Having stomach for a fight

SBHD: As the cost of fighting patent actions in the otc drugs market continues to rise, the motive for legal challenges is being thrown into question.

I went to buy some Zantac the other day. The kind of acid indigestion that I’m learning one acquires on approaching 40 requires heavier guns than Rennies – but enough of my stomach. What was rather more interesting was the hoop I had to go through with a qualified Boots shop assistant.

Had I used Zantac before? Did I have an ulcer? Would I promise to go to the doctor if symptoms persisted for more than a fortnight? I suspect the symptoms will persist for the rest of my natural life, but I answered correctly as if facing a medical viva. She then went to consult the pharmacist before delivering me a packet of nine tablets, none of which I have taken because I was rather overawed by the whole experience.

This is not a complaint. If anything, I would rather be grilled at the chemist than palmed off with some placebo. And, I would add, it is a form of holistic cure – I didn’t take the pills because they sounded frightening, but my stomach got better anyway.

My first proper experience of the over-the-counter market – I’m told that Strepsils and toothpicks don’t count – made me think just how hard it must be to push back the retail barriers in pharmaceuticals.

It’s easy to imagine, cynically, that what you need to do in the pharmaceutical game is develop a less powerful or less toxic version of a prescribable drug and get it licensed.

The patented otc product then trades happily off the brand value of the medicines we used to be given by the doctor.

Everyone who buys medications from a chemist is a hypochondriac to some degree or another, so will have heard of the reputation of a prescribable drug before it, as it were, arrives in the shops. I presume the version of Zantac that we buy in otc does not cure ulcers like its prescribable partner – it is just more effective against heartburn than traditional antacids.

I see no reason why a brand should not be used in this way. We have heard that Zantac is the ulcer wonder-drug, so aren’t we going to think it will work for boring old heartburn? I can’t wait for the same process to happen with Prozac (“Just buying it cheers you up”). Or morphine, for that matter.

But commercial life, as is so often the case, is more complicated than that. Look at Glaxo’s recent experience in the US. In a healthy bit of British flag-waving, an American Court of Appeal let it be known last Friday that Glaxo will retain its patent in the US against those companies, such as Canada’s Novopharm, that would seek to cash in with generic equivalents.

Glaxo is cock-a-hoop at the ruling, as would be any company that had just defended a product with sales worth $2bn-plus (£1.3bn) in the US. Under the patent, Glaxo can now coin it in exclusivity until 2002.

But wait. The US legislature upheld one of two patents covering Zantac. Glaxo has won on what is called Form 2, but legal action will continue on another patent (Form 1) which is due to expire no later than 1997.

Glaxo will apparently have to prove that infringement of Form 2 amounts to infringement of Form 1, but that is by no means a foregone conclusion. The likes of Ciba and Novopharm claim that they can legally manufacture a generic equivalent under Form 1.

Well, they would claim that, wouldn’t they? Did we expect them to say that what goes for Form 2 goes for Form 1, and that they wish Glaxo all the best and look forward to catching up again in 2002?

But the true implication for Glaxo – as for any pharmaceutical firm facing patent expiries – must be the cost of the continuing litigation. One can only speculate about the degree to which competitors cynically engage in prolonging litigation – not with any realistic hope of winning it, but simply to financially handicap the holder of the patent.

This is not a market for the faint-hearted, nor the weak-walleted. The now merged Glaxo Wellcome (as the company will be known from next week) may enjoy a market capitalisation of £25bn, but the merger – well, the £9.1bn takeover by Glaxo – has left the new entity with debts of £3bn in a market that demanded the two companies spent a collective £1.2bn-plus last year on research and development.

I gather that it is a closely guarded secret as to how much Glaxo has really paid out in defending its Zantac patents in the US, but it is not going to be petty cash. So the rationalisation by merger that has been the fashion in the global pharmaceuticals market for the past few years – during which companies have looked to face regulatory complications and patent expiries through economies of scale – can be strategically countered by burdensome legal challenges.

The Glaxo Wellcome merger has stretched both companies in every sense of the word. There are enormous economies of scale to be addressed.

Glaxo told the Financial Times on Monday that it harbours no Neutron Jack – a reference to Jack Welch of General Electric, who is said to dispose of people while leaving the buildings standing – but we can expect some of the gutters that the old Glaxo and Wellcome share to run red shortly.

That, in itself, will be an expensive process. Anyone who has ever conducted a redundancy programme will be familiar with the extraordinary provisions that have to be made in current accounts to cut overheads in future years.

To be fighting patent actions as well is to further burden the profit and loss account at a time when the company could well do without the hassle. And I’m sure competitors have noticed Glaxo Wellcome’s problem in this respect.

I am not suggesting that patents should be unchallengeable. What I am saying is that we ought to be sure that the legal basis for such challenges are diligently examined to ensure they are not mischievous.

Otherwise companies that are so vital to global well-being may be tempted to the view that research and development expenditures on the scale to which we are accustomed are not worth the candle.

George Pitcher is joint managing director of media consultancy Luther Pendragon.