2nd UPDATE: Consort Medical Agrees To Buy The Medical House

Medical device company Consort Medical PLC (CSRT.LN) Thursday said it has agreed to buy The Medical House PLC (MLH.LN) for about GBP16.5 million, in a deal that expands its portfolio of drug delivery technologies to include high-tech injection systems.

Consort said the Medical House's needle-free injectors will complement its own expertise in inhaled drug delivery systems, and it expects the deal to boost earnings in the first fiscal year after it completes. Annual savings of GBP500,000 from combining the companies have already been identified.

Consort will also be able to use its Bespak manufacturing division to ramp up production of the Medical House's products, Consort said.

Consort Chief Executive Jonathan Glenn told Dow Jones Newswires the Medical House has struggled to ink many deals with major companies because it doesn't have the manufacturing capability to meet big orders, and has instead relied on subcontractors.

He said Consort's manufacturing capacity and its existing ties with big drug makers mean that will no longer be an issue.

The Medical House's injection systems have big growth potential, Glenn said. Pharmaceutical companies and biotechnology firms are increasingly focusing on biologic drugs, which are typically made from complex proteins that are too big to be administered any other way. About 40% of drug makers' current pipelines are biologics, said Glenn, a sharp increase from a few years ago.

The Medical House's customers include India's Dr. Reddy's Laboratories Ltd. (RDY) and Germany's Merck KGaA (MRK.XE). It supplies Merck's Merck Serono biotechnology unit with its Coolclick injectors to deliver the growth hormone Saizen.

Glenn said some of Consort's customers have long requested it make injection devices and it will now be approaching those companies following the acquisition. He didn't name any firms specifically, although Consort's customers include companies like GlaxoSmithKline PLC (GSK.LN).

Consort said it will pay 27.5 pence a share in cash to acquire the Medical House, a 93% premium to its share price prior to announcing it received an approach Aug. 11.

Consort said its offer has so far received the backing of shareholders representing about 35% of the company, including the Medical House directors.

Medical House Chairman Ian Townsend said the deal provides a more certain investment outcome for Medical House shareholders in the uncertain economic environment. According to its admission document, the Medical House listed on the Alternative Investment Market in 2000 in a share sale pitched at 50 pence a share.

Brewin Dolphin analysts Sahill Shan and Chris Glasper said in a research note the acquisition fits well with Consort's stated aim to broaden the markets in which it operates.

At 0934 GMT, shares in Consort Medical were up 14.5 pence, or 3.7% at 412 pence, outperforming a 0.9% lower Dow Jones U.K. Smaller Companies index.

Shares in the Medical House shares were ahead 1.25 pence, or 4.8%, at 27.25 pence, outperforming a 0.7% lower Alternative Investment Market.

Company Web sites: www.consortmedical.com ; www.themedicalhouse.com

-By Rachael Gormley and Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; [e-mail]