UPDATE 1-King seeks rehearing on Altace patent ruling

(Adds background, share price, analyst comment)

NEW YORK, Sept 12 (Reuters) - King Pharmaceuticals Inc KG.N said on Wednesday it would seek a rehearing with the U.S. federal appeals court that ruled the patent on King's biggest product, high blood pressure medicine Altace, was invalid.

The decision by the U.S. Court of Appeals for the Federal Circuit, which reversed a lower court ruling, would allow the sale of cheaper generic versions of the medicine known chemically as ramipril.

King said the court’s finding that the Altace patent was invalid on the basis of obviousness was not consistent with other recent rulings of the Federal Circuit Court. The company also said it believes Tuesday’s appeals court decision relied on factual inaccuracies.

Altace, which had sales of $163 million in the second quarter, accounts for roughly 35 percent of King’s revenue.

A branded product can quickly lose as much as 80 percent of its revenue once cheaper generic versions appear on the market.

A lower court had found India's Lupin Ltd LUPN.BO had infringed the Altace patent by seeking regulatory approval to make a generic version of the drug. The latest ruling would clear the way for Lupin's generic.

King shares slipped more than 6 percent on Wednesday to close at $12.35 on the New York Stock Exchange after falling more than 7 percent on Tuesday following the appeals court ruling.

The stock has been declining since topping $21 in mid-July as investors have been concerned about the patent challenges to King’s two biggest products -- Altace and the muscle relaxer Skelaxin.

King has been planning to launch a new formulation of the blood pressure medicine in early 2008 with the aim of switching Altace patients to the new drug before the older one faced generic competition. That opportunity may be lost unless the appeals court decision is reversed.

Natixis Bleichroeder analyst Corey Davis lowered his rating on King shares to “sell” earlier on Wednesday and dropped his price target to $9.

“Everything that optimists, us included, thought could break in their favor has not, and almost everything that could have gone wrong has,” Davis said in a research note. (Reporting by Bill Berkrot)