Biogen, another pharmaceutical company, is challenging Medeva's patent on a new hepatitis B vaccine. Medeva paid up to pounds 9m for the rights to the product, which is in trial production and could be on the market within 18 months.
Bernard Taylor, Medeva's chairman, estimated that legal fees for the challenge - of which the company was 'fully aware' when it bought the vaccine - could be up to pounds 1m, but said this was small in the context of the potential market.
Worldwide sales of hepatitis B vaccines are worth pounds 450m a year, and the product is an important plank in Medeva's strategy of acquiring under- exploited niche drugs near the end of their research and development cycle.
Medeva's interim results showed the impact of the difficulties at its IMS and MD subsidiaries in the US that led to its profits warning. At IMS, sales staff had been giving over-generous discounts, leading to overstocking by wholesalers. Operating profits have been cut by pounds 3.7m and sales adjusted down to pounds 12.8m.
This, together with costs associated with the closure of the MD subsidiary for two weeks following objections by the Food and Drug Administration, means that so far about two-thirds of the projected pounds 10m shortfall had come through, with the remainder to follow in the second half.
As a result group pre-tax profits fell from pounds 14.1m to pounds 13m. A spring rights issue led earnings per share to drop 18 per cent to 3.76p.
Sales rose 39 per cent to pounds 80m, but only 8 per cent of this was organic growth. About 8 per cent was currency factors, and 24 per cent acquisitions. The higher value products on which Medeva is concentrating require more support, and expenses rose from 33 to 42 per cent of sales. The interim dividend is 0.9p (0.75p).
Mr Taylor insisted that the problems at IMS had been dealt with - new management is in charge and 'the focus has been shifted back to the ultimate customer from the wholesaler'. Over-promotion had led wholesale stocks to double from around six weeks' to nearly 12 weeks' supply in six months, he admitted.
Group management has also been strengthened. Ian Gowrie-Smith remains as managing director, but all key divisions report to Mr Taylor, who intends to split his role with a chief executive as soon as one can be found. Two regional directors, for Europe and America, are also in place to strengthen links between operating companies and group.
Mr Taylor said the 'usual imbalance' between the two halves of the year had been exaggerated by the problems at IMS and MD.
The second half should be favourably affected by seasonal sales of Medeva's flu vaccine, by a retrieval of sales that were lost during the MD suspension, by continued growth in its respiratory products and by a consolidation of its Ribosepharm acquisition.
The shares closed down 2p at 109p.
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