UPDATE 3-US court finds King Pharma Altace patent invalid

(Adds analyst note on Skelaxin hearing, updates share price)

By Bill Berkrot

NEW YORK, Sept 11 (Reuters) - A federal appeals court on Tuesday ruled that King Pharmaceuticals Inc's (KG.N: Quote, Profile, Research, Stock Buzz) patent for its biggest product, the blood-pressure medicine Altace, was invalid, opening the door to competition from cheap generic versions of the drug.

King shares fell as much as 11.7 percent on the news before recovering some of those losses.

The U.S. Court of Appeals for the Federal Circuit reversed a lower court ruling that had found India's Lupin Ltd (LUPN.BO: Quote, Profile, Research, Stock Buzz) had infringed the patent by seeking regulatory approval to make a generic version of the drug, known chemically as ramipril.

"We conclude that the subject matter of the asserted claims of the 722 patent would have been obvious. Accordingly, we reverse," the appeals court said in its 18-page decision.

As the court found the ramipril patent to be "obvious" and therefore invalid, it saw no reason to address Lupin's other arguments in favor of reversal, court papers said.

Investors have been concerned about patent challenges to King's two biggest products -- Altace and the muscle relaxer Skelaxin -- and the company's share price has been declining since mid-July. One of their biggest fears appears to have come to pass with this court ruling.

"Altace accounts for 35 percent of revenue," said Angela Larson, an analyst with Susquehanna Financial Group who had expected King to prevail in court. "Without Altace they have to start questioning the value of maintaining a primary care sales force."