UPDATE 2-Glaxo up as Novartis drops generic Advair in U.S.

Thu Mar 18, 2010 6:32am EDT

* Novartis hands back U.S. rights to VR315 to Vectura

* Decision underlines difficult path to market in U.S. * Glaxo shares up 2.5 percent; Vectura falls 21 percent (Adds further analyst comment on U.S. approval obstacles)

By Ben Hirschler

LONDON, March 18 (Reuters) - Novartis has handed back U.S. rights to a drug widely believed to be a generic version of GlaxoSmithKline's lung blockbuster Advair, reducing the risk of cheap copies in Glaxo's biggest market.

The decision on VR315, which Novartis's generics arm Sandoz has been developing in partnership with Vectura, was likely driven by the lack of a route to get a substitutable product approved in the U.S. market, industry analysts said.

The move does not affect the VR315 partnership between Sandoz and Vectura in Europe, where experts believe a generic version of the inhaled treatment, which had sales of 5 billion pounds ($7.6 billion) in 2009, faces an easier path to market.

Shares in Glaxo jumped 2.5 percent on the news by 1015 GMT on Thursday, while Vectura, a small British drug company specialising in respiratory medicine, fell 21 percent. Novartis shares were flat.

"The GlaxoSmithKline investment thesis has received a significant boost this morning with news that Novartis has relinquished U.S. rights to generic Advair," said Savvas Neophytou of Panmure Gordon.

Glaxo's franchise was also helped by the fact that a follow-on product to Advair, known as Relovair, was now being tested in a final-stage Phase III trial in patients, he added.

TECHNICAL DIFFICULTIES

Advair, which made up 18 percent of Glaxo group sales last year, is vital to the British drugmaker's growth in the next few years.

But its future has been clouded by uncertainty over generics, though Glaxo CEO Andrew Witty has always played down the threat, given the technical difficulties of making safe and effective copies of inhaled lung drugs.

Mike Ward of Ambrian Partners said the approval bar for new drugs containing a long-acting beta-agonist (LABA), like Advair, had also effectively been raised by a recent furore over LABA safety.

"It is becoming increasingly difficult for new LABA-containing products to be approved in the U.S.," he said.

Vectura said in a statement it would take full control of the U.S. development and commercialisation of the combination product known as VR315 for asthma and "smoker's lung", or COPD, from Sandoz. Vectura has never named the drug its product copies, but the profile matches that of Advair.

Vectura will receive a $9.5 million cash payment and a $25 million loan facility following the revised deal.

Mark Clark of Deutsche Bank said Sandoz now had flexibility to acquire, in-license or develop an alternative product, though it was also possible that it might opt back into VR315 in the United States at a later stage. (Editing by Andrew Callus and Will Waterman) ($1 = 0.6545 pound)