REGIME CHANGE – Panic Ouster, Newcomers Remake ICN
By VITA REED
Even as ICN Pharmaceuticals Inc. tries to buy back Ribapharm Inc.,undoing one of the last deeds of founder and former chief executive Milan Panic,the Costa Mesa drug maker already has undergone one of the most sweeping makeovers Orange County’s seen in a while.
ICN’s seen nine senior executives leave, and the company’s changed out 31 of 76 top officials within the past year or so.
The most sweeping changes are at the top, with a new chief executive, a new president and chief operating officer and a new financial chief.
Analysts have given good marks to the changes, and Wall Street seems disposed to give ICN’s new team the benefit of the doubt.
ICN’s shares, after plunging down to around 6 in October, slowly have rebounded and were trading in the 16 range as of last week. The company counted a recent market value of $1.4 billion.
The housecleaning comes after disgruntled shareholders won their second proxy battle in many years in 2002, leading to Panic’s ouster.
A year ago, dissidents won a board vote that led to the election of directors Richard Koppes, Randy Thurman and Robert O’Leary, who’s now chairman and chief executive. Institutional investors backed O’Leary with an eye toward having him replace Panic.
O’Leary served a short stint as Cypress-based PacifiCare Health Systems Inc.’s chief executive and was chairman of San Diego-based hospital buying group Premier Inc., as well as chief executive of Orange-based St. Joseph Health System.
O’Leary and other dissident-backed directors beat out a slate put forth by Panic to take control of ICN’s board after the election of three dissidents in 2001.
Panic, a Serbian immigrant and onetime Yugoslavian prime minister who founded ICN in 1960, stepped down as chief executive last year and gave up his board seat this year.
Two of ICN’s new executives are critical to the company’s larger bid to right itself from earnings surprises and corporate turmoil, according to analysts:
n Timothy Tyson, president and chief operating officer. Tyson replaced Adam Jerney, who joined ICN in 1973 and was one of the managers most closely linked to Panic. Tyson used to be president of global production for GlaxoSmithKline PLC and is in line to replace O’Leary as chief executive.
n Bary Bailey, executive vice president and chief financial officer. Bailey, who most recently was executive vice president of pharmacy and technology at PacifiCare, replaced John Giordani, who had a 17-year run as Panic’s financial chief.
“In Mr. Tyson and Mr. Bailey, we’ve got the nucleus of an extraordinary team for the future,” O’Leary said after last month’s shareholder meeting.
“New management has been extremely successful in its efforts to recruit top-quality talent,” wrote Joseph Riccardo, a Bear Stearns & Co. analyst in New York in a report initiating coverage of ICN.
O’Leary and Tyson “possess the necessary experience, focus and sense of urgency required to return ICN Pharmaceuticals to a position of prominence in the specialty pharmaceutical sector,” Riccardo wrote. “This team is well prepared to provide the leadership and strategic direction that has been lacking at ICN.”
Larry Smith, an analyst with Gerard Klauer Mattison & Co. and a critic of Panic and his managers, said he backs the new team.
“We are impressed by new management, and their strategies for turning around ICN seem well thought out,” Smith wrote in a report upgrading ICN’s stock.
Under Panic, “costs were out of control, managers focused on increasing sales (not cash flow or earnings) and there was little strategic thinking,” Smith wrote. “As a result, ICN grew up as a mishmash of businesses and products scattered throughout the world that was entirely put together by acquisition. New management faces strong challenges to turn this business around.”
In an interview late last year, Panic said ICN was left in “super shape” and “would have had a bigger profit if we weren’t distracted” by the proxy battles.
Other new ICN executives include:
n John Cooper, executive vice president, global manufacturing and supply. Cooper came to ICN in January from GlaxoSmithKline, where he was vice president of global operational excellence, a title that encompassed global process improvement projects.
n Wesley Wheeler, president, North America. Wheeler joined ICN in February from DSM Pharmaceuticals Inc., a Greenville, N.C., unit of DSM NV of the Netherlands. Like Tyson and Cooper, Wheeler is another GlaxoSmithKline veteran, serving as senior vice president of logistics and strategy.
Another newcomer is Michael Kays, senior vice president, global procurement, who came to ICN from Carlisle Life Sciences, a division of Charlotte, N.C.-based Carlisle Cos.
Then there’s Timothy Arendt, another former GlaxoSmithKline official who is ICN’s vice president, global marketing.
Eileen Pruette, vice president, general counsel, came to the drug maker in May after serving as vice president of legal global intellectual property for Sony Ericsson Mobile Communications AB.
There are two high-ranking holdovers from the Panic era. One is Gregory Keever, executive vice president and special counsel to the chairman.
The other is Bill MacDonald, executive vice president of strategic planning and corporate development.
Keever, whose previous title was executive vice president, corporate counsel and secretary, is relatively new to ICN. He joined in 2001 and also is a partner at law firm Coudert Brothers LLP.
MacDonald’s been with ICN since 1982 and held the title of executive vice president, strategic planning, in the previous regime.
ICN’s New Shareholder Fight: Ribapharm
ICN Pharmaceuticals Inc. has a history of grumbling shareholders. And one of them isn’t mincing words about the drug maker’s offer to buy back the 20% of biotechnology arm Ribapharm Inc. it doesn’t already own.
“ICN is trying to steal the company with this low-ball bid,” said William Nasgovitz, president of Heartland Advisors Inc., a Milwaukee institutional investor holding some 6 million Ribapharm shares, or 20% of the company’s 30 million publicly traded shares. Heartland also holds 3.5 million shares of ICN stock.
“We’re not going to tender our stock at this ridiculous price, and we would urge all other holders not to either,” Nasgovitz said.
Nasgovitz wants ICN to pay $10 a share for Ribapharm, not the $5.60 it’s offering. The company opened at 10 when ICN spun 20% of it in 2002.
Ribapharm shares were trading at about 6.5 last week, thanks to a runup after ICN detailed its buyback plan. Ribapharm’s market value was $980 million last week.
Ribapharm is worth more than ICN is offering, Nasgovitz contends, because generic and branded rivals to the company’s flagship ribavirin drug for hepatitis C “could be beaten back.”
“We expect additional promising drugs to follow. They have one of the most robust libraries in America,” Nasgovitz said.
Last week, Ribapharm’s board joined Nasgovitz in urging shareholders to reject ICN’s $160 million offer.
ICN responded by saying it was disappointed by the move and that its offer is fair.
ICN needs Ribapharm, said Larry Smith, an analyst with Gerard Klauer Mattison & Co. in New York.
“All of the research potential of ICN lies within (Ribapharm),” he said.
Ribapharm was partly spun off by former chief executive Milan Panic, in part to assuage shareholders disgruntled with his reign.
The company didn’t take off as expected,Ribapharm’s shares dipped to as low as 4.60 at one point.
“The original move to spin off Ribapharm made no business sense,” Smith said. “It created two relatively weak companies.”
The Ribapharm share sale raised $260 million for ICN but was bad for shareholders, Smith contends.
“For the investment bankers and Milan Panic, they made a lot of money,” said Smith, who was among Panic’s critics.
,Vita Reed
