ICN to Purchase Medicine Rights From Swiss Firm
ICN Pharmaceuticals Inc., moving to offset business setbacks in Eastern Europe, said Monday it is buying global rights to four medicines from Swiss drug giant Roche Holdings AG for $179 million in cash and stock.
Analysts said the purchase, the largest ever by Costa Mesa-based ICN, should help plug holes in its financial books caused this year by the Yugoslavian conflict and the devaluation of the Russian ruble.
The Roche deal is one of the steps the company is taking to balance its financial risks, ICN Chairman Milan Panic said. He also disclosed that the company will postpone plans to build a $40-million factory in St. Petersburg, Russia, until 2000 or later.
“All expansion in Eastern Europe other than for projects we have already allocated has been suspended,” he said. That means the company will trim next year’s expansion budget in Eastern Europe and Russia to about $50 million from a proposed level of up to $150 million, he said.
From Roche, ICN is acquiring rights to Dalmane, a drug for sleep disorders; Fluoro-Uracil, a chemotherapy medication for cancer; Librax, a treatment for overactive bowel; and Mogadon, a sleep-disorder drug marketed overseas as a treatment for epilepsy.
The drugs generate sales of about $67 million a year. All are sold overseas and all but Mogadon are sold domestically, said ICN officials.
It’s not uncommon for medium-sized drug companies such as ICN to expand their sales by buying product castoffs from the pharmaceutical industry’s giants. But analysts said it could be years before the verdict is in on whether ICN made the right move this time.
In its favor, analyst Robert Wasserman said, ICN made two similar product acquisitions from Roche last year--13 drugs in all--and they have performed well so far. He noted, too, that the numbers suggest ICN may have gotten a good deal this time.
Terms provide for the company to pay half in cash and the other half in stock valued at $31 a share, almost twice its Monday closing price of $15.38 on the New York Stock Exchange. Roche agreed to hold its ICN shares until the end of next year and is guaranteed a 6% return on the stock. Roche can sell the shares if the stock price tops $31 a share, but would split any gain with ICN.
Still, Wasserman cautioned, the main risk for ICN is that “the bigger guys are smarter than the little guys, and Roche is getting rid of this stuff because this is a bunch of crap.”
Panic insisted ICN knows what it’s doing after 39 years in the industry. He said that although sales levels of the four drugs don’t meet Roche’s required annual sales minimum of more than $100 million a year, the markets are suitable for a company of ICN’s size.
Analysts said the drugs should sell in stable U.S. and Western European markets, while the business outlook remains shaky in Eastern Europe. The four drugs generate 48% of their revenue in Western Europe and 22% in the U.S.
Eugene Melnitchenko, a Sutro & Co. analyst, said profit margins on these medicines are high in Western Europe and the United States. He predicted the drugs will add 40 cents a share to ICN’s annual bottom line.
He predicted ICN’s salespeople will push these drugs to physicians around the globe, marketing them “a little more aggressively than Roche.”
ICN’s latest agreement with Roche must be approved by the Federal Trade Commission. If regulators OK the deal it will be considered effective Oct. 1.
Despite the immediate benefits, Melnitchenko said he would prefer that ICN invest in developing new products and clinical trials. Pharmaceutical companies with staying power typically bring forth their own proprietary new drugs--and ICN has few in the pipeline, he said.
Indeed, ICN probably will be acquired by another company within a few years, he said.
