What happened

Shares of Alkermes (NASDAQ:ALKS) closed almost 11% higher in Wednesday trading on news that Biogen (NASDAQ:BIIB) had successfully defended its patent on its multiple sclerosis drug Tecfidera. That's a win for Alkermes because it developed a second-generation version of Tecfidera called Vumerity, which it licensed to Biogen.

So what

If the Patent Trial and Appeal Board (PATB) had ruled in favor of challenger Mylan (NASDAQ:MYL), that company could have launched a generic version of Tecfidera that would have competed with Vumerity.

Vumerity is arguably a better drug than Tecfidera, which can cause  diarrhea and nausea in some patients, but patients that don't suffer from those gastrointestinal issues with it would likely opt for a cheaper generic version. And insurance companies might have even required patients to try the generic before letting them try Vumerity.

This patent win will give Biogen until 2028 to get patients to switch over to Vumerity, maximizing Alkermes' royalties on the drug.

Court building

Image source: Getty Images.

Now what

Alkermes and Biogen aren't out of the woods yet. Mylan has also filed to challenge patents in the District Court of Western Virginia based on different grounds. And other generic-drug makers have challenged patents in the District Court of Delaware. The PATB ruling likely gives Biogen the upper hand in those cases, but different judges could rule differently.

Unfortunately, dealing with patent challenges is just one of those issues that investors in drugmakers have to deal with. To reduce the risk, investors can look for well-diversified companies where one drug doesn't provide an outsize portion of total revenue, as Tecfidera does for Biogen.