American patent ruling hits GSK

Sales of GlaxoSmithKline's most prized drug could fall by as much as 80% in the US, its most lucrative market, following the loss of a critical patent lawsuit.

American sales of Paxil, the antidepressant marketed in Britain as Seroxat, last year raised $2.1bn (£1.3bn). But, according to trial papers, GSK believes they could drop to a fifth of their present value within weeks of cut-price rival pills flooding the market.

Yesterday, a Chicago court ruled that a copycat version of Paxil from Apotex, a Canadian generic drugs manufacturer, did not infringe GSK's patent on its product. The London-listed firm is to appeal.

The ruling opens the way for generic firms, led by Apotex, to launch copycat pills on to the American market as soon as September.

Yesterday, shares in GSK fell 5% before recovering to close down 37p at £10.85. A stream of bad news about a handful of long-running patent disputes has driven shares in GSK into a steady downward spiral since the summer of 2001, when they traded at more than £20.

Analysts were yesterday split over whether Apotex would be bold enough to press ahead with its rival to Paxil at the earliest opportunity - despite an outstanding claim filed by GSK at a court in Philadelphia and expected to be heard later this year.

An early launch could saddle the Canadian firm with triple damages if a ruling from Philadelphia goes in GSK's favour, but recent history suggests generic firms have taken an increasingly aggressive stance towards patent infringement threats.

Last summer, copycat manufacturers showed no hesitation in launching rival treatments in the US to GSK's best-selling antibiotic, Augmentin, despite the fact that the final stages of a lengthy patent battle had not been played out.

US sales of Paxil represent 65% of GSK's £2bn worldwide revenues from the drug. For almost 10 years the pill has dominated the American market, where 15m patients are treated for depression each year. The drug is also prescribed for panic attacks, anxiety, obsessive compulsive disorder and post-traumatic stress.

GSK yesterday reiterated its forecast of high single-digit growth in earnings per share this year but added that the projection would be reassessed in the event of generic competition to Paxil.

Mark Clark, an analyst at Deutsche Bank, said the advent of a generic competitor to Paxil in September would lead him to cut 3% off projections for GSK's earnings per share this year, and 8% off estimates for 2004.

GSK chief executive Jean-Pierre Garnier is said to be acutely aware of the 70% collapse in sales of Prozac which occurred within a fortnight of the drug's owner, Eli Lilly, losing a critical US patent battle two years ago.

As well as losing substantial patent protection on Augmentin and Paxil, GSK is thought to be facing challenges to the intellectual property rights of its other antidepressant, Wellbutrin, which accounts for 5% of annual sales.

Last December US firm Andrx filed for approval to bring a generic version of Wellbutrin to market but has not yet gained it.

Mr Clark said yesterday: "A potential earnings per share upside of 5%-plus could come from Wellbutrin yet escaping the ravages of generics."