Double loss gives Glaxo a headache

Glaxo Wellcome suffered a double blow yesterday after losing a key patent battle in the US and seeing a drug it largely developed launched by a rival.

The news that Novopharm, a Canadian drugs group, has won permission from a US court to market a rival to Zantac, the UK group's best-selling anti- ulcer drug, coincided with an announcement from rival Zeneca that it was launching Zomig, a migraine treatment which Glaxo was forced by US regulators to sell in September. But the damage had been anticipated by dealers and Glaxo's shares dipped only 4p to pounds 10.86 yesterday.

A Federal appeal court ruled on Friday that Novopharm's application to market a non-patented form of Zantac did not infringe Glaxo's so-called form 2 version of the drug, over which it will continue to hold a US patent until 2002. The unsuccessful appeal, which followed a decision against Glaxo in a US district court in North Carolina almost a year ago, means that much cheaper generic forms of Zantac will go on sale when the US form 1 patent runs out in July. Novopharm said it was also ready to launch a generic form of Zovirax, Glaxo's big-selling shingles and genital herpes drug.

The British company is unlikely to appeal further in the Novopharm case and was yesterday playing down the effects of the ruling. A spokesman said: "We have been saying for some time we have been anticipating generic competition."

At the time the company announced its annual results last month, Sir Richard Sykes, chief executive, warned that US sales of Zantac could slump by as much as 80 per cent in the 12 months after the patent expired in July. But he went out of his way to allay City fears about the prospects for the group, saying he expected earnings to be "at least maintained" over the next two years.

Analysts largely agreed that the ruling had done little to change market expectations. Fraser Hall at Barclays de Zoete Wedd said forecasters had been expecting multiple generic competition from July and the only question was whether Glaxo could limit its competitors to, say, two or three, rather than the six to eight expected. He said the group was likely to continue its legal battle against other potential generic producers.

The court setback for Glaxo should bring a multi-million pound windfall for Holliday Chemical, a Huddersfield-based company, whose main Spanish subsidiary makes the chemicals used in the manufacture of ranitidine, the generic name for Zantac. Holliday, which supplies both Novopharm and other generic drug manufacturers, saw its shares rise 13p to 152p yesterday after its chairman, Michael Peagram, said the launch of generic competition could be worth "several million pounds extra profit in the current year." The Zovirax move is seen as less significant. Whereas more than half last year's total Zantac sales of pounds 1.95bn were in the US, less than two- fifths of Zovirax sales were there, making the effects of generic competition on the drug there less severe.