Acquisitions push Galen shares up 10 per cent

Shares in Northern Irish pharmaceutical firm Galen gained 10 per cent yesterday after the company said it would acquire three women's healthcare drugs from Pfizer.

Galen has agreed to pay an initial sum of $359 million (€327 million) for oral contraceptives Estrostep and Loestrin, and hormone-replacement therapy (HRT) Femhrt.

A further $125 million will be paid on a phased basis if Estrostep and Femhrt fend off competition from cheaper copycat drugs until their respective patents expire in in 2008 and 2010. Generic versions of Loestrin have been on sale since 2001.

US firm Barr Laboratories is seeking permission from US authorities to produce cheaper copies of Estrostep and Femhrt. Galen's senior vice-president for finance and planning, Mr David Kelly, said the company would be offering a robust defence to the legal challenges.

Galen's shares suffered earlier this year when it emerged that Sarafem, a drug purchased from Eli Lilly in December, was facing early generic competition.

Analysts welcomed the structure of the latest deal because it would allow Galen to share such risk. All three newly acquired drugs will be earnings-enhancing as soon as they join the Galen stable before the end of April.

The company is funding the purchase through a combination of existing resources and a $450 million structured senior debt facility to be provided by ABN Amro, Bank of Ireland and Barclays Bank.

This arrangement, which will leave Galen with a gearing ratio of about 37 per cent, will allow the company to consider additional acquisitions if they arise, according to Mr Kelly.

All three of the drugs included in the purchase are well known to a number of senior executives at Galen, who were involved in their development at Warner-Lambert before it was acquired by Pfizer.

The three new drugs had total sales of $211 million last year, but Mr Kelly said lower revenues could be expected this year as generic competition to Loestrin increases. Galen's total existing portfolio of drugs had sales of $236 million in 2002.

Davy analyst Mr Jack Gorman said the increased earnings base made Galen's shares look "even cheaper" than previously.

Analysts at Merrill Lynch upgraded the stock to a "buy", despite predicting that generic versions of both Estrostep and Femhrt would be on sale by 2005.

The broker said the acquisitions had come at a good price and would help to support future product launches.

Mr Kelly said concerns about potential side-effects from hormone replacement therapies should not affect Galen's performance going forward, noting that most business risks in the area are already known.

Shares in Galen were hit earlier this week by suggestions that a HRT drug owned by Wyeth could cause memory problems.

Galen closed at €4.90 in Dublin last night, up 45 cents, but that is still well off its 2003 opening of €7.70.