Galen gains 8% on purchase of PMS drug

Galen shares climbed by almost 8 per cent yesterday when the Northern Ireland-based pharmaceutical group bought rights for a version of Prozac used to treat pre-menstrual syndrome.

The group is spending €292.5 million on the acquisition of the sales and marketing rights for Sarafem from the US giant Eli Lilly. Sales last year were worth €84.3 million.

The treatment was originally sold as the blockbuster anti-depressant, Prozac. But Eli Lilly later secured approval to sell it under the name Sarafem to treat a severe form of pre-menstrual syndrome. Eli Lilly lost exclusivity on Prozac as an anti-depressant in 2000, but Sarafem is protected by patents until November 2007.

Galen said the new product would increase profits immediately. Yet with the group's financial year starting in October, a full-year contribution will be derived until 2004. The group has been focusing on the womens' healthcare market in the US so the acquisition is strategic.

Galen's stock closed 7.92 per cent stronger at €8.31 on the Dublin exchange yesterday. Just over 161,000 shares changed hands. The group's chairman, Dr John King, said: "It's a good deal for us to do. It fits in very well with the philosophy of our business in that area."

When asked why Eli Lilly chose to sell Sarafem, Dr King said the product did not have sufficient scale. While revenues in the hundreds of millions of dollars were projected for Sarafem, Eli Lilly wanted products with billion-dollar revenues. The US group will continue to manufacture the product for three years for Galen.

A Davy Stockbrokers analyst, Mr Jack Gorman, said Sarafem would slot well into Galen's existing range, which focuses on women's health, urology and skincare. The revenue acquisition multiple of 3.47 was "not prohibitive", he said.

"The deal adds another product to Galen's US portfolio and thus lessens its exposure to franchise risk in any of its key areas," he said in a note. "Sarafem occupies a leading position in what is an emerging specialist category in women's healthcare, has a strong intellectual property position, and has been acquired on what is a reasonable multiple. It also does not exhaust Galen's financial capacity for deals." At Merrion Stockbrokers, analyst Mr Peter Frawley, said: "We would view the indication that Galen continues to pursue product and technology acquisitions as positive, as these are necessary for Galen to expand its product portfolio and successfully make the transition to a specialty pharmaceutical company."

Galen's stock has taken a hammering over studies which linked certain hormone replacement therapies with cancer. But while similar products generate about 25 per cent of Galen's sales, Dr King said its treatments were not directly implicated in the research.