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Pharma news in brief

Our weekly round-up of news from around the industry.

Shares slide further for Merck

Merck, the US drugmaker, will lose patent protection 10 years earlier than expected for one category of its second-biggest selling drug, Fosamax. A federal judge ruled that the US patent on the osteoporosis treatment could expire in 2008, rather than 2018, a move that marked a victory for Israeli generic drugmaker, Teva Pharmaceutical Industries. A European Union court is also considering invalidating the patent, which could result in European generic competition as early as 2007.

Analysts predict the loss of both US and EU patents for the most prescribed form of Fosamax (once-a-week formula), which had $3.15bn in global sales last year, could cut shares by 89 cents of a potential $2.60-$2.80 in 2008 earnings. Merck stated it disagrees with the decision and is considering it options. Shares fell 10 per cent on the news, putting the company's future profits in jeopardy.

Tax bill for GSK rises

GlaxoSmithKline (GSK) faces a bill for $7.8bn in back taxes following a demand from the US Internal Revenue Service (IRS). An additional bill of $1.9bn for taxes on profits made on Zantac between 1997-2000, plus interest of $700m, adds to a $2.7bn levy imposed in 2004 and $2.5bn in penalty interest. The IRS move escalates the long-running dispute over transfer pricing, a method of distributing costs and profits between the different countries that a company operates in.

However, a tax amnesty for multinationals could provide some relief. Four large pharma firms have agreed to repatriate monies offshore, which could bring $100bn of foreign exchange earnings into the US in the next few months. The amnesty would enable companies to pay a reduced tax rate of 5.25 per cent compared to the normal 20-25 per cent.

AZ chief dismisses health risks of Crestor

AstraZeneca's (AZ) chief executive, Sir Tom McKillop, defended the safety of its anti-cholesterol drug, Crestor. He said fears over the drug were ìcompletely unfoundedî and that the current mood concerning drug safety was ìterrifying people unnecessarilyî.

As McKillop announced AZs 2004 results, he said there was a danger that the Food and Drugs Administration could deviate from its ìtraditionally very well judged sense of benefit and riskî and in doing so could jeopardise its ability to take a balanced view. AZ reported sales of $21.4bn for the full-year, up from $18.8bn the previous year. The company indicated it expected earnings per share of $2.4-$2.55 for 2005, against a share of $2.11 in 2004. Shares have fallen 30 per cent over recent months following the Crestor safety concerns.

HealthSouth fraud case heats up

Richard Scrushy, former chairman and chief executive of HealthSouth, currently on trial for a $2.7bn accounting fraud, has been accused of ordering executives to 'cook the books to make the numbers look better', by a former chief financial officer. Aaron Beam told a federal court in Birmingham, Alabama, that fraudulent activities began in 1996, when he warned Scrushy that analysts' expected earnings had fallen short. Prosecution attorneys have portrayed Scrushy as the mastermind of the fraud, while the defence claim he was without knowledge of the crimes.

At least five former chief financial officers have agreed to testify against Scrushy. The trial is a landmark case, as Scrushy is the first chief executive to be charged under the Sarbanes-Oxley Act, created in response to the high profile scandal at Enron.

J&J face misleading marketing lawsuits

Johnson and Johnson has been hit by a raft of lawsuits over an alleged marketing campaign for artificial sweetener, Splenda, just days after forecasting an earnings increase of up to 10 per cent for 2005. Despite ongoing competition on key products, the threat of patent expiries and the incomplete buyout of heart device maker, Guidant, the company remains optimistic about the next 12 months. Earnings per share are forecast at $3.38-$3.41 for the year, against $3.10 in 2004.

30th September 2008


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