ICN Pharmaceuticals Inc. founder and Chairman Milan Panic has marked two anniversaries,his 70th and his company’s 40th,by announcing a plan to expand the company’s R & D; operations in Costa Mesa, and by telling his Wall Street critics to take a hike.
“Why do I take abuse from people who know nothing about business except picking stocks?” Panic said in an interview last week.
In September, the company’s then-biggest investor, Wisconsin-based Heartland Advisors, led a group that sought to oust Panic by using a tactic that would have forced his retirement at 70. The challengers got 37% of the shares to go their way,a relatively impressive figure but well short of the required 75%. Heartland still held its 6.1% stake as of earlier this month.
Now another investor, with takeover experience, Tito Tettamanti, has arrived on the ICN scene. Tettamanti is the Switzerland-based chairman of Sterling Investment Group, whose subsidiary, Special Situations Partners Inc., became ICN’s biggest shareholder in the last month by buying 7.1% of the shares.
Spinoff Suggested
In a meeting this month with Panic, Tettamanti and other Sterling officials suggested splitting off ICN’s Eastern European operations into a separate public company.
In contrast to his general rhetoric against hostile investors, though, Panic treaded more carefully during the interview in discussing Tettamanti. Panic said he got along fine with Tettamanti in the meeting, and he did not categorically dismiss a possible sale.
But Panic expressed a clear reluctance to do so. He recalled that an investment banker advised him in 1996 to get rid of the company’s U.S. operations, about a third of the company, because it was “the worst market in the world.” It is now the company’s top performer, he said.
Panic said Tettamanti’s background in takeovers doesn’t bother him.
“I worry about the future of the company because I have 40 years of experience fighting. Speculators and manipulators are looking to solve fundamental problems in business in their genius way. I pay little attention to what they say.”
Panic said he has “more backbone” than the typical CEO, who compared with himself has only been in his job a short time.
Not Going to Step Down
As to his critics who say it’s time for him to step down, Panic said, “What are you talking about, retire? People are not measured by age, they are measured by performance. I’m very proud of my performance.”
But Panic then said that if he does retire, it will “not be because of the foolishness of the market, but because there are other things to retire for, to do other things in life.”
Two analysts contacted for this article said they doubt Panic will be departing soon.
“I’d be surprised to see him leave the firm,” said Jason M. Kroll of Barclays Capital. “He is certainly getting heat from some of his equity investors for the poor performance of the company. But this is a company that he’s developed and he’s going to stay in charge unless the SEC investigation requires him to leave.”
The SEC filed a civil charge against Panic in August regarding an allegation of withholding information in 1994 about FDA rejection of his company’s drug ribavirin. It wants to fine the company $500,000 and, more importantly, ban Panic from ever serving again as a director in a public company. A grand jury is also investigating allegations of insider trading.
Panic characterized the allegations as insignificant. A judge recently refused to dismiss the charges, but in Panic’s view, the judge is giving the SEC six months more to investigate the long-standing charges. “Four and a half years is not enough? The judge gave them six months more. We’ll give them all the help they need, of course,” Panic said, smiling.
Last week’s one-on-one interview with the Business Journal was part of several events hosted by ICN. Panic also threw parties for the local press, and flew in several Russian and Yugoslav journalists and some of ICN’s Eastern European press aides to check out Orange County and the Costa Mesa HQ. Panic said the activities were part of an image-building campaign. He said the company “hasn’t done a good job” in explaining itself.
1999 has been a tumultuous year for Panic. Besides the wrangling with investors, the Yugoslavian government confiscated his drug factory, and his beloved country, for which he served as prime minister in 1992, was bombed by his friend Bill Clinton.
The company took a $441 million charge for its troubled Eastern European operations (roughly half attributable to the confiscation of the Yugoslavian factory), which the company booked against its 1998 results.
Otherwise, on an operational basis, 1999 was a generally good year. Revenue through the first three quarters declined by 16% to $534 million, mainly as a result of the ruble crisis in Russia and the loss of the Yugoslavian revenue stream. But revenue from North America, Western Europe and Latin America grew nearly 40% to $318 million. And net income for the first three quarters was $80.3 million, compared to a loss of $6.2 million in the prior year.
Panic said he is expecting a record profit for 1999, beating the previous high of $113.9 million that ICN posted in 1997.
ICN stock reached the 35 level this year, then fell to 16 after the company failed to meet the Street’s expectations. The stock has since rebounded to the 24 level last week.
Panic contended the company’s $2 billion market cap is half of what it should be; he said the goal is to increase it to $10 billion.
Panic said Wall Street should pay more attention to the growing royalty stream from Rebetol (ribavirin), which is used in combination with Schering-Plough’s Intron A as the standard for Hepatitis C treatment. The drug is expected to generate more than $100 million in royalties for ICN this year.
And Panic said he hopes to have a new drug, Ribavirin II, on the market by 2003. “This is another potential billion-dollar drug in sales,” he said.
Panic said he plans to increase by five-fold his spending on R & D;, to $100 million annually, which will mean more jobs in Costa Mesa.
“We’re in the process of staffing our facility with the world’s best scientists,” said Panic.n
