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Glaxo loses U.S. patent case
LONDON, England (Reuters) -- GlaxoSmithKline Plc said on Tuesday it had lost a key Chicago court case over the U.S. patent on antidepressant Paxil, potentially opening the door to cheap copycat versions of its top-selling drug later this year. Judge Richard Posner ruled a generic version of Paxil from Canada's privately held Apotex did not infringe GSK's patent on the product. Europe's biggest drugmaker said it would appeal. GSK said the possible timing of any generic launch remained unclear and, as a result, it would not alter its current guidance of high single-digit growth in earnings per share in 2003, at constant exchange rates. This guidance would be reassessed if a generic launch became imminent, it added in a statement which confirmed an earlier Reuters report of its defeat. Paxil sales reached 2.06 billion pounds ($3.25 billion) worldwide last year, representing nearly 10 percent of group sales. Two-thirds of sales were made in the United States.
Shares in GSK fell as much as five percent before paring losses to stand 3.6 percent lower at 10.82 pounds by 1005 GMT, as investors weighed the impact on future growth at the firm, which has failed to showcase many exciting new medicines since its creation through a merger two years ago. "Paxil is not a big issue in terms of total sales, but at the margin it's going to reduce their growth rate to very mediocre levels,'' said Stuart Fowler, head of UK equities at AXA Investment Managers, who holds shares in the company. Martin Hall, pharmaceuticals analyst at HSBC, who rates the stock a ``sell,'' said the arrival of cheap Paxil generics in the United States would clearly slow earnings growth, although this could be offset by cost cutting. "If everything translated through, you're looking at seven percent underlying earnings growth over the next five years dropping to three percent,'' he said. "However, of course what they would do is cut their cost base to probably get it back up to seven percent.'' PHILADELPHIA CASEThe case in Chicago is one of two over Paxil patents due to be heard in the United States this year. A date for the second case in Philadelphia has yet to be set and some analysts question whether generics will be launched before it is heard. Many investors had been braced for the worst and around half the analysts covering GSK had already anticipated the arrival of U.S. generic Paxil from 2004. Goldman Sachs said that if generics went on sale in the U.S. market by the end of 2003 then earnings per share would grow just one percent in 2004. If GSK were to prevail at appeal, however, this would rise to nine percent. GSK claims patent protection on Paxil through 2006. It also argues it has separate exclusivity under the Hatch-Waxman act valid until September 19, 2003, that will prevent Apotex from selling its copycat drug before then. Analyst Nigel Barnes of Merrill Lynch, who rates GSK a ``buy,'' said the fall in the shares was to be expected but might be overdone. "It was always a risk but most people already had 'what if' scenarios in their earnings forecasts,'' Barnes said. ``This is a bit of a knee-jerk response. Arguably, at these sort of ratings the stock is already discounting a worst-case scenario.'' GSK currently trades at less than 13 times the consensus forecast for 2003 earnings -- a discount of around 18 percent to other big-cap European pharmaceutical stocks. The Chicago case centred on whether Apotex's so-called anhydrate form of Paxil infringed the patent on the hemihydrate version marketed by GSK. GSK claims anhydrate converts naturally and during tablet-making to the more stable hemihydrate form. But the Judge Posner found hemihyrdate was not present in Apotex's product in sufficient amounts to infringe GSK's patent. In a bid to minimise the threat to Paxil, GSK is promoting a new controlled release version of the medicine, called Paxil CR, that is protected by separate patents and already accounts for 31 percent of new U.S. Paxil prescriptions. The move parallels a similar strategy for Augmentin -- GSK's top antibiotic that already faces copycat generics -- where follow-on versions of original drugs have also been launched.
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