ICN Gives Roche a 10% Stake, Gets Rights to 7 Drugs

COSTA MESA — ICN Pharmaceuticals Inc. said Monday it has received global marketing rights to seven products of Swiss drug giant F. Hoffman-La Roche in exchange for a 10% stake in ICN.

The Costa Mesa-based drug company said it will also buy Roche’s factory in Humacao, Puerto Rico, for $15 million in cash and assumption of $40 million in debt. Roche’s equity stake--including 1.6 million shares of ICN’s common stock and 2 million shares of convertible stock, each valued at a slight premium of $25 a share--is worth $90 million, ICN said.

Standard & Poor’s Corp. upgraded ICN’s debt for the first time since 1994 in part on news of Monday’s $145-million deal. In New York Stock Exchange trading, ICN stock closed Monday at $24 a share, up $1 for the day.

Assuming the deal closes in August, as expected, Roche will wind up with the second largest holding in ICN, after Milwaukee-based Heartland Advisors, which owns nearly 15%.

Neither company would disclose the specific names of the drugs. Herb Lightstone, an ICN spokesman, said the seven products treat a variety of central nervous system ailments, skin cancer, and a condition of the joints called myesthenia gravis.

The Puerto Rican plant, which makes an anti-inflammatory drug, will remain under Roche’s management for two years, then ICN will step in and manufacture the anti-inflammatory for Roche, Lightstone said.

The deal also includes two additional drugs that ICN can market outside the U.S., with the option to sell domestically in three years.

Based on 1996 sales, the product rights being transferred are expected to boost ICN’s North American sales by $52 million, the company said.

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Roche said holding ICN shares does not reflect any concerted company strategy. “It’s just a bridge to finance the transaction,” said spokesman Max Gurtner.

Heartland Advisors, the biggest stockholder, is displeased with the stock price and recently pressured the company for eventual changes in its board and management, including the retirement of its controversial chairman, Milan Panic.

Lightstone noted that William Nasgovitz, president of Heartland Advisors, took part in the company’s conference call Monday with Wall Street analysts and top investors regarding the Roche deal.

Nasgovitz, contacted afterward, wouldn’t comment on his opinion of the Roche deal or any effects it might have on his efforts to persuade the company to make changes.

Standard & Poor’s raised its rating on about $100 million worth of ICN’s subordinated debt by two notches to a single B plus from a single B minus.

It also upgraded its overall credit rating on the company to double B from single B plus, a change which means the agency considers it still a risky investment, but considerably less so than before.

The agency said investment in the company remains “speculative” because of its high level of involvement in Eastern European markets and its vulnerability to fluctuating valuations overseas.

The upgrading on the company’s overall credit rating puts it only two steps away from a triple B minus--the sought-after “investment grade” that would enable the company potentially to sell its debt to a broader array of institutional holders, said David Lugg, an agency analyst.

The agency cited the company’s diversifying array of drug products, strengthening financial position, and its waning dependence on sales of its anti-viral drug Virazole. Lightstone said Virazole sales totaled $35 million last year, $16 million less than the prior year.