BLUE CHIP; Amersham's life science test

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The Independent Online
The last year has been something of a whirlwind for shareholders in Amersham International as was, now renamed Nycomed Amersham.

The jury is still out on the pounds 2bn merger of Amersham, the healthcare and life sciences group, and the Norwegian diagnostic imaging concern, Hafslund Nycomed. When the deal was announced in July, there was some concern that it was a deal too far.

It followed close on the news in June that Amersham and Pharmacia & Upjohn, the Swedish/US combine, were to merge life science divisions. The joint venture would have pounds 430m annual sales, and the two want it ready to float by 2000. They say it is the world's largest biotechnology supply business. Amersham would have 55 per cent, with chief executive Bill Castell becoming chairman of Amersham Pharmaceutical Biotech.

The stock market loved the deal - shares in Amersham rose 10 per cent in a few days. But would the addition of Hafslund stress Amersham's balance sheet?

Hafslund is an impressive, well-managed company. Against that are the undeniable problems that face any marriage between two different, distinct cultures. Pharmacia and Upjohn, when they merged, went through some fraught times.

Hafslund's main market - radio opaque imaging products - has been very competitive. Hafslund often led in undercutting the opposition, with the rest usually following suit. As part of a larger group, this may matter less, but there are signs that the imaging business continues its aggressive pricing. Reports have surfaced that Nycomed Amersham has significantly undercut the opposition in bidding for a couple of recent big contracts.

Frankly, it is still too soon for clear cut judgements. Interim figures from Amersham appeared alongside third-quarter figures from the Norwegian side, but these were too complex to draw any hard conclusions about the future shape of the company.

The business looks sensibly rated on a price/earnings ratio of around 19 times 1998 earnings. This is at a discount to the pure pharmaceutical sector, which is as it should be.

The greatest potential seems to lie in the life sciences joint venture. This is not a bio-technology research business, but one that supplies to the emergent industry, which is poised for explosive growth. Pharmacia & Upjohn has the hardware expertise, while the original Amersham produces reagents used for gene sequencing and the like. The combination under one roof is likely to make perfect sense.

However, it will be at least six months, and possibly a year, before investors can reach any conclusions on the merits of Bill Castell's strategy. Given the price of the shares, and the appeal of the markets Nycomed Amersham is lining up, the shares look like a buy for now.