Court Battle Over Paxil

By REED ABELSON, NY Times

 February 5, 2003

Bloomberg News

Tables of GlaxoSmithKline's antidepression drug Paxil in a drugstore in Wilmette, Ill. The company is fighting for its patent rights on the drug.

An important drug patent trial is expected to begin in Chicago today when GlaxoSmithKline, one of the world's largest pharmaceutical manufacturers, squares off in federal court against Apotex, a Canadian maker of generic drugs, over an essential patent covering GlaxoSmithKline's top-selling drug, Paxil.

GlaxoSmithKline claims it has the exclusive rights to Paxil, its popular treatment for depression, until 2006. Paxil now accounts for roughly $3 billion in worldwide sales, about a tenth of the company's overall revenue, according to analysts' estimates.

Apotex will try to persuade the court, in the Northern District of Illinois, that its version of Paxil, known by the chemical name paroxetine hydrochloride, does not infringe on GlaxoSmithKline's patent because it is producing the medicine in a different form.

The outcome of the litigation "is extremely critical to Glaxo," said Hemant K. Shah, an industry analyst based in Warren, N.J. GlaxoSmithKline does not have a broad portfolio of blockbuster drugs, he said.

GlaxoSmithKline introduced Paxil in 1993 and has held numerous patents on the drug over the years.

As patents on the drug have expired, GlaxoSmithKline has "repatented every conceivable form" of Paxil in an attempt to block competition, said Bernard Sherman, the chief executive of Apotex, a privately held company based in Toronto.

"It's an absurdity," Mr. Sherman said. In addition to the Chicago lawsuit — which concerns GlaxoSmithKline's patent on a single critical version of Paxil — Apotex is challenging other Paxil secondary patents in a case in Federal District Court in Philadelphia that is expected to go to trial later this year.

GlaxoSmithKline argues that Apotex tried to introduce a generic version of Paxil just five years after it was introduced in 1993. The company is one of several generic manufacturers that are seeking to infringe on the patents surrounding Paxil, said Mary Anne Rhyne, a spokeswoman for GlaxoSmithKline. "The generics are attempting to go to market sooner and sooner," she said. She also said the company's patents on Paxil were still valid and Apotex would infringe on them if it produced a generic version.

The trial is expected to last for several weeks, with a verdict fairly soon afterward, followed by possible appeals. Given the likelihood of further litigation, it is unclear how quickly Apotex would be able to introduce a generic version of Paxil even if it prevails in court. While Mr. Sherman said he believed that Apotex could have a product on the market as soon as the end of this year, many analysts say they believe that a generic version will not be introduced before late 2004.

Some analysts and lawyers following the case say GlaxoSmithKline appears at significant risk to lose the case. Over the last few years, federal courts looking at similar patent disputes between generic manufacturers and pharmaceutical companies have tended to side with the generics, said Jon Fisher, a portfolio manager with Fifth Third Bank.

"The industry is losing more and more of these," Mr. Fisher said. Given that this case does not appear significantly different from some of the other cases, "the odds are against Glaxo," he said.

At issue in the Chicago case is whether the form of a chemical compound in Apotex's version of Paxil infringes on a patent on GlaxoSmithKline's drug. One challenge facing Judge Richard A. Posner seems to be to determine whether Apotex, in making the compound, would infringe on a GlaxoSmithKline patent, said Robert F. Green, a Chicago patent lawyer at Leydig, Voit & Mayer who is following the case closely.

The problem, according to Mr. Green, is that the court may determine that the infringement is essentially insignificant, but it may still have trouble coming up with a satisfactory resolution that would allow Apotex to market the drug. Under existing law, the Food and Drug Administration cannot approve a generic version of any drug that is deemed to infringe at all on a pharmaceutical company's patent, he said.

The court would "have to take some skillful legal maneuvering," Mr. Green said, to find an equitable answer.

In the Philadelphia case, Apotex is battling some of the other patents on Paxil. Last December, the court issued what was considered a split decision, upholding one patent, dismissing another, and upholding only parts of others. Disputes on some of the patents are expected to go to trial sometime later this year.

The Federal Trade Commission, which has long looked askance at what it considers efforts by the pharmaceutical industry to stifle competition, filed a brief in support of Apotex.

The commission did not weigh in on the specific patents in dispute, though, Ms. Rhyne of GlaxoSmithKline said.

Because many investors are pessimistic about GlaxoSmithKline's ability to prevail, some analysts say that the stock price reflects expectations that the company will lose patent protection on Paxil some time in 2004 or so. The shares, which trade as American depository receipts in the United States, have fallen by about 20 percent over the last year, partly because of concerns about generic competition.

The stock closed at $37.46 a share yesterday, down $1.06.

But Mr. Shah, the analyst, said that investors had not fully taken into account the impact of the loss of patent protection on Paxil. "I still think there is a greater downside than upside," he said.