There May Not Be Much Confetti At Milan Panic's Homecoming

As a rookie diplomat, Milan Panic was a bust. Just six months after taking a sabbatical from ICN Pharmaceuticals Inc., the Costa Mesa (Calif.) drug company that he founded in 1960, Panic was ousted as Prime Minister of Yugoslavia. Civil war continues to rage in his native country, undeterred by his efforts to galvanize the Serbian opposition and move the country to a market economy.

Panic returns to ICN this month, but this homecoming may not be any more fruitful. Despite a sales decline of 9% in the third quarter, ICN's stock price has soared 83% since January, to $11. Prospects are good--so good, in fact, that some investors would just as soon see the 63-year-old Panic (pronounced PAHN-ish) stay in Yugoslavia.

A BRAWL? Indeed, shareholders are leaving open the possibility of a proxy fight for control of ICN's board. "Most professional investors would like to see a change in management, and we'd support anyone who would propose a more independent slate" of directors, says John Kaweske, a portfolio manager at Invesco Trust Co., whose funds own an estimated 6% of ICN. Adds Seth Glickenhaus, a New York money manager and ICN investor: "There's been a welling disaffection with Panic, and I would guess that there's going to be some sort of struggle over his return."

Panic's tenure at ICN has been long on controversy. Over the years, the drugmaker has had numerous spats with shareholders, the Securities & Exchange Commission, and the Food & Drug Administration. Two years ago, it paid a $600,000 fine to the FDA and signed its second SEC consent decree--both without admitting fault--over the promotion of its flagship drug, the antiviral Virazole, an AIDS treatment.

These days, investors are upset that Panic would abandon the company for a fling in international politics, however well-intentioned. They're also upset that ICN's board continued to pay his $620,000 annual salary while he was on leave. That perk reawakened feelings among investors that Panic has long run ICN and its subsidiaries as a private fiefdom. Panic, traveling in Europe, was not available to be interviewed.

"Institutions are fed up that the board continually replenishes Panic's pocket with options year after year," says Steven B. Reid, health-care analyst at H.J. Meyers & Co. The Beverly Hills brokerage in February managed a stock offering that netted $9 million for Viratek Inc., ICN's 78%-owned research subsidiary. "And they're very unhappy that he continually sells stock on the open market to support his lavish lifestyle," he adds. Most recently, Panic in January cashed in $2.9 million worth of ICN options, then sold the shares.

But investors are bullish on ICN. One big reason: the company's push into Eastern Europe. "ICN is leading the charge of Western companies by providing quasi-commodity pharmaceuticals" to the region, says veteran drug analyst Samuel D. Isaly of New York's Mehta & Isaly.

In May, 1991, SPI Pharmaceuticals Inc., ICN's half-owned drugmaking and marketing subsidiary, bought 75% of Yugoslavia's biggest drug company, Galenika--and rewarded Panic with $5.4 million in SPI stock. Galenika soared in its first year under SPI, then lost 56% of its sales to the war and the onset of U.N. sanctions. Now, SPI is within weeks of formalizing a similar deal in Russia. It has signed a letter of intent with a Polish drug concern and has had discussions with Hungarian companies.

ALLURING VOWS. Investors are betting even more on renewed interest in ICN's proprietary ribavirin. One of the few broad-spectrum antiviral agents, ribavirin--ICN's Virazole--seems well on the way to FDA approval for the treatment of hepatitis C. Analysts say that ICN could apply for FDA approval as early as yearend. Approval could add $500 million to ICN's annual sales.

Wall Street, of course, has heard such alluring promises before. The difference? This time, they're coming from scientific meetings and professional journals, instead of from the hastily called press conferences often favored by Panic. Suddenly, Virazole's prospects looks a whole lot more promising. Indeed, at ICN these days, it's Panic's future that's up in the air.