Amgen Wins Appeals Court Ruling Upholding Patents on Enbrel

(Bloomberg) -- Amgen Inc. won an appeals court ruling that would block a biosimilar of its top-selling rheumatoid arthritis drug Enbrel by Novartis AG's Sandoz until 2029.

Two patents on the drug were upheld Wednesday by the U.S. Court of Appeals for the Federal Circuit. Sandoz, which is seeking to sell a copycat version that it calls Erelzi, had argued that the patents shouldn't have been issued.

Enbrel, which is heavily promoted in ads featuring pro golfer Phil Mickelson, generated more than $5 billion in sales last year, 22% of Amgen's revenue. It's been on the market since 1998, and the ruling gives Amgen a total of 31 years of exclusivity.

Amgen rose 7% on the news, to $252.45 at 12:41 p.m. in New York trading.

Sandoz can ask the three-judge panel to reconsider its decision, or request that the case be put before all active judges of the court. That the decision was 2-1 could give it better odds, but such requests are rarely granted. Sandoz said it's ready to go all the way to the U.S. Supreme Court.

“Sandoz will continue its efforts to make Erelzi available to U.S. patients with autoimmune and inflammatory diseases,” Carol Lynch, head of Sandoz's U.S. unit, said in a statement. “Our company respects valid intellectual property, however Sandoz continues to believe the patents asserted by Amgen are not valid, and that it should not be able to use them to extend the drug's exclusivity.”

Erelzi has had U.S. Food and Drug Administration approval to be sold in the U.S. since 2016, but the patents have blocked Sandoz from entering the market. Biosimilars, which are copies of the living organisms used to create biotech drugs, have had a harder time getting traction in the U.S. than in Europe because of patents and regulatory delays.

The patents in this case, which cover the drug's active protein, etanercept, and a process to make the drug, expire in November 2028 and April 2029, respectively. Enbrel blocks the action of tumor necrosis factor, or TNF, a protein that regulates immune cells. When the body produces too much TNF, it can cause the immune system to attack healthy tissue and lead to inflammation.

Novartis had conceded infringement of the patents, a common legal tactic that allows the two sides to focus on the validity of the patents. The original patent on Enbrel expired in 2012.

Amgen's Immunex, then a standalone company, bought the patent rights from Roche Holding AG since both companies were working in the same TNF area, though the companies said Roche retained ownership of them.

The dissent by Circuit Judge Jimmie Reyna hinged on a legal theory that prevents inventors from later filing an application that's essentially the same as an earlier patent just to extend their rights. It's a stricter requirement than if two patents have different owners.

The majority ruled that Roche still had substantial ownership rights in the patents so the newer ones were distinct from an earlier Immunex patent. Reyna called Roche's rights “illusory,” and said it enabled “gamesmanship” by Amgen to extend patent protection for Enbrel.

Sandoz also unsuccessfully argued that the Enbrel patents didn't adequately describe the compound Roche claimed to have invented, and that the patents merely combined ideas already known before the applications were filed. The trial court had ruled that Enbrel's success was “largely rooted in the unexpected ability of etanercept” to bind and neutralize TNF.

Amgen's win “removes a binary overhang” and further supports Jefferies analyst Michael Yee's thesis that the company has a “clean story with several potential blockbuster assets coming in the pipeline.” Yee sees less downside risk for shares as the appeals court ruling enables more investors to buy shares ahead of data through the end of the year.

The favorable appeals court ruling offers between $5 and $12 of upside potential for Amgen shares, according to Mizuho analyst Salim Syed. He argued that any move higher than that would suggest the removal of an overhang and a re-rating of the stock's current level.

Enbrel, which is approved as a treatment for rheumatoid arthritis and plaque psoriasis, competes with branded drugs such as AbbVie Inc.'s Humira and Johnson & Johnson's Remicade and Stelara, among others.

The case is Immunex Corp. v. Sandoz Inc., 20-1037, U.S. Court of Appeals for the Federal Circuit

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