ICN Writes Off Yugoslavia Plant

L.A. Times Archives

March 5, 1999 12 AM PT

<i> From Times Staff and Wire Reports</i>

ICN Pharmaceuticals Inc. posted a fourth-quarter loss of $218 million, or $2.85 a share, as it wrote off a key Yugoslavian plant seized last month by Serbian troops.

The Costa Mesa-based drug maker took a charge of $230 million in the quarter, the latest in a series of charges related to economic and political instability in Yugoslavia and other parts of Eastern Europe.

“The company has been unpredictable for years and years,” said Allan Roness, a JW Genesis analyst with a “hold” recommendation on the stock. “It’s hard to tell anything about ICN, because there’s a different story, a different problem, all the time.”

Operating profits also slumped 67% in the three-month period as revenue declined in Eastern Europe, once one of ICN’s biggest markets.

The company, one of Eastern Europe’s biggest drug makers, said profit from operations fell to $12 million, or 15 cents a share, from $36 million, or 49 cents, in the fourth quarter a year earlier. Revenue fell 21% to $201 million, from $256 million. Sales in Eastern Europe fell to $76 million from $152 million.

The results matched analysts’ expectations, according to a survey by First Call Corp. And the stock moved up 12%, or $2.75 a share, to $25.75 on the New York Stock Exchange.

The gain, the stock’s biggest one-day percentage surge in two months, apparently was fueled by expectations that the company’s decision to write off its entire Yugoslavian operation will bring more predictable results in the future, analysts said.

Economic turmoil in Russia and Eastern Europe forced the company to take heavy charges earlier in the year.

In the third quarter, ICN recorded a $35-million charge for currency valuations, including the devaluation of the Russian ruble.

ICN wrote off $130 million in the second quarter to cover debts owed by cash-strapped Yugoslavia, including $39 million for drugs and supplies sold to state medical institutions. In the third quarter, the company set up a $35-million reserve for uncollected bills.

“Yugoslavia was a big negative overhanging the stock,” said Eugene Melnitchenko, a Sutro & Co. analyst with a “buy” recommendation on the stock. “Now people will be focusing on the rest of the businesses, which are doing well.”

Melnitchenko has a 12-month target price of $85 for ICN shares.

ICN’s decision to write off its Yugoslavia operations reflects a change in the company’s strategy.

ICN, which once considered Eastern Europe, especially Yugoslavia, as a primary market, has broadened its focus. “We’re a global company, not just an Eastern European company,” ICN spokesman Terry Souers said.

One bright spot is ICN’s ribavirin, which should bring the company royalty revenue of about $5 a share within five years, said Melnitchenko.

Last year, Schering-Plough Corp. won U.S. approval of a hepatitis treatment that combines ICN’s ribavirin with Intron A. ICN’s fourth-quarter royalties on Schering-Plough’s sales of ribavirin were $10.7 million.

ICN also said it filed suit in U.S. District Court against the Yugoslav government seeking damages of $500 million and the attachment of Yugoslavian assets in the U.S.

ICN Chairman and Chief Executive Milan Panic and Yugoslav President Slobodan Milosevic are bitter enemies. Panic, who took a leave of absence to serve as Yugoslavia’s prime minister for nine months in 1992 and 1993, later challenged Milosevic for the country’s presidency but lost.

Panic, a vocal critic of Milosevic, co-founded Alliance for Change, an organization of more than 20 opposition groups and parties.

For the year, the company posted a net loss of $347 million, or $4.71 a share. Before the Eastern European charges, income totaled $46 million, or 58 cents a share. In 1997, the company earned $114 million, or $1.69 a share. Revenue rose 11% to $838 million, from $752 million.

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Costly Plant Seizure

ICN Pharmaceuticals Inc. posted a big loss for 1998, largely because the Yugoslav government grabbed control of a company plant there. After slumping in the fall, the stock has rebounded a bit.

ICN Pharmaceuticals Inc. Weekly stock close

5/1: $49.13

5/8: $50.44 (high)

5/15: $48

5/22: $45.25

5/29: $43.06

6/5: $43.63

6/12: $44

6/19: $43.50

6/26: $47.81

7/3: $46

7/10: $45.13