Shire ($SHPG) shares slumped Thursday after a U.S. Appeals Court denied its latest attempt to fend off generic versions of its ulcerative colitis treatment Lialda. The drug is one of Shire's top sellers--and the case is one of the first reviewed under a U.S. Supreme Court patent-law ruling.
A lower court previously determined that Actavis' ($ACT) Lialda copies would not infringe on Shire's patents, but the appeals panel narrowed the patent coverage. Shire appealed to the Supreme Court, and that's where the Teva v. Sandoz ruling came in. In light of that ruling--which ordered appeals courts to defer to district-level findings in patent cases, absent a "clear error"--SCOTUS sent Shire's case back to the appeals-court level for reconsideration.
But for the second time, the appeals court decided that Shire's patent rights were narrower than the district court had determined. The infringement case now goes back to that district court for reconsideration under the narrower standard, putting Lialda in jeopardy once again.
Lialda is Shire's second-best seller, with more than half a billion dollars in 2014 sales; it accounts for about 10% of the company's profits, according to Bernstein analyst Ronny Gal. The latest interpretation of Lialda's patent "significantly increases the odds" that Actavis' generic will survive the challenge, Gal wrote in an investor note on Thursday.
So, the window for potential Lialda generics will likely open in 2016, Gal figures, though the latest appeals court decision doesn't guarantee it. FDA approval of those generics also isn't guaranteed, the analyst said, but the odds of Lialda generics hitting the market by the first half of 2017 are now "somewhere around 75%."
Other Lialda patent fights are pending as well, and the odds of generics makers prevailing are now higher, Gal wrote.
Meanwhile, Lialda faces a different kind of challenge at the U.S. Patent and Trademark Office. Hedge funder Kyle Bass--who says he's determined to knock out "questionable" pharma patents using a new legal tool, inter partes review--has targeted one of Shire's patents on Lialda.
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