April 14 (Bloomberg) -- Eli Lilly & Co. won a court ruling that will prevent generic-drug makers from selling low-cost versions of its $4.4 billion-a-year Zyprexa schizophrenia drug before 2011.

U.S. District Judge Richard L. Young's decision to uphold the patent on the key ingredient in Zyprexa is a defeat for Ivax Corp., Dr. Reddy's Laboratories Ltd. and Teva Pharmaceutical Industries Ltd., which wanted to sell copies of the drug. The ruling was posted on the Indianapolis court's Web site today.

Zyprexa accounts for a third of Lilly's revenue and has been its top seller since generic competition emerged to the Prozac antidepressant in 2001. The ruling may have a ripple effect by shaping how investors view the outcome of patent cases involving Pfizer Inc.'s cholesterol drug Lipitor and the Plavix blood thinner sold by Bristol-Myers Squibb Co., analysts said.

``If we were just waiting for Lilly, it wouldn't be such a big case,'' said Trevor Polischuk, a pharmaceuticals analyst at Orbimed Advisors in New York, before the ruling was announced. ``People are looking at the three of these, and the majority rules. If two or more go against the branded companies, then we will have bloodshed.''

Polischuk's firm doesn't have a ratings system.

Investors were betting on a Lilly victory yesterday, sending the Indianapolis-based company's shares up 6.1 percent on the news that Young's ruling would come today. Lilly shares fell $1.96, or 3.4 percent, to $55.16 as of 4:16 p.m. New York time today in New York Stock Exchange composite trading. They have declined 22 percent in the past year.

Appeal Likely

Shares of Miami-based Ivax declined 5 cents to $18.43 as of 4:16 p.m. New York time on the American Stock Exchange. Hyderabad, India-based Dr. Reddy's fell 8.05 rupees, or 1.1 percent, to 736.95 rupees today on the Mumbai stock exchange. Petah, Tikva-based Teva rose 39 cents to $32.52 on the Nasdaq Stock Market.

Zyprexa, prescribed for more than 16 million people in 84 countries since its introduction in 1996, is more expensive than rival drugs such as Johnson & Johnson's Risperdal. Thirty 10- milligram pills of Zyprexa, also approved as a maintenance treatment for bipolar disorder, cost $269.99, according to Drugstore.com. Thirty 2-milligram tablets of Risperdal cost $157.45.

While Zyprexa remains Lilly's top-selling drug, U.S. sales declined 8 percent last year to $2.42 billion as rival drugs, including Bristol-Myers' Abilify, gained ground. Zyprexa's link to weight gain, which can cause diabetes, is partly responsible.

The Zyprexa case is now likely headed to the U.S. Court of Appeals for the Federal Circuit in Washington, which specializes in U.S. patent law. The Federal Circuit threw out the Prozac patent in 2000 after Lilly won the original case in Indianapolis.

The Arguments

``On the initial victory, people tend to give a sigh of relief, and it is not until we get close to the appeal that they factor that into the stock price,'' said Jack Lafferty, senior vice president of equity research at U.S. Trust Co. of New York, in an interview before the decision.

On Aug. 9, 2000, the day the Federal Circuit threw out the Prozac patent, Lilly shares plunged 31 percent, erasing more than $35 billion in market value. Prozac had accounted for a quarter of Lilly's sales in 1999. Lilly's efforts to protect Prozac came to an end in 2002, when the U.S. Supreme Court refused to hear the case.

The three-week Zyprexa trial, which took place in January and February 2004, centered on whether the patent on Zyprexa's main compound, olanzapine, should have been issued by the U.S. Patent and Trademark Office in the first place.

Most at Stake

Ivax and Dr. Reddy's argued that olanzapine was covered by a patent that expired in 1995, the year before Zyprexa was first prescribed. Lilly was only able to extend its patent monopoly by misleading the patent office with a flawed clinical study on beagles, they asserted.

Lilly argued that the patent was properly issued because olanzapine had unexpected properties that weren't covered by the first patent. The drug's commercial success and its use by millions of patients was an indication that other companies would have marketed the drug had they known of those characteristics, Lilly says.

Ivax had the most at stake among the generic-drug makers seeking to sell Zyprexa copies. The company had obtained the right to six months of exclusive sales on five separate dosages of Zyprexa in exchange for being the first to file a challenge to the olanzapine patent.

Dr. Reddy's had the right to marketing exclusivity on one dosage. Teva didn't actively participate in the lawsuit and agreed to abide by Young's ruling.

Lipitor, Plavix

The patent case involving Pfizer's cholesterol treatment Lipitor, meanwhile, has gone to trial, and the sides are awaiting a judge's ruling on the validity of the patent. Lipitor is the world's best-selling drug, with $10.9 billion in sales last year. The case involving Plavix, which Bristol-Myers co-markets with Sanofi-Aventis SA, hasn't gone to trial yet.

In both cases, generic companies claim the patents on the product are either invalid or shouldn't be enforced because of improper actions during the application process before the U.S. patent office.

``The value of this industry is patent protection,'' said David Moskowitz, an analyst with Friedman Billings Ramsey & Co. in Arlington, Virginia, who rates Lilly ``market perform.'' Without it ``this industry doesn't have much to stand on.''

The case is Eli Lilly v. Zenith Goldline Pharmaceuticals, 01cv443, U.S. District Court in Indianapolis.

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Juliann Walsh in Princeton at jwalsh10@bloomberg.net.

Last Updated: April 14, 2005 17:59 EDT