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Valeant faces troubled Serbian past with latest bid

Valeant Pharmaceuticals International CEO Michael Pearson


Valeant Pharmaceuticals International Inc. is poised to revisit one of the darkest chapters of its past after emerging as the sole bidder for Serbia's state-owned drug manufacturer, Galenika AD.

Earlier this month, the Serbian government announced that Valeant, the largest publicly traded Canadian-based drug company, was the only one of five prospective bidders to meet the criteria laid out in a call for tenders in January. Montreal-based Valeant has until the end of the month to indicate whether it intends to proceed with a deal, according to Serbian news reports. The company declined to comment on its intentions.

The purchase of money-losing Galenika would add to Valeant's list of more than 50 deals since the 2010 merger between Valeant, then based in the U.S., and Ontario-based Biovail Corp., paid for largely with borrowed money, and would build on the company's other recently purchased assets in Eastern Europe.

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"Maybe they see poorly mismanaged assets they can get some accretion from," said Annabel Samimy, an analyst with Stifel Nicolaus in New York.

The purchase of Galenika would also reunite two entities whose previous relationship was torn apart in a major diplomatic and international commercial spat 14 years ago, stemming from bad blood between two Serbian politicians at the outset of the Balkan wars.

On the eve of Yugoslavia's disintegration in 1991, Valeant's predecessor, California-based ICN Pharmaceuticals, formed a joint venture with the Serbian government to purchase control of Galenika. At the time, the deal was a homecoming of sorts for ICN founder and chief executive Milan Panic, who defected to the United States in the mid-1950s and built the company into a modest international success.

In 1992, at the invitation of then-Serbian president Slobodan Milosevic, Mr. Panic became prime minister of Yugoslavia. But their relationship soured when Mr. Panic ran against Mr. Milosevic in Serbian presidential elections that year, and lost (a contest Mr. Panic's campaign manager accused Mr. Milosevic of stealing).

With Yugoslavia subject to sanctions and in a state of significant economic and political volatility, ICN found itself heavily exposed: Galenika's operations accounted for more than 44 per cent of ICN's sales and 50 per cent of operating profits in the mid-1990s, according to U.S. Securities and Exchange Commission reports at the time.

In February, 1999, the Milosevic government nationalized Galenika, sending in armed police and troops to seize ICN's headquarters near Belgrade, forcing out managers and detaining a senior executive for days.

The U.S. government condemned the move and Mr. Panic urged then-president Bill Clinton, in an open letter published in The New York Times, to help settle the dispute. "There can be no doubt that this was an economic and politically motivated power play intended to foment anti-American sentiment [on the eve of Kosovo peace talks]," Mr. Panic wrote.

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The case moved to an arbitration panel before the International Chamber of Commerce, which ruled in November, 2004, that Serbia must return the company's initial investment in the joint venture; Serbia repaid $34-million in an agreed settlement to the company, now known as Valeant.

By then, Mr. Panic was no longer around the savour the victory. After years of disappointing results, unfocused strategic moves and regulatory sanctions, he was deposed in 2002 when dissident shareholders voted enough directors onto the board to oust him as CEO.

When his successors fared little better over the next five years, the board brought in senior industry consultant Michael Pearson to devise a fresh strategy for the company. He was eventually hired as CEO to chart Valeant's acquisition course, culminating in the Biovail deal.

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About the Author

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine, where he was project co-ordinator of the magazine's inaugural Rich 100 list. More


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