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SPI Pharmaceuticals, Russia Drug Firm Form Venture : Privatization: Costa Mesa company melds with St. Petersburg concern in second of series of its planned joint operations.


COSTA MESA — Taking advantage of Russian efforts to return companies to aprivate hands, SPI Pharmaceuticals Inc. said Tuesday that it has created a joint venture with the country's oldest and largest drug company, completing negotiations that began more than 16 months ago.

The joint venture between the Costa Mesa company and the drug concern known as Oktyabr in St. Petersburg is the first privatization of a major pharmaceuticals company in the former Soviet Union. The new company is called ICN Oktyabr.

The operation is the second in a planned series of joint ventures in former Eastern Bloc countries. SPI already operates ICN Galenika outside Belgrade, Yugoslavia, and is negotiating for similar ventures in Poland and Hungary, said Paul Knopick, spokesman for ICN Pharmaceuticals Inc., the Costa Mesa company that controls SPI.

Industry analysts said Tuesday that the pharmaceuticals market in Russia alone is immense, especially for new drugs to combat serious respiratory conditions in heavily polluted areas. The deal is expected to be a long-term boon for SPI, rather than a transaction that will have an immediate effect on the company or on ICN Pharmaceuticals.

News of the deal's completion helped to boost SPI's stock Tuesday to $13.50 a share, up 87.5 cents in trading on the American Stock Exchange. ICN's stock, traded on the New York Stock Exchange, rose 25 cents a share to close at $10.

The joint venture comes at a time when SPI's major revenue generator, ICN Galenika, has been hurt by United Nations sanctions imposed in the ongoing battles between rebel Serbs in Bosnia-Herzegovina, which was part of Serbian-controlled Yugoslavia before the breakup of the former Communist state.

ICN Galenika has been blocked from exporting its drugs from its plant outside Belgrade, the Yugoslav capital. That cut revenue 15%, Knopick said. It also has faced delays and government denials in obtaining licenses to import the raw materials to manufacture drugs. The U.S. government has been the major cause for the delays, analysts said.

In its Russian venture, SPI will commit as much as $40 million over the next two years to build a new pharmaceuticals manufacturing plant that adheres to stricter U.S. standards. St. Petersburg is donating the land for construction. The money is expected to come from loans and grants by various governments, organizations and investors, Knopick said.

SPI said the commitment represents the largest single direct foreign investment in St. Petersburg since Russia declared its independence from the Soviet Union in December, 1991.

SPI owns 75% of ICN Oktyabr. The rest is owned by the original company's 2,100 employees and the city of St. Petersburg. The venture will donate 2% of its profits to St. Petersburg's health charities.

Oktyabr was established in 1714 by Czar Peter the Great. It was nationalized under the Soviet Union as the Leningrad Industrial Chemical and Pharmaceutical Assn., known as Oktyabr. It makes 225 prescription and non-prescription drugs from analgesics and anesthetics to vitamins.

SPI, which sells 600 drugs in more than 60 countries, said it does not expect to recognize any sales or profits from the venture until the Russian economy and the ruble stabilize.

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