NEW YORK (CNNMoney.com) -- Investors, mark your calendars for round 2 of Big Pharma v. biotech.

The next stage is looming in a key battle over a blockbuster drug patent. Eli Lilly & Co (down $0.78 to $53.61, Charts)., an Indianapolis drugmaker, faces off once again with Ariad Pharmaceuticals (down $0.17 to $4.04, Charts), a Boston-area biotech, on Aug. 7 in U.S. District Court in Boston.

Lilly is still stinging after jurors slapped the company with $65 million in damages from an Ariad lawsuit in May, ruling that two drugs from the larger company had infringed the biotech's patent.

But Lilly is not going gently into that good night. Lilly spokesman Phil Belt said his company will try to get the judge to overrule the decision at the August bench trial. Failing that, Lilly will pursue an appeal.

Ariad CEO Harvey Berger said recently at a Needham conference in New York that he was "delighted at the outcome" of the original trial, and vowed to "prevail at the bench trial."

But investors shouldn't share the CEO's confidence, warned analysts, because the fight isn't over until it's over.

"Lilly is clearly not backing away and they're not fools, so they must have a card up their sleeves," said Charles Duncan, analyst for JMP Securities. "So as a prudent investor I would not count on this going in Ariad's favor. Trade on it as if they're going to lose."

Investors are heeding this cautionary note. Even though the stock spiked 25 percent immediately following its victorious ruling on May 4, Ariad's stock is now down 35 percent from its pre-verdict level and may have bottomed out.

Some think that investors have already priced in a loss, suggesting that Ariad has more room to climb than fall with its current stock value mainly riding on its pipeline.

"Right now there's not a penny of value in this stock for that lawsuit," said Corey William Kasimov, analyst for Oppenheimer. "If they're successful, it's all upside."

Analysts said that Ariad's value is based primarily on AP23573, its experimental treatment for soft tissue and bone sarcoma. Ariad CEO Berger said he expects the drug to begin late-stage testing by the end of the year, and if everything goes well it could be ready to launch in the fourth quarter of 2008. Duncan of JMP Securities projects annual peak sales of $250 million to $400 million.

Ariad's patent does not cover a drug, but a method of treating disease by regulating a certain type of cell activity. In its lawsuit, Ariad accused two of Lilly's drugs as violating its patent: Evista, for the prevention and treatment of osteoporosis in post-menopausal women, totaling $1 billion in 2005 sales, and Xigris, for the reduction of death in patients with severe sepsis, with $214 million in 2005 sales.

Lilly has criticized the patent as being too broad. On the day of the ruling, Lilly's general counsel Robert Armitage said in a press release, "The Ariad position is equivalent to discovering that gravity is the force that makes water run downhill and then demanding the owners of all the existing hydroelectric plants begin to pay patent royalties on their gravity."

On May 4, the jurors ruled that Lilly owed Ariad $65 million in damages for prior sales, and required Lilly to pay Ariad a 2.3 percent royalty on future sales of Evista and Xigris until patent expiration in 2019. This won't make or break Lilly, which totaled $14.6 billion in 2005 sales, but it means a lot more to Ariad, with a net loss of $55 million last year.

"For a company that size to even get the back payment of $65 million is significant in and of itself," said Kasimov of Oppenheimer. "And to get the 2.3 percent royalty on those sales is absolutely meaningful for this company."

To protect itself from the possibility of being sued, California-based Amgen (down $0.44 to $64.41, Charts), the biggest biotech in the world, took a pre-emptive measure to bolster its patents on Enbrel and Kineret, both rheumatoid arthritis treatments. Believing these drugs to be vulnerable to an Ariad lawsuit, Amgen filed for declaratory judgment to legally define their status.

The analysts interview for this story do not own shares of Ariad stock, and their firms have not recently done business with them.

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