from: ttp://www.icnpharm.com/icninfo/annual_report_all.html ----- Mannatt on Board. Om K ----- 1996: ICN EMERGES AS EASTERN EUROPE�S LEADING PHARMACEUTICAL ENTERPRISE Through a combination of strategic acquisitions and internal growth, ICN�s strategy in Eastern Europe contributed to record financial performance and a solid foundation for substantial growth opportunities into the next century. To Our Shareholders: >From every perspective, 1996 was ICN�s most successful year. We reported record sales, net income and earnings per share while maintaining a strong balance sheet. We completed three strategic acquisitions in Eastern Europe and became the largest pharmaceutical manufacturer in Russia. We continued to build our management infrastructure and focused our research and development expenditures on programs that maximize the use of our human resources. In addition, we initiated a senior management succession plan under which Adam Jerney, our Chief Operating Officer, became President of ICN. The sum of these accomplishments provides a solid foundation for substantial growth well into the next century. The successful strides made during 1996 were reflected in our financial performance. Sales for the year were $614 million, a 21% increase from 1995�s $508 million. Net income for the year rose to $87 million from $67 million one year ago, a 29% increase. Earnings per share increased to $2.40 from $2.20. Our balance sheet improved during 1996 as equity increased to $315 million from $162 million. The long term debt to equity ratio also improved to 56% as of December 31, 1996 from 95% at the end of 1995. Eastern Europe led our sales growth during the year with a gain of 39%. In addition, our Latin American operations rebounded from a difficult 1995 with sales increasing 13% to $49 million in 1996. In North America, our sales were essentially flat, reflecting the lower demand for Virazole� for the treatment of respiratory syncytial virus (RSV). However, sales of all pharmaceutical products aside from Virazole� increased in North America, led by dermatologicals, which increased 53% to $35 million. Sales of Mestinon�, our treatment for myasthenia gravis, rose 26% to $16 million. Our Eastern European growth resulted from exceptional internal growth, as well as from acquisitions. In September, we acquired Alkaloida Chemical Co. of Hungary, one of the world�s largest producers of morphine and codeine derivatives, and thereby entered the pain management market. We also acquired two strategically located Russian pharmaceutical companies � Leksredstva in Kursk and Polypharm in Chelyabinsk. When added to the company we bought in St. Petersburg in 1993, ICN Oktyabr, ICN now has the largest share of this fragmented market. Not to be forgotten was the spectacular performance turned in by ICN Oktyabr, whose sales grew 89% in 1996 to $38 million. To manage the growth of our Eastern European operations we opened a sales and administrative headquarters in Moscow and named Michael Sapovskiy, Vice President and General Manager of ICN�s subsidiary businesses in Russia. Mr. Sapovskiy was the First Deputy of the Minister of Health of Russia and, prior to that, Senior Officer - Chief of Department of the main military office for pharmaceutical supplies of the Russian Army. Under Mr. Sapovskiy�s leadership, ICN plans to nearly triple the number of distribution centers serving the Russian market, to 11 during 1997. In addition, ICN aims to open a total of 30 marketing and sales offices throughout Russia, combining our proven Western marketing techniques with local market requirements. ICN Yugoslavia generated a 14% sales growth during the year to $267 million. Approximately $20 million of these sales were from exports, which only resumed after sanctions were lifted in December, 1995. Our emphasis on exports increased as the year progressed, and we are optimistic about export growth potential in 1997. Contributing to our growth in Eastern Europe are exclusive licensing relationships with some of the world�s largest pharmaceutical companies such as F. Hoffmann-LaRoche, Eli Lilly, Bristol Myers Squibb and Mallinckrodt. For example, under a recently signed extension of our licensing agreement with F. Hoffmann-LaRoche, ICN Yugoslavia manufactures and markets seven prescription drugs and 23 over-the-counter products, including vitamins. In addition to the Yugoslav Republic, ICN has rights to market these products in the Commonwealth of Independent States (CIS), including Russia. We believe that an aggressive licensing strategy will play an increasingly important role in the growth of our Eastern European operations. Eastern Europe is not the only emerging market in which ICN operates successfully. ICN�s Latin American sales increased 13% to $49 million from $44 million, and operating income rebounded even more strongly to $11 million from $9 million, a 28% increase. Product launches and line extensions during 1996 assure future growth, as does the hiring of 35 sales representatives in Argentina and adding 80 new sales representatives to the existing 255 in Mexico. In Asia, Australia and Africa, the base business grew, led by an increase