By Blake Brittain

July 13 (Reuters) - A U.S. appeals court on Monday revived a lawsuit brought by generic drugmaker Teva Pharmaceuticals TEVA.TA that accuses Eli Lilly LLY.N of breaching a settlement agreement that allowed Teva to market a generic version of Lilly's osteoporosis drug Forteo.

The Chicago-based 7th U.S. Circuit Court of Appeals reversed a lower court's decision that had found the agreement expired before Lilly allegedly broke it, giving Teva a new chance to prove that Lilly breached their contract.

Spokespeople for the companies did not immediately respond to requests for comment on the 7th Circuit's ruling.

Lilly first sued Teva in 2016, arguing that Teva's proposed generic of Forteo would infringe Lilly's patents. The companies settled the case in 2018 with a deal that allowed Teva to launch its generic as early as 2019, a week before the relevant Lilly patents expired.

The U.S. Food and Drug Administration separately granted a Lilly application for three more years of Forteo exclusivity in 2020. Teva launched its generic in December 2023.

Teva sued Lilly in 2024 for breaching their agreement, arguing that Lilly's new exclusivity period unlawfully delayed its generic launch.

An Indiana federal court dismissed Teva's case last year. U.S. District Judge Matthew Brookman said the agreement was no longer in effect after the Lilly patents expired.

A three-judge 7th Circuit panel reversed the ruling on Monday and sent the case back to Indiana.

The agreement "simply does not tell us whether or when the Settlement Agreement expired, or whether or when the relevant covenants expired," the 7th Circuit said. "Those questions cannot be resolved in Lilly’s favor based solely on the text of the Settlement Agreement and the complaint."

The case is Teva Pharmaceuticals USA Inc v. Eli Lilly & Co, 7th U.S. Circuit Court of Appeals, No. 25-2125.

For Teva: Brian Burgess of Goodwin Procter

For Lilly: Melissa Sherry of Latham & Watkins