GlaxoSmithKline Loses Augmentin Patent; Cheaper Drugs Pose Threat

London, May 24: | Updated: May 25 2002, 05:30am hrs
GlaxoSmithKline Plc (GSK) became the latest casualty on Friday in an increasingly bitter battle between big drug-makers and copycat manufacturers, after a US court quashed patents for its top-selling antibiotic ‘Augmentin’. The move paved the way for cheap copies of its second biggest-selling drug to go on sale in the United States, as early as the end of June, sending GSK shares plunging to a two-year low.

Europe’s biggest drugmaker plans to appeal the ruling by the Virginia court but warned that if generic versions of the drug, Augmentin, entered the market before the case was resolved there would be a "material impact" on earnings this year and next. Drug firms around the globe are fighting legal battles to prolong the patents on their drugs in the face of increasing generic competition that threatens to erode profits.

Industry analysts estimate that pharmaceuticals with worldwide annual sales of more than $11 billion could lose market exclusivity this year alone.

"It’s an increasing problem for big drug-makers, and investors," said Stefan Meyer of Medical Strategy in Munich, which advises healthcare fund managers with 500 million euros under management.

"Patents are being strongly attacked, often successfully, and it decreases the value of patents held by companies." Industry analysts swiftly downgraded GSK’s stock, which was nearly nine per cent down at 14.70 pounds by 1025 GMT, the lowest since March 2000. "(The ruling) raises the likelihood of an early introduction for at least one if not two generic versions (of the drug) from mid-year," said Nigel Barnes of Merrill Lynch, who cut his recommendation to "neutral" from "buy".

Judge Henry Morgan ruled that three GSK patents on Augmentin-- expiring in June, July and December of this year -- did not contain new inventions and were therefore invalid.

The drug -- a combination of a penicillin called amoxicillin and a chemical called clavulanic acid that prevents bacteria from becoming resistant to the penicillin -- has global annual sales of $2 billion including $1.3 billion in the United States. Augmentin could suffer similar sales erosion to Eli Lilly and Co’s anti-depressant Prozac, which lost 70 per cent of sales to generics in six weeks when its US patent expired last year. However, GSK may enjoy some protection from the fact that more than a third of sales lie outside the US. And that it is trying to switch patients to new, patent-protected formulations.

GSK intends to seek damages if any company sells a generic form of Augmentin and it wins the case on appeal. The appeal process is expected to take about 12 to 18 months to resolve.

Without generic competition for Augmentin, Glaxo said its earnings guidance is unchanged: earnings per share growth in the mid-teens in 2002 and low-teens or better in 2003.

But if rivals launch generic versions of the antibiotic before the appeal is decided, the company said its EPS growth would fall to around 10 per cent in 2002 and to the high single digits in 2003.