super generics

Generic drugs outlook healthy

* CRITERION: Tim Boreham
* From: The Australian
* September 30, 2010 12:00AM

THE generic-drug-induced demise of Sigma Pharmaceuticals yesterday was highlighted by the once-proud outfit's $218 million loss.

Halcygen Pharmaceuticals (HGN) 58c

But there's generics (versions of off-patent drugs) and super generics, repatented drugs, which add value by tweaking a drug formula or application.

A year ago Halcygen scored its Alan Bond deal of a lifetime by buying the old Mayne Pharma oral drug business, the former FH Faulding for old-timers, from Hospira for $15m (plus earn-outs capped at $41m). Hospira had bought Mayne Pharma for $2.6 billion in January 2007, but then wanted to focus on the injectables side.

Halcygen has a suite of "proprietary" super generics and also contract-manufactures products (including Betadine and Epsom Salts) at FH Faulding's old Adelaide facility.

Halcygen's four-man board, including biotech old hand Roger Aston and pokies king Bruce Mathieson, last year chalked up a full-year net profit of $7.3m on revenue of $36m.

This year, management promises EBITDA to be "at least equal to, or greater" than last year's $18.2m. Halcygen's weak spot is that 60 per cent of revenues come from royalties from its Doryx antibiotic, which is under patent in the US until 2022. Halcygen's marketing partner, Warner Chilcott, is under patent challenge in the US courts from generics rivals. While we can't second-guess the US legal system, such actions are common and tend to be try-ons.

'We rate Halcygen a buy: it's trading ahead of a maiden 2c a share div, with the promise of a further 1c special payout next year.