Pfizer (NYSE: PFE) got a bit of good news last week when the Court of Appeals for the Federal Circuit upheld a lower court's ruling that found Teva Pharmaceutical (Nasdaq: TEVA) had infringed two of the company's patents for Celebrex, an anti-inflammatory drug used to treat osteoarthritis and rheumatoid arthritis. But it wasn't all sunshine and flowers for Pfizer.

Legal mumbo-jumbo
Pfizer has three patents protecting Celebrex listed in the FDA's Orange Book. The company sued Teva in 2004 after the Israeli-based company filed for marketing approval of its generic version of Celebrex with the U.S. Food and Drug Administration.

Last year, the U.S. District Court for the Northern District of New Jersey ruled that all three of Pfizer's Celebrex patents were valid, and that they had been infringed upon by Teva's Abbreviated New Drug Application (ANDA) filing. The lower court issued an injunction preventing Teva from selling its generic drug until December 2015, when the last patent would expire.

The issue in this case is that patent law prohibits getting more than one patent on the same invention. That is, you cannot get a second patent if it claims an invention that was disclosed or would have been obvious in light of the first patent. However, there is also a "safe harbor" rule that applies as long as the second patent is filed in response to the restriction requirement made in the earlier application.

Pfizer had filed a continuation-in-part application, which includes some portion of the original application but also introduces new matter. Pfizer tried arguing that the terminology of the application did not matter, but the appeals court pooh-poohed it. 

This meant the second application was without the safe harbor, and thus the court held that it was invalid for obviousness-type double patenting, a judicially created doctrine that prohibits someone from obtaining an extension of their patent rights by filing a later patent that is not distinct from the first.

Bottom line
The appeals court ruled in Teva's favor when it found that the patent covering use in the treatment of inflammation was invalid. The court also ruled that two other patents covering the active ingredient in Celebrex are valid and were infringed upon by Teva's product. The decision will keep Teva from selling a generic counterpart in the U.S. until May 2014.

This is good news for Pfizer in that it did not lose all of the patents; Celebrex is one of the company's biggest sellers, with global sales totaling $2.3 billion a year, including $1.7 billion in the U.S. alone. However, the decision will effectively cut Pfizer's patent term -- and revenue -- for the drug by one and a half years.

Either party may request a review by the Court of Appeals (or they can appeal to the U.S. Supreme Court), but I think this is unlikely, given that Pfizer was grasping at straws in the first place. I think Pfizer knew it already had patent coverage for the main ingredient, which would cover any use. In trying to get the extended coverage for the treatment of inflammation, the company had nothing to lose.

More to come
This current patent loss comes after Pfizer last month lost the European patent on its Lipitor cholesterol drug. In that case, the Court of Appeal of The Hague found one of its patents on the drug to be invalid.

Fortunately, Pfizer dodged a bullet there, since the same court held that Pfizer's main patent covering Lipitor remains in force and will keep the generic-drug company Ranbaxy from launching a competitor drug before November 2011.

These days, it seems the courts are far more critical of drug patents. This is especially true after the Supreme Court set out new guidelines, which basically set the bar higher in deciding what changes would have been obvious. This heightened scrutiny will be particularly troublesome for patents covering tweaked versions of original drugs, such as those for extended-release formulations.

Last week, a federal court in New Jersey invalidated Bayer's patent on its oral contraceptive Yasmin, ruling in favor of a challenge filed by Barr Pharmaceuticals (NYSE: BRL) that the patent was obvious. That decision could also affect Bayer's protection on Yaz, a related drug that was approved for sale in the U.S. and is protected by the same patent.

Expect generic-drug companies' revenue to jump in the near future, with patents set to expire on Johnson & Johnson's (NYSE: JNJ) Topamax, GlaxoSmithKline's Advair and Lamictal, Wyeth's (NYSE: WYE) Effexor XR, and AstraZeneca's (NYSE: AZN) Casodex.

Lehman Brothers estimates that a quarter of 2008 pharmaceutical revenue will be at risk from generics by 2012. An additional 9% is at risk if brand-name drug companies keep losing patent cases. With billions of dollars at stake and very little to lose, I expect to see a continued increase in generic challenges.

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