Investment Column: Shire focuses on buying Richwood

Shire Pharmaceuticals chief executive Rolf Stahel is not one to let the grass grow under his feet. Less than six months after forking out up to $100m (pounds 62m) for the acquisition of Pharmavene, a US drug development company, Shire is proposing to pay as much as $186m for Richwood Pharmaceutical, another US pharmaceuticals group, whose main products are "treatments" for unruly children.

Richwood has built an impressive record on the strength of DextroStat and Adderall, its two drugs for so-called attention deficit hyperactivity disorder.

In the space of three years, the group has turned pre-tax losses of $873,000 on sales of just $3.74m into profits of $1.7m on sales which have ballooned to $15.3m in the latest full-year to December.

The figures have been transformed by last year's launch of Adderall, which in the space of 15 months has captured 5 per cent of a $457m market in the US.

Along with DextroStat, Richwood claims to have won 7 per cent of the market in the first five months of this year, partly, it would appear, at the expense of Medeva's generic drug methylphenidate.

Richwood's sales should hit $40m this year, with profits, already warranted at $7.5m for the latest half year, set to soar accordingly. Even though market growth has slowed to around a third of the 20 to 30 per cent typical of the recent past, owning the fastest-growing drug in the category clearly has exciting potential.

But it is not without its risks. Treating a behavioural problem with drugs remains controversial and, because their old patents have expired, Richwood's products are potentially exposed to competition.

Shire has convincing answers to these questions, while Richwood's 65- strong salesforce will be useful for selling Pharmavene's products and will bring useful cash flow and earnings.

Even if competition means Richwood's sales will peak by 2000, Lehman Brothers reckons Shire could be boasting profits of pounds 11m this year and puts an underlying value of 400p on the shares. Up 8p at 249.5p, they are good value.

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