Glaxo dives on patents setback in US court

GlaxoSmithKline, Europe's biggest drug maker, vowed yesterday to defend patents on its biggest-selling antibiotic after it lost a court battle and saw £8.5bn wiped off its market value.

Three drug manufacturing companies have mounted a successful legal campaign to overturn half a dozen US patents that protect the way GSK makes Augmentin, a multi-purpose antibiotic that had sales of almost £4m a day last year. Augmentin is one of the company's most profitable drugs.

GSK admitted that if its rivals were to launch cheap, generic versions of the drug in the next few weeks, it would have to issue a profit warning. Its shares plunged 140p to 1471p, taking them to their lowest since the company was created from the merger of Glaxo Wellcome and SmithKline Beecham in 2000.

The three victorious companies yesterday put off decisions over whether to launch their cheap versions of the drug. GSK vowed to appeal the decision and threatened to sue them for loss of earnings if the patents were upheld on appeal after the generic versions had been launched.

Jean-Pierre Garnier, the chief executive of GSK, warned the companies they would be taking a big gamble.

"This would be a big risk for them, and if we were to ultimately win, we would be entitled to full compensation for loss of profits, which would of course be a significant sum. They will only be making a fraction of the profit we would, so they will be required to repay profits they haven't made."

Only one of the three, Geneva Pharmaceuticals, has so far received approval to sell their generic version in the US. Geneva is a division of Novartis, the Swiss drugs giant, and analysts said the chances of Novartis risking launching its product early were "50-50".

A spokesman for Geneva said the company has not made a decision, but was "anxious to get the product into the hands of patients as soon as possible".

Sources said Geneva is likely to make a decision in about a month, when GSK files its appeal.

Although Augmentin accounts for just 5 per cent of GSK's sales, it emerged yesterday that the drug contributes a significantly higher proportion of its profits.

GSK said that, in a worst case scenario, its earnings growth would be 10 per cent this year, not the "mid-teens" currently predicted. Earnings growth next year would fall from the low-teens to high single digits.

City observers said that this would increase the chances of GSK seeking a big acquisition to plug the earnings gap. It has long been linked with the troubled US firm Bristol-Myers Squibb.

The Virginia judge's ruling, late on Thursday, came as a surprise. He threw out three patents, expiring in June, July and December of this year, having previously upheld the December patent when it was challenged on different grounds a few months ago.

Last year he threw out patents which GSK claims extends protection for Augmentin to 2018. These will be appealed at the same time as the patents in this week's case. Mr Garnier said the appeal would most likely take between 12 and 18 months, but might be over within eight.

He said he would stop promoting regular Augmentin if generic rivals launched this summer, switching the US salesforce to marketing the new version of the drug, Augmentin ER, a version for children which already accounts for 13 per cent of Augmentin prescriptions. Augmentin XR, an improved version for adults, is due to be launched in December, but analysts said the existence of generic competition would hit GSK's chances of a successful launch.

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