Glaxo takes £220m charge after settling arthritis drug case

Glaxosmithkline, the UK's largest pharmaceuticals group, is to pay £220m to settle accusations that it fraudulently obtained a patent and pursued "sham litigation" to block a rival arthritis pill.

Legal wrangling over a patent the drug maker claimed on Relafen meant that cheap copies of the drug were kept off the market for three years before GSK's patent was finally ruled invalid in 2001.

Yesterday, GSK said it has paid £100m to drug wholesalers in the US who demanded compensation for the higher prices they had to pay while there was no competition to Relafen. It has also reached settlements with two manufacturers of generic Relafen, Teva Pharmaceuticals of Israel and the US group Eon Labs, who were deterred by GSK's lawsuits from launching their products.

In yesterday's statement, GSK said it continued to believe that its actions were appropriate in obtaining and enforcing its patent for Relafen.

A US district court ruled the patent invalid in August 2001 because GSK did not discover the active molecule in Relafen and also ruled the patent was unenforceable on the grounds of "inequitable conduct" in its dealings with the US patent authorities. Teva had argued that GSK submitted inaccurate documents with the intention of deceiving the Patent Office.

There has been repeated controversy over the tactics of big pharmaceuticals companies when they attempt to deter generic competition to products nearing the end of their period of patent protection. Even short delays to the launch of copycat rivals can safeguard significant profits. Relafen sales in the US peaked at $300m in 2000 and since the arrival of generic competition have collapsed to just $1m.

The world's giant pharmaceutical groups say they must robustly defend their intellectual property because the cost of successfully developing a new drug is so high. But the balance of power has increasingly tilted in favour of the generics industry and political support has emboldened generics manufacturers and drug purchasers to aggressively pursue compensation under anti-trust laws.

GSK will take a total legal charge of £220m, which also includes provisions against outstanding claims from Relafen users, which will either be settled or tried in June. Its shares closed down 13p at 1,194p yesterday, one of the worst performers in the FTSE 100.

The company said that, even with the one-off charge, its full-year results, to be announced next Thursday, would still meet its earlier guidance. This promises "high single-digit or better percentage growth" in earnings per share, if the decline in the value of the dollar is stripped out.

The settlement over Relafen is one of a number of legal issues bedevilling GSK, and pales beside a dispute over a £2.9bn tax bill from the US authorities.