AstraZeneca faces $1bn annual hit after patent ruling on ulcer drug

The most important patent protecting AstraZeneca's best-selling drug, the ulcer pill Nexium, has been revoked by the European patent office, potentially threatening more than $1bn (£508m) in annual sales.

The ruling marked a significant victory for a little drug manufacturer called Ratiopharm, based in the southern German town of Ulm, which has been a thorn in AstraZeneca's side since the start of the decade. And it caused shares in the UK pharmaceuticals giant to plunge 4.4 per cent, the worst performance of any FTSE 100 company yesterday.

AstraZeneca said the revoked patent would have protected Nexium from competition until 2014, but it had confidence in the remaining intellectual property surrounding the drug. This includes additional patents on the main ingredient and the way it is made, plus an exclusive right to its drug trial data until 2010, which could force Ratiopharm and others to do their own expensive human trials before applying to launch a copycat product.

"AstraZeneca will defend and enforce its intellectual property rights protecting Nexium," the company said. A patent office ruling on a manufacturing patent is due after a hearing next March.

Nexium had global sales of $4.6bn last year, including $1.1bn in Europe, and is on course to grow by a further 11 per cent in 2006. The drug is the successor to Losec, AstraZeneca's ulcer pill which was once the best-selling medicine in the world. While the company persuaded doctors to switch to the new product before Losec went off-patent earlier this decade, some medical professionals - particularly in Europe - have argued that it does not have significant additional benefits over Losec, which is now available at a fraction of the cost. Ratiopharm became engaged in a long-running patent dispute with AstraZeneca in Germany when it began trying to produce its version of Losec.

Ratiopharm - which has annual sales of €670m (£449m), compared to $24bn (£12.2bn) for AstraZeneca - remained inscrutable yesterday as to its plans, saying it did not comment on future drug launches. It has more than 600 products in development.

AstraZeneca shares, though, fell 126p to 2,738p, as investors feared that copycat Nexium is likely now to come to market sooner than expected in Europe.

Nexium's patent protections are also under assault in the US, which accounts for two-thirds of the drug's sales and an even higher percentage of its profits.