of 75% in dermatologicals sales. Regional expansion has been greatly enhanced by ICN�s first quarter 1997 acquisition of a 75% interest in a joint venture in Wuxi, in the People�s Republic of China, now ICN�s newest home. ICN�s growing presence in Western Europe saw a 43% increase in Virazole� sales and several new product launches, including our new Gly Derm� line. Most important in this region were the initial steps taken by the Company to strengthen its structure in the European Union in anticipation of the possible launch of Virazole� capsules for combination therapy for the hepatitis C virus (HCV). Growth is only good if it is properly managed, and to help in that regard, we added several key members to our organization during the past year. Stuart Rose, Ph.D., an expert on production facilities and practices, was hired to improve ICN�s production in general, and to help coordinate the integration of our newest acquisitions into our overall structure. Professor Vlastimir Matejic, an expert on organizational development, will direct strategic planning for Eastern Europe. We also made great strides in adding to the teams that are being led by these senior executives. Dr. Devron Averett also joined ICN in May as Corporate Senior Vice President of Research and Development. Dr. Averett headed the Department of Molecular and Cellular Virology at Glaxo Wellcome Research Laboratories. Under Dr. Averett�s leadership, we�ve focused ICN�s research and development program on two broad categories, the first of which is developing our licensing partnerships with some of the world�s largest pharmaceutical companies. Through this effort, ICN is developing its own branded versions of existing compounds for markets, such as Eastern Europe, where we have developed, or are developing, an extensive distribution infrastructure. This is a proven strategy which ICN has used in the past to efficiently deliver high quality products at reasonable prices to these markets. The second major R&D focus is on discovering and developing compounds that have the potential to be unique medicines of value. The program with the greatest short term potential is the combination therapy for HCV infection using ICN�s Virazole� with Schering-Plough�s alpha interferon (INTRON� A). Virazole� for HCV could have significant positive impact on the financial performance of ICN. HCV has been identified as a cause of disease only during the past ten years. However, it is now recognized as a leading cause of liver cancer, and is believed to have infected millions of people in North America, Western Europe and Japan, as well as tens of millions more around the globe. To date, interferon is the only approved therapy, but it achieves a sustained response rate in only 15 to 20 percent of treated patients. The results of preliminary trials using Virazole�/Intron A� combination therapy indicate a markedly improved sustained response rate. Under our agreement with Schering-Plough, ICN has co-marketing rights for Virazole� in the European Union, and will receive royalties on Schering-Plough�s sales of Virazole� worldwide. This new combination therapy is making its way through the clinical development and the regulatory approval process under the auspices of Schering-Plough, and registration filings could come by the end of 1997. Another promising area is our anti-cancer program, where we have several molecules in development. Notable among these are tiazole and adenazole. These compounds arose from ICN�s internal research programs and have demonstrated significant promise in clinical trials. We will be accelerating the development of these compounds over the coming year. Also, this year, our discovery research program identified additional novel molecules with promise in this therapeutic area. These and other research and development programs will benefit significantly from the efficiencies gained by integration of our global activities. This integration was made possible by the lifting of sanctions in Yugoslavia and the acquisition of Alkaloida�s high quality R & D facility in Hungary. Both these facilities now operate in concert with our Costa Mesa R & D center. Central and Eastern Europe offer multiple opportunities to conduct development programs to a world class standard, and it is our intention to lead in the creation of these programs. We are optimistic about our prospects for growth during 1997 and beyond, although we do face challenges. The principal short-term issue revolves around the continuing political and economic difficulties in Yugoslavia. While we firmly believe that healthy economic conditions will eventually return to this region, we monitor the events and our business in this area very closely. We are pursuing strategies to reduce our net monetary position in the dinar and, to date, have successfully managed currency devaluations in this area and throughout the world. Furthermore, it is important to note that our management team has significant personal experience in this part of the world, as well as strong relationships with the political leaders, and is working hard to continue generating returns to shareholders from the