Institutions have warmly endorsed Galen Holdings, the Northern Ireland pharmaceutical group. They did this by subscribing for £36.9 million sterling (€59 million) worth of new shares at a mere 3.5 per cent discount to a pricey share price. Hoare Govett, the London brokers who organised the issue, was able to squeeze the maximum benefits for the company by the use of an open-price tender system. But why have institutions gone for a company whose shares are trading at a whopping prospective p/e of around 52? And will their judgment prove to be correct?
Founded by Dr Allen McClay in 1968, after leaving Glaxo, it has hardly put a foot wrong since its flotation in 1997. He rewarded his management team and employees with £17 million worth of shares at the flotation, and the company itself has notched up strong growth, with sales rising from £31.1 million in 1995/96 to £48.9 million in 1997/8 and profits going up from £7.2 million to £12.0 million. The only glitch was the long share suspension during the protracted merger negotiations with the much larger Ferring Pharmaceuticals, a privately-owned Dutch group. When finally abandoned, the share price collapsed by 20 per cent.
But all investment eyes are now focused on its future. And analysts' predictions are impressive. Sales, for example, are forecast to rise from £48.9 million in 1997/8 to £64 million in 1998/9 and to £85 million in 1999/2000. Profits are projected to go from £12 million to £19 million to £22 million over the same period. The company, and the institutional shareholders, are pining their hopes on three areas. First, its core pharmaceuticals business. Second, the clinical trials and expansion into the US. Third, the development of its transmucosal intravaginal ring (IVR) drug delivery system for hormone replacement therapy (HRT).
The ethical pharmaceutical products business accounts for 61 per cent of sales and sales of all its products are said to be growing strongly. Following its withdrawal from the UK commodity intravenous fluid market in 1997/8, sales of the sterile products returned to the pre-1998 levels in the first half of this year. The launches of a range of cefradine-based antibiotics and of a rapidly dissolving form of its Kapake analgesic have helped business.
The capital investment in its ethical pharmaceutical services division, mainly in its clinical trial services business in Europe and the US, is pushing sales strongly. The US developments, which include the acquisitions of Interactive Clinical Technologies and the drug reconciliation business of J Dana Inc, are viewed as interesting developments by analysts. Indeed, there is a strong expectation that further acquisitions will take place in that market.
The development of IVR is said to be progressing well. "Our IVR programme for HRT is a cornerstone in the international expansion of our products' business," is how Galen views its future. And it is seeking collaborations with multinational partners for the exploitation of this technology in other therapeutic areas.
The benefits from IVR will take some time to come through. A product launch in the UK is expected in the second half of 2000 and this will be followed in Europe at the end of 2001, while it has started to look at US registration.
Tomorrow's profit growth, of course, can come only from today's research and development expenditure. And R & D is a priority: this expenditure rose by 29 per cent to £4 million in 1999 and this is to double next year.
Galen is in an area of rapid development; an area that is accorded a high share rating, and that is likely to continue over the immediate future. It talks about a continuation of small acquisitions, possibly in the US, perhaps indicating timidity. A more aggressive stance would accelerate those goals.
