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AstraZeneca Shares Leap on Nexium Settlement Deal

AstraZeneca has settled a U.S. patent dispute with India's Ranbaxy Laboratories over its top-selling drug, ulcer pill Nexium, securing future sales and boosting its shares 10 percent.

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CNBC.com

Under the deal Ranbaxy will be allowed to start selling a cheap, copycat version of Nexium on May 27, 2014, which marks the expiry of the earliest patents on the medicine, the two companies said on Tuesday.

Ranbaxy will have 180 days of exclusivity as the only distributor for generic Nexium.

The deal is a relief for AstraZeneca investors, who had feared revenues from Nexium could fall off a cliff in the face of generic drugs.

Morgan Stanley analysts said U.S. Nexium sales were worth around 2 pounds ($3.95) per share and accounted for approximately 15 percent of near-term earnings forecasts.

A AstraZeneca spokesman said the settlement would not of itself lead to any changes to its 2008 earnings outlook.

Shares in the Anglo-Swedish drugmaker staged their biggest gain in six years, jumping more than 10 percent before settling 9.4 percent higher at 21.67 pounds by 8:30 a.m. London time, while Ranbaxy gained 11 percent in Mumbai on the profitable arrangements for the Indian group.

Ranbaxy will also benefit before 2014 from an agreement allowing it to formulate a portion of AstraZeneca's U.S. supply of Nexium from May 2010, with the active ingredient in the drug, esomeprazole magnesium, being made from May 2009.

Ranbaxy 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's blockbuster 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.

Teva Could Fight On

There had been speculation a 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.

Panmure analysts said the deal removed a major overhang for the stock and Nomura Code said it should boost sentiment, though there was still "a significant chance" that Teva Pharmaceutical Industries would press ahead with its attempts to overturn the Nexium patents.

The deal is also good news for U.S. drugmaker Merck, which collects a royalty on U.S. sales of Nexium.

Merck has also entered into the settlement deal with Ranbaxy.

AstraZeneca and Ranbaxy have filed a Consent Judgment with the U.S. District Court for the District of New Jersey reflecting the terms of the settlement agreement and will file with the Federal Trade Commission and Department of Justice.

AstraZeneca Chief Executive David Brennan said the deal gave stability and would allow the company to continue investing substantially in its pipeline of new medicines.

"We continue to have confidence in the strength of our patents and will vigorously defend our intellectual property," he added.

AstraZeneca also faces a generic threat to its second-biggest drug Seroquel and could, in theory, face imminent generic competition in the United States to the schizophrenia drug, since a 30-month stay on approvals expired last month.