Glaxo set to profit from US ruling

Glaxo Wellcome stands to make hundreds of millions in extra sales this year after a decision by the US drug regulator to award exclusive rights to a Canadian group to sell a generic version of its blockbuster ulcer drug, Zantac in the US.

The decision grants Toronto-based Genpharm exclusive rights to the huge US ranitidine (generic Zantac) market between 25 July - the day Glaxo's branded Zantac loses its US patent - and August 29th. This will keep hordes of other generic companies out of the market, allowing Glaxo and Genpharm a short, but highly profitable monopoly.

Glaxo, which currently makes pounds 3m a day from US Zantac sales, faced losing 80 per cent of that market when other companies flooded in on July 25th. With only one generic in the market, the Zantac brand price would not fall as far and fast as had been feared. Analysts say Genpharm will want to keep market prices high, as it is being sued by Glaxo for infringing the Zantac patent. Anthony Colletta, analyst at Hoare Govett said: "Genpharm will want to make profits fast. If it loses the case, it will have to pay triple in compensation back to Glaxo."

Though Glaxo said it is "not in a position to evaluate" the effect of the ruling on Zantac sales, it stands to benefit in other ways too. As part of a settlement of disputes over the validity of ranitidine, Glaxo recently signed an agreement, for which it got a reputed pounds 75m, giving another generic group Novopharm the right to sell ranitidine from 10th July, 15 days ahead of the Zantac patent expiry. If the ruling granting Genpharm exclusive rights is upheld and Novopharm is not the first in, Glaxo will have an extra 15 days to sell Zantac unopposed. Novopharm is appealing vigorously against the ruling.

One loser in all this could be Holliday Chemicals, the world's biggest supplier of ranitidine. Though Holliday does supply other groups including Genpharm, its biggest and exclusive licence is with Novopharm. If Novopharm loses the all-important right to be first into the market - which means it can tie up customers at good prices - Hollidays sales would suffer. Holliday's share price has risen steeply on prospects of a huge rise in ranitidine sales. Michael Eastwood from Kleinwort Benson, says that pounds 4m of his pounds 23m 1997 profit forecast for Holliday is on the potential of the US ranitidine market alone. A more serious issue is if Holliday loses a patent infringement case brought by Glaxo against its Spanish subsidiary Uquifa which manufactures rantidine. Should it lose, supplies of ranitidine would dry up and Holliday would suffer. Glaxo, by contrast, would have two years of relatively unopposed Zantac sales.