Northern Ireland pharmaceutical company Galen Holdings has about $400 million (€441 million) to spend on acquisitions and is examining opportunities in the US, according to chairman Dr John King.

Reporting better-than-expected results for the three months to the end of March, with earnings per share before goodwill and exceptional items up 29 per cent to 7.1p sterling against forecasts of 6.5p to 6.8p, Dr King said he was comfortable with full year earnings forecasts of 27.5p to 29p per share, up from 23.1p for the previous year. Shareholders will get a 20 per cent increase in their interim dividend to 1p per share.

But Galen shares fell over 8 per cent in early trading in London to 521p on the announcement that founder Dr Allen McClay, who owns about 12 per cent of the company, is selling shares to raise about £65 million sterling in connection with his purchase of the clinical trials section of the Galen pharmaceutical services division for £130 million. The shares are being placed at around 515p to 525p but the sale is not contingent on a successful placing.

Dr King said the disposal of the clinical trials section was in line with its strategy of focusing on its pharmaceutical products business.

The group has signalled its intention to sell Interactive Clinical Technologies, which Dr King expects to raise between $20 and $25 million. The sale of the clinical trials section would increase Galen's consolidated net assets by about £75 million sterling and the proceeds would increase its financial flexibility to make new product acquisitions, he said.

While Galen's main focus is in women's healthcare, dermatology and urology, Dr King said it was also interested in acquisitions outside this area because its sales infrastructure could be applied in other areas. "We will look at any deal fitting our strategy that is earnings accretive," he said.

The earnings of the clinical trials section would be replaced by the additional earnings from the Duricef and Moisturel branded products acquired during the quarter for £28 million, Mr King said.

Stressing the financial sense of its product focus strategy, he pointed out that Galen was getting £130 million for the clinical trials section and replacing its earnings with a £28 million acquisition. The section being sold had sales of £40.7 million and operating profits of £7.3 million for the year to end-September 2001, putting the consideration at 3.2 times revenue and 17.8 times historic operating profits. At March 31st, its net assets were £52.5 million after the elimination of cash, debt and intra-group balances.

As a related party transaction, the deal is subject to the approval of Galen shareholders at an extraordinary general meeting which will be held on May 29th at which Dr McClay will abstain from voting. Dr King said the deal followed an open auction process in which the buyers made the highest offer.

In January Dr McClay bought the Galen Chemical Synthesis Services business for £25 million.

Galen reported second-quarter revenue of £53.7 million, up 24 per cent rise on the previous second quarter. Operating profit before amortisation and goodwill was up 24 per cent to £16.5 million. A jump in investment income to £1.5 million and a lower interest bill at £3.6 million meant a doubling of pre-tax profits to £7.6 million in the quarter. The group has retired some £31 million of high interest (12.625 per cent) Warner Chilcott bonds, leaving some £65 million on the balance sheet which Dr King expects to be able to repay over the next 12 months.

For the first half, the group reported a 25 per cent rise in sales to £107 million and pre-tax profits of £20.5 million, up from £6.4 million in the previous first half.

Second-quarter revenue from pharmaceutical products was up 28 per cent on the year ago period at £39.9 million from organic growth and the June 2001 Estrace acquisition. Services division revenue was up 15 per cent at £13.9 million.

Gross margins increased to 69 per cent from 66 per cent, driven by rising higher margin sales in the US while operating margins were up to 31 per cent from 30 per cent. During the quarter Galen raised £155 million from the sale of non-core assets and spent £100 million acquiring new pharmaceutical products.