The Investment Column: Business as usual at Amersham

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The Independent Online
When Amersham revealed it was merging with Norway's Nycomed to become the world's biggest supplier of diagnostic imaging agents just three weeks after it had swallowed Pharmacia & Upjohn's biotech division, the City took a breath and applauded. After all, Amersham's roots, making radioactive materials for Margaret Thatcher's Atomic Energy Agency, were hardly the auspicious ones of a company now rubbing shoulders with top- leaguers like Schering and Mallinckrodt.

Since the Norwegian tie-up was announced in early July, shares in Amersham have soared by a third. Yesterday's first results since that deal - interims from Amersham and third quarters from Nycomed - pushed the price up another 27.5p to 2222.5p.

The numbers themselves offer no real guide to the shape of the new company. The Nycomed deal was only cemented two and a half weeks ago and chief Bill Castell says it is too early to confirm estimates of pounds 40m a year cost savings. What the numbers did do is reassure that, despite the deal, it is business as usual for both companies.

Amersham's new Pharmacia business, supplying chemicals used in drug company research, looks a good buy. In just two months it contributed pounds 6m, driving sales in the half year at Amersham's Life Science division 65 per cent ahead to pounds 122m at constant currency and profits 55 per cent ahead to pounds 22m. Cost savings of pounds 30m a year over a three-year period should be possible.

On the Healthcare side, even excluding acquisitions, profits rose 58 per cent, driven by growing demand for Myoview, the heart-imaging agent, and the iodine seed treatment for prostate cancer.

Integrating Nycomed will be a big and potentially disruptive job, though Mr Castell insists morale is high. Commercially the acquisition makes great sense, giving Amersham a full range of imaging agents and innovations like ultrasound. Concern over price pressure in Nycomed's core US contrast media agent business remain, though Nycomed's cost reduction plan looks on track. At current levels, the shares trade on over 20 times earnings. Until the group presents integrated figures next March, that looks high enough, particularly given the inevitable disruption associated with a large merger.