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UPDATE 3-Galenica Sante raises $1.9 bln in Europe's biggest IPO this year

* Shares gain after biggest European IPO of 2017

* Swiss rules shield Sante shops from online rivals

* Swiss drug prices, margins higher than elsewhere in Europe (Recasts headline, first paragraph to highlight Europe's biggest IPO of 2017)

By John Miller

ZURICH, April 7 Galenica Sante's shares rose more than 10 percent in their stock market debut on Friday, after the largest Swiss pharmacy retailer raised 1.9 billion Swiss francs ($1.9 billion) in Europe's biggest flotation so far this year.

The sale of the shares, offered at 39 francs per share, had been several times oversubscribed, the company said. Reuters reported on Wednesday the price had been set at the top end of the indicated range.

Galenica Sante, a pharmacy and logistics business with 3 billion francs in annual sales, was created along with drugmaker Vifor Pharma by a split of healthcare group Galenica. Vifor shares eased 0.3 percent in early trade.

Proceeds of the IPO, Europe's biggest so far in 2017 and about double the value of Spanish car parts maker Gestamp , will help cut debt from Vifor's $1.53 billion acquisition of U.S.-based Relypsa in 2016.

Galenica Sante, which owns or has ties to 500 Swiss pharmacy retailers, plans to pay between 75 and 80 million francs in dividends in 2018 and aims at annual payouts exceeding 65 percent of net profit thereafter, giving what analysts called an attractive yield.

"Investors should focus on the high dividend yield of about 4 percent, low forex exposure and stable earnings growth," wrote Kepler Cheuvreux analyst Maja Pataki in a note.

HIGH PRICES

The investor appeal of Sante, whose flotation is Switzerland's largest since Sunrise Communications' in 2015, also benefits from some government protections for its store-front business model and high Swiss drug prices.

Generic drugs in Switzerland cost 53 percent more and patent-protected drugs 14 percent more on average than elsewhere in Europe, according to Swiss insurance industry group santesuisse and drug industry group Interpharma.

Margins on drugs at Swiss pharmacies are also higher than abroad, santesuisse added, saddling Swiss consumers with more than 450 million francs in extra costs annually and prompting consumer advocates to demand changes.

Galenica Sante said such comparisons ignore Switzerland's high-cost environment, where prices for rent and support services are higher than in Europe.

Galenica Sante Chairman Joerg Kneubuehler has highlighted Sante's sector-beating 4.5 percent operating profit margin.

Kneubuehler plans to buy more Swiss pharmacies but none further afield. "We don't want to water down our profitability with adventures abroad," he said last month.

Switzerland's prohibition on online sales of over-the-counter (OTC) medicines shields Galenica Sante's retail outlets, operating under names including Amavita and Sun, against internet competition from rivals including zur Rose Group.

Should the Swiss eventually allow online OTC sales, Sante could quickly adapt, Kneubuehler has said.

Citigroup, Credit Suisse and UBS were joint global coordinators and bookrunners to the issue. Deutsche Bank was also a joint bookrunner, with Baader Bank, Bank am Bellevue, Bank Vontobel and Zuercher Kantonalbank named as co-lead managers. ($1 = 1.0040 Swiss francs) (Editing by Michael Shields/David Holmes/Alexander Smith)

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