Investment Exodus Fear for Besieged Drugs Giants; after Britain's Two Biggest Pharmaceutical Groups Are Challenged in US Courts over Patents. .

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THE drugs industry, buoyed for 20 years by blockbusters such as Viagra and Prozac, is under siege.

Drugs companies are facing an unprecedented threat from cheaper rivals flooding the market. And the severity of the assault on the multinational giants has been thrown into sharp relief within the past fortnight by high-profile cases in the American courts against Britain's two biggest drugs groups.

GlaxoSmithKline saw the patent on its key antibiotic, Augmentin, overruled.

In a separate case, Astra-Zeneca is awaiting judgment on the patent for its antacid drugs Losec and Prilosec.

Both companies can appeal against adverse rulings, but investors have already taken flight, sending shares diving amid severe profits downgrades by City analysts.

Patents on leading drugs developed in the Eighties and early Nineties are running out and cheaper copycat, or generic, products are threatening to muscle in on the market. At the same time, the number of new drugs being developed by the pharmaceutical giants is shrinking.

Meanwhile, governments in developed countries are keen to improve efficiency in their health services, which means pressure on suppliers to reduce costs.

Epidemics such as HIV/AIDS in Africa have led many to question whether patents on lifesaving but expensive drugs or vaccines should simply be ignored in the interests of public health.

Stockbroking agency Charles Stanley claimed: 'The Augmentin case showed that US courts can overturn patent protection that investors have come to rely on to maintain topline growth. And the huge research and development commitment required to keep the drug pipeline full is growing, not receding.' The threat to each drug company has led to rumours that the giants will merge to help pool their risks.

Only days ago, Glaxo was tipped to be in talks with American rival Bristol-Myers, though no deal is believed to be imminent. …