmaceuticals Inc.’s controversial chairman, Milan Panic, announced Wednesday he is moving his European headquarters and the focus of the Costa Mesa-based company’s operations to Moscow.

ICN executives insisted that the eastward shift will involve few if any job losses in Southern California, but they made it clear that virtually all expansion of the multinational company will be in Russia and other countries in Eastern Europe.

“Since the market is truly here, we are moving our European efforts from Belgrade to Moscow,” Panic told reporters at a news conference in Moscow. He predicted that pharmaceuticals sales in Russia will rise from their current $3 billion to $20 billion over the next decade.

“Fifty percent of our efforts in California will be reduced,” he said. “We are moving to Moscow.”

Nearly $600 million of ICN’s estimated $700 million in sales last year were in Eastern Europe and the former Soviet Union, company spokesman Herb Lightstone said. Analysts predict the rampantly growing company will post overall profits of $130 million for the year, up from about $87 million the year before.

ICN stock rose $2.50 a share to close Wednesday at $45.81 on the New York Stock Exchange.

A move to the less regulated business environment of Moscow may also prove a public relations reprieve for the embattled company and its scandal-ridden chairman.

Four sexual harassment lawsuits have been filed against Panic over the past four years by current or former ICN female employees. He agreed to pay $15 million last year to settle a lawsuit alleging insider stock trading, and an additional $14.5 million to ICN shareholders who accused him of exaggerating the medical capabilities of the company’s ribavirin drug as a possible treatment for AIDS.

Panic and the company remain targets of an investigation by the Securities and Exchange Commission into possible insider trading and a federal criminal investigation.

But analysts expect Panic will flourish and sales will soar in the Russian marketplace, where restrictions on drug sales are few, demand is high and ICN is the largest drug company.

“They can pretty much charge any price they want,” said Bob Back, a Chicago analyst.

ICN has already acquired seven pharmaceutical plants in Russia, from St. Petersburg to the Siberian town of Tomsk, spending $30 million last year to upgrade the production sites, Panic said.

Although he declined to give a dollar figure for the total investment that ICN is prepared to make in Russian operations, he said local plant directors have submitted repair and equipment wish lists totaling $161 million.

Panic also outlined plans to open 11 regional distribution centers around Russia to ensure reliable delivery of medicines once they are in production despite the legendary limits of this country’s transportation infrastructure.

A pharmaceuticals research institute in Moscow is also on the drawing boards, and Panic said he expects that 500 scientists will be employed there within the next three years. ICN already employs 150 Russians here and expects the number of new production jobs to rise to 450 or 500 within a year.

The Costa Mesa headquarters, where 400 people are employed, will continue to oversee Southern California operations at their current level, Lightstone said.

“This is not an exodus from Southern California, but 65% of our business is here [in Russia]. This is the growth area,” he said.

Still, controversies involving Panic persist here.

Larry Organ, a lawyer for two women suing Panic for alleged harassment, said their cases are scheduled for trial this year. Organ said that Panic’s lawyers promise he’ll be available for depositions before the trial.

The company has settled suits brought for two other women for undisclosed amounts. Another two filed harassment claims with the state but settled short of filing a lawsuit. Panic has denied all allegations.

What’s more, despite the company’s staggering growth in profits and sales in recent years, management problems still plague the company’s stock price, say analysts.

“ICN is 10 points from its all-time high, so there is a certain amount of grumbling,” noted Back, the Chicago analyst.

The redirecting of ICN expansion and planning operations to Russia is a logical response to developments in the worldwide pharmaceuticals market, Panic said, describing his company’s U.S. prospects as “our toughest market” because of heavy competition.

The relocation of ICN expansion planning and management from Costa Mesa and Belgrade, the Yugoslav capital--ICN’s former European headquarters--will immediately affect only about seven senior executives based in Southern California, Panic said.

“They spend most of their time in airplanes anyway, so it won’t inconvenience them,” the 68-year-old chairman said of the executives he has deployed here. “Actually, it will be easier for us. California is too far away from where the action is in the market, and I’m getting too old to be doing all this traveling.”

About 20 support staffers may also be encouraged to move or be offered other positions within the company’s California operations, Lightstone added.

Panic’s most eccentric gesture in a career replete with flamboyance and controversy was likely his 1992 decision to take a leave of absence and return to his native Yugoslavia to take up the post of prime minister while fellow Serbs were waging wars in Bosnia-Herzegovina and Croatia.

He eventually clashed with Serbian strongman Slobodan Milosevic, challenging him for the Serbian presidency and being forced back to the pharmaceuticals business after losing the December 1993 vote.

Asked if he plans to delve into politics again, Panic said he learned his lesson in Yugoslavia and will stick to business. But he couldn’t resist an urge to lecture Russian journalists about their gloomy accounts of this country’s progress in developing democracy and a market economy.

“When I first came here, there were no cars on the street, no restaurants to go to, no stores, and economists were predicting it was doomsday for Russia,” he recalled. “Today you have inflation under control, more or less, the ruble is convertible, you have small enterprises and privatization is proceeding better than in any other country, with the possible exception of the Czech Republic.”

Saying that “great success” has been achieved in post-Communist Russia, the drug magnate reprimanded Russian journalists for their harsh assessments and instructed them to “stop complaining!”

Williams reported from Moscow; Marsh from Costa Mesa.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Emerging Market

ICN sales in Russia and other Eastern European countries have been surging the last three years. Since 1994, the company’s total sales there have increased 152%, while total ICN sales were up 103%. Here are the sales trends, in millions:

*--*

1994 1997 Total $366.9 $744.6 Eastern Europe $172.1 $433.9

*--*

****

*--*

ICN Sales Markets 1994 1997 Eastern Europe 47% 58% U.S. 22% 21% Western Europe 9% 7% Latin America 16% 8% Canada 4% - Other 2% 6%

*--*

****

Looking East

Some of ICN’s increased presence in Eastern Europe has occurred through acquisition of six private firms during the last two years:

Company: Polypharm

Business: pharmaceutical manufacturer

Country: Russia

ICN share: 65%

*

Company: Leksredstva

Business: pharmaceutical manufacturer

Country: Russia

ICN share: 72%

*

Company: Marbiopharm

Business: pharmaceutical manufacturer

Country: Russia

ICN share: 72%

*

Company: AO Tomsk

Business: pharmaceutical manufacturer

Country: Russia

ICN share: 73%

*

Company: Alkaloida

Business: chemical manufacturer

Country: Hungary

ICN share: 60%

*

Company: Polfa Rzeszow

Business: pharmaceutical manufacturer

Country: Poland

ICN share: 80%

Sources: Bloomberg News, CCR Associates, ICN Pharmaceuticals

Researched by JANICE L. JONES / Los Angeles Times