O.C. Pharmaceutical Firm Wants Belgrade Plant Back

Milan Panic, the controversial chairman of ICN Pharmaceuticals and former prime minister of Yugoslavia, was in his native Belgrade on Monday in an apparent bid to regain control of a drug manufacturing plant seized from his company by his nemesis, Slobodan Milosevic.

Panic, 70, who lost to Milosevic in the 1992 election, has been battling to win back ICN’s biggest factory ever since Milosevic’s troops stormed the plant and took control of it nearly two years ago. The seizure took a huge toll on the Costa Mesa company, which once had generated as much as 68% of its revenue from its Belgrade operations.

Now, after Milosevic conceded defeat Friday to opposition leader Vojislav Kostunica, Panic and ICN are moving quickly to reclaim the plant. Peter Murphy, an ICN spokesman in Costa Mesa, said Monday that Panic interrupted a European business trip to go to Belgrade.

Although Murphy declined to elaborate, press reports in Belgrade indicated that workers at the ICN Galenika plant have asked the company to take over.

The Galenika plant, which produces penicillin and a host of other drugs, could help ICN reestablish a solid presence in Eastern Europe. Investors have always credited Panic for building on his ties to the region, but they believe the risks have not been worth the possible benefits.

“When we first started acquiring ICN [in 1994], we felt that Eastern Europe was an upside for the company,” said Eric J. Miller, co-manager of the Heartland Value Fund, a Milwaukee mutual fund that owns more than 6% of ICN. “And we certainly regard the political developments in Yugoslavia as positive.”

ICN, though, will need to make major investments in the plant to get it up to speed. Panic told Bloomberg News in Belgrade that the company will need to spend as much as $20 million to buy raw materials and about $30 million to cover other costs at the plant.

The managers appointed by the Milosevic government “destroyed the factory,” said Panic, who defected to the West in 1955 while competing in a cycling tournament in the Netherlands. “There has to be investment.”

Miller said that adding the Galenika plant would still be a positive move even if it means spending $50 million to get it operating again.

Panic, who served for nine months as Yugoslav prime minister before his defeat by Milosevic, founded ICN in his basement in Pasadena in 1959. But Wall Street has long been wary of his company.

In recent years, shareholders upset by the company’s operations and languishing stock have tried to remove Panic from his corporate post. Their views were mixed Monday on whether any recovery of Galenika would be valuable to ICN.

But they agreed that it would have little effect on their opposition to Panic and to ICN’s plans to split the company into three publicly traded entities, with two of them controlled by ICN.

“I don’t think it would have any impact regarding ways to enhance shareholder value,” said one dissident, David Batchelder, whose Relational Investors LLC holds a 2% stake in the company. Batchelder was added to ICN’s board last year to appease disgruntled shareholders.

“We have a lot of differences with Milan,” said Miller of the Heartland Value Fund. “And we feel his role in the company must be diminished.”

Acknowledging Panic’s considerable political skills and connections in Europe, Miller said his fund would encourage Panic to continue to represent ICN’s interests there. “But, ultimately, we’d like to see his role diminished as an operator of the company and in the United States.”

Special Situations Partners, another dissident group, is threatening to nominate its own slate of directors to replace Panic’s board. It is demanding internal documents that the company is so far refusing to turn over. Executives at the Monaco investor company were not available for comment Monday.

ICN stock has soared and plunged mostly on news about prospects that its antiviral drug, ribavirin, could be used to treat various diseases. Its shares fell 56 cents Monday to close at $33.56 on the New York Stock Exchange.

ICN acquired a 75% stake in Galenika Pharmaceuticals, a state-operated company, in 1991 and renamed it ICN Galenika. The state retained the remaining interest.

The next year, Galenika generated sales of $326 million, about 68% of ICN’s total revenue.

Panic, who has well-developed political and business contacts throughout Europe and Russia, has been the prime mover in the company’s foreign expansion.

But the Galenika operation began suffering from an ongoing United Nations embargo during the Balkan conflicts and eventually became a drag on business. And in Russia, operations have been hurt by a decline in purchasing power after the ruble began weakening in late 1998 and the economy went into recession.

About two years ago, Yugoslav authorities accused ICN of not living up to terms of the purchase agreement, saying it had invested less than it promised. ICN denied the claim, saying it had fulfilled all of its obligations.

A few days after Milosevic’s troops took control, Galenika workers walked out in protest as the company tried to regain control. Panic eventually sued in a federal court in Washington. The suit is pending.

ICN took a $223-million fourth-quarter loss in 1998--an annual $352.1-million loss--mainly for the government seizure of Galenika. But the company bounced back to earn $118.6 million last year on sales of $747.4 million.

Much of the recovery came from sales of ribavirin, the drug used by Shering-Plough Corp., along with its interferon drug, as a combination treatment for the often fatal liver disease hepatitis C.

ICN’s plans for Galenika are barely taking shape.

“I don’t know when we will invest,” Panic told Bloomberg News on Monday. “Sanctions haven’t been lifted yet.”

The European Union, which along with U.S. and other Western powers had sought the ouster of Milosevic, lifted some economic sanctions against Yugoslavia on Monday, though future aid may be tied to the extradition of Milosevic, who has been indicted for war crimes in The Hague.

U.S. sanctions remain in place, though the intention is to lift them.

ICN said funds for the investment will come from the company’s operations in Yugoslavia, not from money generated outside the country.