Shares in Northern Irish drugmaker Galen plunged yesterday amid fears that one of its top-selling products could face cheap copycat competition in the US market sooner-than-expected.

Investment bank Merrill Lynch cut its rating on Galen to "neutral" from "buy", based on the assumption that US-based Barr Laboratories would introduce its own version of Galen's oral contraceptive, Ovcon, in the middle of the year.

Analysts fear the generic product could reach the market before Galen gets regulatory clearance for a new, improved version of the drug.

The news sent Galen's shares into a tailspin in London, where they lost 15 per cent to hit a five-month low of 350p sterling. They later recovered some ground to close at 372.5p, down 10 per cent on the day. They lost a similar amount in Dublin, finishing 65 cents lower at €5.70.

"The story is out there but we cannot confirm it," a Galen spokesman said, adding the company had always expected generic competition to Ovcon.

"At some stage, there was going to be generic competition to Ovcon, which is why we took the step of filing the line extension."

Galen expects to receive approval from US regulators for a new version of the drug sometime in the first half of the year, he said.

Meanwhile, a spokeswoman for generic drugmaker Barr told Reuters it had never specifically said it was working on a generic version of Ovcon nor given a timetable for its launch. But, she added, the firm was committed to making versions of all major oral contraceptives.

Ovcon is one of Galen's top three products and accounted for £35 million (€53.2 million), or close to 20 per cent, of revenues last year.

The possibility of a generic challenge by mid-year is the latest blow to Galen. Shares in the firm, which specialises in women's healthcare, fell by as much as two-thirds last year after studies showed a link between cancer and hormone replacement therapies.

They also suffered last week amid concerns that its recently acquired pre-menstrual syndrome drug, Sarafem, could face generic competition from a rival version filed with US regulators by Teva Pharmaceuticals.

"It adds to the question marks over Sarafem and their ability to extend its patent. It also casts a shadow over their whole product range," said Mr Peter Frawley of Merrion Stockbrokers, who is reviewing his "buy" recommendation on the stock.