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ICN Pharmaceuticals Setup Is Volatile

February 26, 1989|JOHN CHARLES TIGHE

Recent fluctuations in the price of SPI Pharmaceuticals stock provide a prime example of volatility that comes with investing in any of the three companies controlled by Costa Mesa-based ICN Pharmaceuticals, controversial developer of the antiviral drug ribavirin.

SPI stock rose 25% in 5 days earlier this month after an earnings report that "was about a penny (per share) better than expected. But nothing worth a 25% increase," said Steven Reid, an analyst for L.H. Friend & Co., a brokerage firm in Los Angeles.

SPI shares climbed from $8.88 on Feb. 10 to $11.13 on Feb. 17, then fell 10% during last week's broad market downturn to close Friday at $10.

Late last year, shares of another subsidiary, ICN Biomedicals, plunged 24% over a 4-day period--with nothing in the news to account for the fall, according to industry analysts.

Reason for Volatility

ICN Pharmaceuticals' overwhelming control of its subsidiaries--the third is money-losing Viratek--is the big reason for the volatility, analysts said.

For instance, ICN Pharmaceuticals owns nearly 90% of SPI's stock, meaning that few shares are publicly available. The scarcity of shares on the open market results in low trading volume and means that it takes only a few buyers or sellers to cause the price to fluctuate wildly.

"It's confusing, at best" to follow the four interrelated companies' stocks, said Eugene Melnitchenko, director of research for the Dallas brokerage firm of Eppler, Guerin & Turner. "Typically, businesses are spun off to realize greater value," he said, but the ICN companies' administrative independence "stands in the way" of financial performance.

The current setup costs as much as $10 million a year in added overhead, Melnitchenko said. Despite that criticism, Melnitchenko is a perennial ICN booster. He said he has encouraged company Chairman Milan Panic to bring the subsidiaries and parent firm together to end the confusion.

But ICN Pharmaceuticals spokesman Jack Sholl said there are no plans to change the current structure.

Fluctuations Expected

That being the case, stock price fluctuations are expected to continue.

But for SPI's stock, analysts said, most movement will be up.

"SPI is the most solid of the subsidiaries," said Reid, who expects the company to earn $12.1 million for its fiscal 1989, which ends Nov. 30. Earlier this month, SPI reported fiscal 1988 net earnings of $10.2 million, up 21%. Sales for the year were up 47% to $115.9 million.

SPI expects $15 million in sales this year just from products it markets in America for F. Hoffman-La Roche, the giant Swiss drug maker that ought into last year in a failed takeover bid that elicited cries of "greenmail." ICN later sold the stock.

Melnitchenko said the potential of SPI stock is limited because of its affiliation with ICN, which has been shadowed by controversy both in its stock dealings and in its marketing of ribavirin. Most recently, some medical authorities have clamed that ICN failed to warn that inhaling the aerosol mist used to deliver the drug to children with severe lung infections could lead to birth defects among pregnant health-care workers.

"There's no doubt that if SPI were an independent drug company, it would be worth significantly more. A lot of people stay away because, as wise a man as he is, these people don't like Milan Panic," said Reid, the L.H. Friend analyst.

Michael Connor, an analyst at Edward A. Viner & Co., a brokerage firm in New York, is one of those who stays away. "We do not recommend involvement with these companies because we . . . find that (Panic's) work has not been as an administrator or discoverer of new medical compounds. His work is in his financial machinations, which have succeeded in creating a hodgepodge of confusion for the investor," he said.

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