A PLAN which would have resulted in the Irish chemical group, Clonmel Healthcare, being bought by a British-based biotechnology group in a Pounds 14 million deal has fallen through.

Ethical Holdings had arranged the deal in May and planned to expand the workforce of the Irish company which is based in Tipperary. The deal was conditional on Ethical listing on the London Stock Exchange with a Pounds 20 million sterling placing.

Yesterday Ethical announced that it had withdrawn plans for a London listing, saying that the time for such a flotation was not right. It was followed by an announcement by the Cross Group which owns Clonmel Healthcare, that it too was withdrawing from the proposed amalgamation.

The giant pharmaceutical company, Elan, which has a 4.7 per cent stake in Ethical already, was to take up to 10 per cent in the enlarged company as part of the flotation, in return for a Pounds 3 million investment.

Clonmel is said to be the 10th largest pharmaceutical company in Ireland and manufactures several well-known branded drugs as well as non-branded generic drugs.

In a statement, Cross Group chairman, Mr Dan Tierney, said that although the association with Ethical would have brought Clonmel additional contract manufacturing business and access to delivery system technology. Clonmel remained well-positioned itself to take advantage of the growth in the market for pharmaceuticals, at home and abroad.

"Clonmel will continue to pursue the strategic objectives that has made it the largest Irish-owned manufacturer of pharmaceuticals and looks forward to continuing to contract manufacture for Ethical," he said.

Sources close to the company said while the withdrawal was a bit disappointing, Clonmel was not dependent on it. "The future of the company did not rest on us being acquired by Ethical," the source said.

He added that the company had not sought a suitor and would now stand back and review its own strategic options. The company which employs 170 people, has several alliances and technology licensing agreements with other companies. The source said bringing these in would probably be accelerated.

In the year to December last, Clonmel's revenues were Pounds 12.2

million and it made pre-tax losses of Pounds 78,000 Its net assets are Pounds 5.5 million. The company source said the losses were due to a number of factors. However, the company was now trading well and was ahead of budget for the first six months.

The deal would have entailed the issue of two million Ethical ordinary shares which the owners of Clonmel had agreed to retain for a specified period. In addition, Pounds 7.25 million would have been in the form of non- interest bearing debentures to be repaid in two instalments.

Ethical's chief executive, Dr Geoffrey Guy, told The Irish Times that the company had decided not to float in London because it was felt there wasn't the weight of interest in the sector to take the company ahead on the London Exchange".

He said Ethical was "disappointed, but not disconsolate", that the merger was not going ahead. He said the company had now engaged Lehman Brothers, investment bankers, to look at the alternatives "for us to get share-holder value".

Ethical is already quoted on the Nasdaq in the US.

Dr Guy stressed that the relationship which Ethical has had with Clonmel for the past 12 years would continue for years to come.