GSK dips 3% after court ruling boosts generic threat to top drug

GlaxoSmithKline has lost the first round of its US court battle to defend more than £1bn in annual sales of its most successful drug, the anti-depressant Paxil.

A US court has decided that Apotex, a Canadian company, does not infringe GSK's patent with its subtly different version of the drug.

GSK shares slipped 3 per cent to 1,086p as analysts said the ruling increased the likelihood that Paxil could face cheap copycat competitors within a year. It is a major setback in the company's race to launch enough new drugs to make up for a decline in sales from existing blockbusters.

The UK giant, run by its chief executive, Jean-Pierre Garnier, said yesterday that it would appeal and said it was currently sticking to its guidance on earnings for 2003.

Paxil, which is sold in the UK as Seroxat, had sales of £2.1bn in 2002, two-thirds of that in the US. The drug is also prescribed for panic attacks, anxiety, post-traumatic stress and obsessive compulsive disorder.

Apotex and GSK's clash in a Chicago court was the first round of a battle that will conclude in a second case in Philadelphia later this year. The Canadian group argued its product either does not infringe the GSK patent on the main ingredient in Paxil, or that the patent – which runs until December 2006 – is not valid.

Judge Richard Posner ruled late on Monday that while the Apotex product did contain a little of the vital chemical, it would not be present in sufficient quantities to infringe GSK's patent. The UK company's patent on the chemical was upheld by the judge.

In trial papers, GSK said that it could lose 80 per cent of its US sales of Paxil within weeks of a rival being launched. Investors fear a repeat of the sales disaster which befell Eli Lilly, the US giant, when its drug Prozac faced competitors in 2001. Prozac lost 70 per cent of its sales in a fortnight because doctors and medical insurers in the US demanded patients use the cheaper version.

Several analysts cut their forecasts of Paxil sales in 2004 to reflect the increased likelihood of an earlier launch for the Apotex rival. James Culverwell at Merrill Lynch said he now forecast the launch of a generic Paxil next January and predicted Paxil sales will slide 60 per cent next year.

GSK reiterated its guidance that earnings growth in 2003 would be of a "high, single-digit" percentage. The company said: "The possible timing of a generic Paxil product remains unclear with the Philadelphia trial still pending and the Chicago decision now moving towards appeal. If a generic launch became imminent, GSK would reassess this guidance."

The privately-held Apotex played its cards close to its chest yesterday. Barry Sherman, chief executive, left himself plenty of room to manoeuvre. He said: "We are elated with the ruling of Judge Posner and anticipate being able to bring this important drug to market no later than 2005."

Analysts interpreted this to mean he would not risk launching before the outcome of the Philadelphia case, even if the drug receives regulatory approval at the earliest possible date, 19 September.

No date has yet been set for the Philadelphia trial, which involves Apotex and four other generic manufacturers.

GSK's army of salesmen are marketing a new controlled-release version of Paxil in the hope of switching as many patients as possible from the original before rivals become established. One in three Paxil prescriptions is now for the new version.

GSK's shares have lost a third of their value in a year amid fears that generics companies have become more aggressive in challenging patents and winning market share from bigger pharmaceuticals groups. GSK was forced to issue a profit warning after losing a patent battle over its biggest-selling antibiotic, Augmentin, last year. Augmentin's US sales were down 20 per cent in 2002 as a result.