AstraZeneca Plc has settled a US patent dispute with India's Ranbaxy Laboratories Ltd over its top-selling ulcer pill Nexium, securing future sales of the product and boosting its shares 8 percent. The deal removes the biggest single overhang for the stock and could mark a turning point for investors, analysts said.
Under the deal Ranbaxy will start selling a cheap, copycat version of Nexium on May 27, 2014, when the first of a series of patents expire, the companies said on Tuesday. Ranbaxy will be the exclusive generic distributor for the first six months.
The deal is a relief to shareholders, who had feared revenues from the $5-billion-a-year blockbuster could fall off a cliff in the face of generics. Morgan Stanley analysts said US Nexium sales were worth around 2 pounds per share and accounted for approximately 15 percent of near-term earnings forecasts.
Dresdner Kleinwort raised the stock to "buy" from "hold". The Anglo-Swedish drugmaker's shares staged their biggest gain in six years, adding as much as 11 percent before settling 8 percent higher at 21.38 pounds by 1320 GMT, though AstraZeneca said the settlement would not of itself lead to any changes in the 2008 earnings outlook.
Ranbaxy gained 8.6 percent in Mumbai and CEO Malvinder Singh hailed the deal as "extremely positive" for the Indian group. Ranbaxy will benefit before 2014 from an agreement allowing it to formulate a portion of AstraZeneca's US supply of Nexium from May 2010, with the active ingredient in the drug, esomeprazole magnesium, being made from May 2009.
And it has additional rights to distribute authorised generic versions of two older AstraZeneca products - heart drug Plendil, or felodipine, and the 40 mg version of ulcer pill Prilosec, or omeprazole.
Nexium is the second-biggest prescription medicine globally, with sales of $5.2 billion in 2007. Only Pfizer Inc's cholesterol medicine Lipitor, on $12 billion, sells more. But its future has been under cloud with the expiry this week of a 30-month stay period blocking regulatory approval of a generic version.
"The agreement allows us to spend more of our time and money in the laboratory and less in the courtroom," AstraZeneca's CEO David Brennan told reporters in a conference call.
The Nexium news marks the continuation of a recent good run for Brennan. Two weeks ago his team reported surprisingly good clinical trial results for cholesterol fighter Crestor, which some analysts now believe could become a $8-9 billion product.
There had been speculation a Nexium settlement was possible, since Ranbaxy does not have a reputation for aggressive launches and it would have been exposed to paying large damages if a court later backed AstraZeneca's patent claims. But nothing was certain. "This will obviously be positive as it gives clarity to the situation," said ING pharmaceuticals analyst David Seemungal.