The Investment Column: Galen

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THE SHARES in small pharmaceuticals companies are vulnerable to collapse when their supposed wonderdrugs fail in the last stages of trials. But when shares in Ireland-based pharmaceuticals company Galen fell 20 per cent in October it was because of aborted merger talks.

Although Galen's business is dominated by the supply to other pharmaceuticals companies of services for clinical trials, it also has new products ready for next year. Its prospects depend on keeping its edge in trial services and demand for its new products.

Yesterday's results justified the recovery in its shares from 360p to 542.5p. After a 59 per cent hike in clinical trial services turnover to pounds 12.1m, first-half group sales jumped 29 per cent to pounds 31m. Pre-tax profits soared 26 per cent to pounds 9.5m.

Galen's task is to sustain this growth in the services market, but it's not obvious that it has distinctive abilities. The competition is hotting up. Long-term sales growth for the products division, which makes analgesics and antibiotics, is not guaranteed either. Sales grew by 15 per cent in the half year but Galen expects sales to take off as it attacks the pounds 2.5bn global hormone replacement therapy market with an intravaginal ring, an alternative way of delivering hormone replacement therapy to pills and skin patches.

Galen is confident of finding a global distribution partner following the failure of its merger with Ferring, the Dutch pharmaceuticals group. But assessments of the product's potential market vary from very little to millions of pounds annually.

Housebroker ABN Amro is forecasting pre-tax profits of pounds 18.5m for the full-year, with earnings of 11.7p. That puts Galen on a racy forward earnings multiple of 46 times. That looks expensive for a company yet to prove it can sustain its performance and investors should consider taking profits.