Drug scandal batters German giant

BRITISH drug giants GlaxoSmithKline and AstraZeneca have received a chill warning of what can happen when a best- selling drug goes wrong. One of Germany's leading conglomerates plunged into a loss for the first time in its history after being forced to withdraw its cholesterol-lowering drug Baycol in the wake of deaths and serious side effects.

Removing the drug from the market cost Bayer £540m in lost profits, sending it crashing to a loss of £190m in the third quarter - the first time it has been in the red. This left nine-month profits sharply lower at £813m against £1.6bn last time. It has also accelerated retrenchment plans. Bayer is to cut 2,400 jobs on top of 2,100 already in the pipeline. Problems continue to pile up for the group.

Chairman Dr Manfred Schneider said the drugs business was not for sale, but he is ring-fencing it into a standalone company and intensifying the search for a partner to develop it. This may prove difficult, especially as he wants Bayer to remain the dominant partner. 'Our goal is to be a leading healthcare company,' he said.

Meanwhile, Bayer is haunted by the prospect of massive legal action arising out of the Baycol withdrawal. The drug has been linked with more than 50 deaths. Bayer currently faces 160 lawsuits in the US but Schneider said it will defend its position. He did not know whether Baycol will ever reappear. Analysts fear negligence lawsuits could cost the company as much as $5bn (£3.3bn).

The scandal has led to growing anxiety in the market over the implications for AstraZeneca's own cholesterol treatment, Crestor. It is being reviewed by the drug authorities ahead of a planned launch next year. The market for these drugs is massive, and Crestor could prove a blockbuster. But in the current climate there are concerns that America's drug body, the FDA, will take a tough line on all new products seeking approval.

The anthrax attacks in the US have provided a silver lining for Bayer. Its antibiotic drug Cipro is the approved treatment and Bayer has been working to meet demand.

But it may not prove the windfall everyone thought. The US government has done some tough bargaining. The next batch of more than 100m tablets will be supplied at just 95 cents each, compared with the $1.77 Bayer wanted.