Northern Ireland pharmaceuticals group Galen has been one of the darlings of the market in the past few years, and certainly shareholders have got good value from the company since it floated four years ago at £1.50 sterling (P2.40) a share. Since then the shares have traded up to just short of £10, only to suffer a severe hiccup in the past few days.
Galen announced this week that Mr Paul Herendeen - one of the group's vice-presidents - had resigned. The announcement included all the usual valedictory stuff about Mr Herendeen's "tremendous contribution to Galen" and how he was involved in the integration of Warner Chilcott with the company.
Mr Herendeen had been finance director with Warner Chilcott before it was taken over by Galen last year for £260 million and was one of the main players in integrating the two businesses.
But there are some reports that the parting was not totally amicable, with some Galen executives unhappy with Mr Herendeen's management style, while Mr Herendeen was frustrated at not getting the finance director job with the combined Galen-Warner Chilcott business. This job stayed with Galen's finance director, Geoffrey Elliott.
Other reports suggest that Mr Herendeen's more aggressive management style was not the reason for his departure. He simply wanted a more senior position than he was given within the Galen management structure.
The £0.60 fall in the share price on Monday was down to bearish sentiment around the market, particularly towards Warner Chilcott, with some bears believing that the integration has proved more difficult than Galen had expected at the time of the acquisition. Speculation that some well-known market bears still have short positions in Galen did little to support the shares, which continued to weaken on Tuesday.
So should Galen shareholders be concerned? Certainly, the shares are not cheap, even after the falls of earlier this week. A prospective price/earnings ratio of more than 50 (based on Davy's 2001 forecasts) makes the stock look decidedly expensive. The average prospective p/e in the British pharmaceuticals sector is 22, in Europe less than 28 and the same in the US.
Galen's rating anticipates some extraordinary growth. If anybody is concerned that Warner Chilcott will be slower to deliver the goods for Galen, now might be an opportune time to take a profit. There seems to be better value elsewhere.
