Drugmaker Eli Lilly and Co. (LLY) said Friday that an appeals court has overturned a lower court decision and ruled in favor of the company in a patent litigation with Ariad Pharmaceuticals Inc. (ARIA) and its co-plaintiffs.

An earlier jury decision in the U.S. District Court of Massachusetts and a subsequent bench trial ruling, had deemed that a patent owned by Harvard University, the Massachusetts Institute of Technology and the Whitehead Institute and licensed to Ariad, was valid and infringed by Lilly's sales of its osteoporosis drug Evista and sepsis treatment Xigris.

The Court of Appeals for the Federal Circuit in Washington, D.C. on Friday reversed that decision, saying four of Ariad's patent claims were invalid due to inadequate written description.

However, Ariad pointed out that the Appeals Court did not rule on other validity issues raised by Lilly or the findings of infringement. In addition, the Appeals Court affirmed the District Court's ruling that the patent's enforceability is not impaired by inequitable conduct in its prosecution.

While we are disappointed by the Appeals Court's ruling, the decision involves only one of the technical requirements for validity and focuses solely on the four asserted claims. We believe that this decision may allow us to pursue further legal action and judicial review of the ruling, Harvey Berger, Ariad's chairman and chief executive officer, said in a statement.

Robert Armitage, senior vice president and general counsel for Lilly, said, We are pleased with today's ruling from the Court of Appeals and believe that the Court fairly applied long-standing patent law principles. Over many years the Court's rulings have provided effective protection for biotechnology inventions while rejecting attempts at claims extending.

Evista or raloxifene hydrochloride is one of Eli Lilly's best-selling drugs and is intended to reduce both the risk of spinal fractures due to osteoporosis and the risk of invasive breast cancer in postmenopausal women with osteoporosis, while Xigris or drotrecogin alfa is used in the treatment of adult high-risk severe sepsis or organ dysfunction.

In June 2002, Ariad, the Massachusetts Institute of Technology, the Whitehead Institute for Biomedical Research and the President and Fellows of Harvard College in the U.S. District Court of Massachusetts, sued Lilly, alleging that sales of two of Lilly's products, osteoporosis drug Evista and sepsis treatment Xigris, infringed the patent related to the discovery of natural cell signaling phenomenon in the human body. On this basis, the petitioners sought royalties on past and future sales of these products.

Later in June 2005, the U.S. Patent and Trademark Office commenced a re-examination of the patent in order to consider certain issues pointed out by Lilly relating to the validity of the patent.

In May 2006, a jury in the U.S. District Court of Massachusetts in Boston passed a decree saying that the patent is valid and infringed by Lilly's sale of Evista and Xigris. The Jury also awarded the plaintiffs about $65 million in back royalties and a 2.3% royalty on future U.S. sales of Evista and Xigris until the patent's expiration in 2019.

Additionally, a separate bench trial with the U.S. District Court of Massachusetts was held on Lilly's contention that the patent is unenforceable.

Lilly appealed the decision to the Court of Appeals for the Federal Circuit in Washington, D.C.

Eli Lilly shares closed Friday's regular trading session at $33.01, down 89 cents or 2.63% and lost an additional penny in after hours trading, while Ariad shares closed Friday's regular trading session at $1.35, down 4 cents or 2.88%.

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