(Updates with closing share prices in fifth paragraph, Mylan comment in 12th paragraph.)
March 31 (Bloomberg) -- The U.S. Supreme Court agreed to hear an appeal by Teva Pharmaceutical Industries Ltd. in a move that may delay generic competition to the company’s top-selling Copaxone multiple-sclerosis drug and alter how patent appeals are handled. Teva rose on the news.
The justices today said they will hear Teva’s bid to revive a patent that would protect Copaxone from generic rivals until September 2015. Without that patent, Teva would lose legal protection this May on Copaxone, which brings in $3.2 billion in annual U.S. sales and accounts for more than half its profit.
High court review is a setback to drugmakers that were planning to offer generic versions in May: Momenta Pharmaceuticals Inc., which has developed a version with Novartis AG’s Sandoz, and Mylan Inc. Should those companies press ahead with their plans, they will be at risk of having to compensate Teva for lost sales if the company wins its Supreme Court appeal.
“The generic filer will have to think if it wants to launch before the case is settled and run the risk of paying large fines,” said Ori Hershkovitz, a managing partner at Sphera Funds Management Ltd. in Tel Aviv, which holds Teva shares.
Teva American depositary receipts, each representing one ordinary share, rose $3.39, or 6.9 percent, to $52.84 in New York trading. That represented the biggest one-day percentage rise for the ADRs since Aug. 9, 2011. Momenta fell 16.9 percent to $11.65 and Mylan was unchanged at $48.83.
The court will hear arguments and rule during its 2014-15 term, which starts in October and runs through the following June. Any delay in generic-drug competition would be a windfall for Teva, which collects $8.8 million a day from its blockbuster drug. Copaxone already is facing competition from Biogen Idec Inc.’s Tecfidera treatment.
While Hershkovitz said he thought the generic-drug companies would be willing to risk going to the market, Jonathan Kreizman, an analyst at Bank of Jerusalem, disagreed, saying, “Teva has a good case with the particular patent.”
Teva, based in Petach Tikva, Israel, said in a statement that it’s “pleased that the court has agreed to hear its appeal” and it “remains committed to pursuing all options to protect its intellectual property for Copaxone.”
Novartis AG, based in Basel, Switzerland, said it believes the patents are invalid.
“Together with our collaboration partner Momenta, we look forward to marketing an affordable, high-quality generic version of Copaxone at the earliest possible opportunity,” said Julie Masow, a spokeswoman for Novartis.
Momenta, based in Cambridge, Massachusetts, had no immediate comment.
Mylan said in a statement that its 2014 earnings estimates hadn’t changed. The company, which is based in Canonsburg, Pennsylvania, didn’t say whether it would start selling a generic version before the Supreme Court ruled.
A ruling last year by the U.S. Court of Appeals for the Federal Circuit upheld four Teva patents that expire in May while invalidating a separate patent that would have blocked generic competition until September 2015.
The appeals court, reversing a trial judge, said the invalidated patent didn’t clearly outline what Teva claimed was invented. The patent contains ambiguities that make it unclear what molecular weights were used to develop the product, the court ruled.
In its Supreme Court appeal, Teva argued that the Federal Circuit, which specializes in patent cases, should have deferred to a trial judge’s reading of the patent.
The Federal Circuit’s longstanding approach is to review patents without giving any weight to the trial judge’s interpretation. In February, a divided 6-4 court affirmed that policy in another case, which may have led to the high court taking this case, said David Long, a patent lawyer with Kelley Drye in Washington.
The definition of a term or phrase in a patent is key to all that follows in a case, be it legal arguments over its validity or presentation to a jury of what the patent covers. The appeals court overturns patent interpretations by trial judges 32 percent of the time, according to a study published in September by American University Professor J. Jonas Anderson and University of California at Berkeley Professor Peter Mennell.
“It goes to the heart of patents: What does the patent cover and, more specifically, who decides that issue,” Long said. “Whatever the Supreme Court decides will impact all industries -- mobile phones to pharmaceuticals -- because the value of any patent depends on what it covers.”
Teva argued that the interpretation of patents is “a truly foundational question” of such litigation, and the Federal Circuit’s policy injects uncertainty in every case. Had the appeals court considered only whether the judge had “clearly erred,” the patents would have been upheld, Teva said.
Momenta, Sandoz and Mylan all urged the Supreme Court to reject the appeal without a hearing.
Meanwhile, Teva is trying to switch patients over to a 40- milligram dose of Copaxone before the 20-milligram generics hit the market. The smaller dose must be injected daily, compared with three times weekly for the 40-milligram dose.
In November, Chief Justice John Roberts refused to put the Federal Circuit ruling on hold while the high court decided whether to take up Teva’s appeal.
The case marks a trend in which the Supreme Court has taken a greater interest in patent law as Congress considers legislation to deal with certain litigation practices. Earlier today, the high court heard arguments on whether software is eligible for patent protection. It also is considering when the loser in a patent case should pay the winner’s legal fees.
The case is Teva v. Sandoz, 13-854.
--With assistance from David Wainer in Tel Aviv.