Yugoslav operation. Our primary tasks in 1997, aside from managing the Yugoslav situation, will be to fully integrate all our Eastern European operations into ICN. Our challenge in this area is formidable, but we have a talented group of executives pursuing our objectives and we are confident of success. Our corporate development team continues to seek out acquisition candidates. A stronger stock price will be required to complete some of our objectives in this area, such as expanding our presence in North America and Western Europe and continuing to build operations in Asia. However, other targets can be incorporated into the ICN operations with our existing resources and we are working diligently to complete transactions that offer a solid return to our shareholders. In closing, we would like to thank the Board of Directors and ICN�s 13,000 employees for their commitment and contribution to the most successful year in ICN history. We would also like to thank our shareholders for their support. The senior management of ICN is totally committed to expanding shareholder value of the company. We are embarking on a number of programs designed to increase the awareness of our strategies and opportunities, as well as to maximize the return from your investment in our shares. We look forward to reporting to you on our progress as 1997 unfolds. Milan Panic Chairman and Chief Executive Officer WHY EASTERN EUROPE? As free market economics take hold, Eastern Europe is emerging as the world�s fastest growing pharmaceutical market. With per capita pharmaceutical spending in the region at only about 13 % of Western Europe�s rate, there is room for dramatic substantial growth. Throughout the vast region of Eastern Europe, economies are beginning to stir. The area has always been very rich in natural resources such as oil and gas, and unlike other developing economies of the world, Eastern Europe has high levels of industrialization and a skilled, educated labor force. In addition, agricultural resources far surpass the region�s needs creating significant export potential. ===== ICN Pharmaceuticals, Inc. Board of Directors Milan Panic Chairman and Chief Executive Officer ICN Pharmaceuticals Adam Jerney President and Chief Operating Officer ICN Pharmaceuticals Norman Barker, Jr. Chairman of the Board First Interstate Bank of California, Retired Senator Birch E. Bayh, Esq. Senior Partner�Bayh, Connaughton & Malone United States Senator, Alan F. Charles Vice Chancellor of University Relations University of California Los Angeles, Retired Roger Guillemin, M.D., Ph.D. Distinguished Scientist, The Whittier Institute for Diabetes and Endocrinology, La Jolla, CA., Nobel Laureate Dale M. Hanson Chief Executive Officer American Partners Capital Group Sacramento Weldon B. Jolley, Ph.D. President, Golden Opportunities Former Professor of Surgery at Loma Linda University School of Medicine Former President of Nucleic Acid Research Institute Jean-Francois Kurz Chairman of the Board Banque Pasche S.A., Geneva Former Member of the Board, DG Bank Switzerland Ltd. Thomas H. Lenagh Former Chairman and Chief Executive Officer of Greiner Engineering Charles T. Manatt Founder, Manatt, Phelps & Phillips Former Chairman Democratic National Committee 1981�1985 Stephen D. Moses Chairman of the Board Stephen Moses Interests Michael Smith, Ph.D. Director Biotechnology Laboratory University of British Columbia Nobel Laureate in Chemistry Roberts A. Smith, Ph.D. Professor of Chemistry and Biochemistry, Emeritus University of California Los Angeles Richard W. Starr Executive Vice President First Interstate Bank of California, Retired Shareholder Information Stock Listing The common stock of ICN Pharmaceuticals, Inc. is listed on the New York Stock Exchange under the ticker symbol "ICN". American Stock Transfer and Trust Corporation, 6201 15th Avenue, Brooklyn, N.Y. 11219, acts as transfer agent and registrar for ICN Pharmaceuticals, Inc. stock and maintains all shareholder records for the company. Shareholders may obtain information relating to their share position, transfer requirements, lost certifi-cates, and other related matters by telephoning American Stock Transfer and Trust Corporation at (718)921-8200 and asking for Customer Service. Shareholders must provide their tax identification number, the name(s) in which their shares are registered, and their record address when they request information. Shareholders may also obtain this information by writing to the Secretary, ICN Pharmaceuticals, Inc., 3300 Hyland Avenue, Costa Mesa, CA 92626. Form 10-K The company, upon written request, will provide without charge to each share-holder a copy of its annual report on Form 10-K for the year ended December 31, 1996. Requests should be directed to: Investor Relations Department ICN Pharmaceuticals, Inc. 3300 Hyland Avenue Costa Mesa, CA 92626 Telephone: (714) 545-0100 ------------------------------------------------------------------------ Save 75% on Products! Find incredible deals on overstocked items with Free shipping! http://click.egroups.com/1/4013/5/_/475667/_/958894108/ ------------------------------------------------------------------------
