Galen in pact with US rival to end patent wrangles

Galen, the women's healthcare group, has tied up a wide-ranging and innovative deal with its US rival, Barr Laboratories, that ends most patent litigation between the pair and fends off copycat competition to several of its important drugs.

Galen shares jumped 8 per cent to 657.5p on the news, which analysts said removed a number of the competition fears that have dogged the stock this year.

Barr, which attempted to buy Galen earlier this year, is paying $45m (£28m) to acquire one off-patent contraceptive and the right to sell generic versions of two hormone replacement therapies shortly before their patents expire later this decade.

The deal settles patent litigation between the two companies over the HRT treatments Estrostep and femhrt, protecting Galen's exclusivity - and, hence, its high margins - over the products until 2007 and 2009 respectively.

There is also an innovative deal on Ovcon, Galen's most important contraceptive pill. Barr has lined up a cut-price copy of the drug, but Galen has bought an option to sell it on Barr's behalf. This would ensure the price is not eroded at least until Galen is able to launch an improved, patent-protected version of the drug.

Both companies have received advice from their lawyers that the deal will not fall foul of competition authorities in the US, who have previously shown themselves ready to use anti-trust laws to hasten the switch from branded drugs to cheaper copies.

Loestrin, the contraceptive pill that is being sold to Barr, was not being actively marketed by Galen, according to the chairman, John King. Loestrin, which was acquired from Pfizer this year, already faces generic competition and had sales of $16.7m (£10.5m) in the last three months.

Dr King said: "This deal has removed three of the risk factors that have been hanging over us. We have always taken a robust attitude to patent rights and we are confident in our ability to defend other patents."

There is still one outstanding issue between Barr and Galen, over the patents for Sarafem, a treatment for severe menstrual tension which Galen bought last year and whose patents are being challenged by Barr. The two are scheduled to clash in a US court in November.

Galen has repeatedly been criticised for providing only limited information on the existence and progress of its patent disputes.

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