ICN Stock Loses More Ground
ICN Pharmaceuticals Inc.’s stock took a beating Thursday after the Costa Mesa-based drug maker said it will take a charge of $172 million for money owed by a government agency in Yugoslavia.
ICN, which generates almost one-third of its revenue in Yugoslavia, said the agency failed to pay $39 million that was due June 30 and warned it may not be able to pay the rest of the debt.
ICN’s stock tumbled 27%, or $10.25 a share, early in the trading session before rallying to close at $33.63, down $5 for the day. More than 7.65 million shares of stock changed hands, making ICN No. 21 on the list of most actively traded stocks in U.S. markets. The stock also lost $4.50 a share on Wednesday.
Under Chairman and Chief Executive Milan Panic, a U.S. citizen who served as prime minister of Yugoslavia during that country’s transition from Communist rule, ICN has moved into the untapped pharmaceutical markets in Eastern Europe. ICN has been able to win rights to sell popular drugs in a region ignored by many rivals who are reluctant to do business in emerging markets.
“When you deal with risky areas like emerging markets, you sometimes face this kind of situation,” said Sergio Traversa, an analyst with Mehta Partners. “Obviously, ICN was a little bit overexposed in the Yugoslavian market. And that’s a country where the economic situation is the worst among the Eastern European countries.”
In April, ICN also announced that it expected to take a second-quarter charge of about $27 million because the Yugoslavian currency, the dinar, was devalued.
ICN said it still expects to meet analysts’ earnings forecast of 41 cents a share for the second quarter, excluding the $172-million charge, which is the equivalent of $1.65 a share.
The Yugoslavian government is seeking concessions from ICN, which is working to renegotiate the credit terms, ICN said. The company has suspended all direct credit sales to the government.
ICN said the government’s ability to pay its debt has been hurt by economic sanctions, political instability and the 82% devaluation of the dinar in April.
Seth Glickenhaus, a senior partner at Glickenhaus $ Co., which holds about 1 million ICN shares, said such setbacks are inevitable when getting set up in emerging markets.
“The course of establishing this can be painful,” Glickenhaus said. “That the rewards can be stupendous is also true.”
ICN is negotiating with Yugoslavian authorities and hopes they will pay the overdue bills, Panic said in an interview.
“It is prudent to take a reserve for the full amount,” he said. “I believe we will collect. I don’t know when and I’m not sure that we will.”
While Yugoslavia was responsible for about 30% of ICN’s sales in 1997, the U.S. this year will replace the Eastern European country as ICN’s biggest market thanks to revenue from the company’s hepatitis C treatment, ribavirin, Panic said.
He estimates ICN’s U.S. sales will total about $300 million this year, generating about $91 million in profit.
ICN shares had surged in the last year, in part on prospects that one of its drugs, combined with a drug manufactured by Schering Plough Corp., will be used to treat the potentially deadly hepatitis C disease. An expert government panel recommended using ribavirin, now sold to treat respiratory infection, together with another drug for the disease, which can cause severe liver problems and has infected an estimated 4 million Americans.
On Thursday, Schering-Plough said it will make a one-time payment of $16.5 million to obtain exclusive rights to market ribavirin for treating hepatitis C in Eastern Europe. Schering-Plough said it also will boost the royalty it pays ICN on global sales of ribavirin, when it’s used in combination with Schering’s Intron-A to treat Hepatitis C.
The Food and Drug Administration has given the companies permission to market that treatment for relapsed patients in the U.S. and they’re seeking to expand that label to all patients.
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ICN Takes Hit
A one-time charge of $172 million on defaulted payments helped send ICN Pharmaceutical’s stock skidding to a 1998 low of $28.38 during trading Thursday before rallying later in the session. The stock traded as high as $51.13 in May. Daily closing prices:
Thursday’s close: $33.63
Source: Bloomberg News
