AstraZeneca rises 7% after Ranbaxy agrees Nexium deal

Shares in AstraZeneca soared by more than 7 per cent yesterday after the group settled a long-running dispute with the Indian drug maker Ranbaxy over the production of its biggest-selling drug, Nexium.

The row blew up in November 2005 when AstraZeneca sued Ranbaxy over its intention to produce a generic version of the ulcer treatment, which makes the Anglo-Swedish group $5.22bn (£2.66bn) a year. Under the terms of the deal, Ranbaxy will be able to produce the drug from May 2014, which is when the first patents held by AstraZeneca expire. A spokesman for AstraZeneca confirmed that no damages had been paid by Ranbaxy, but that the Indian firm did accept AstraZeneca's patents.

The agreement also allows Ranbaxy to make Nexium for the US market under licence from May 2010 and has given the Indian firm distribution rights over two of AstraZeneca's other treatments, Plendil and Prilosec.

Market sources hailed the settlement as a victory for AstraZeneca and for other drug companies trying to assert their patents. "The decision represents a complete climb down for Ranbaxy," Peter Cartwright, an analyst at Evolution, said. "Ranbaxy have been forced to recognise the value of the patents."

AstraZeneca's shares were up 141p yesterday to 2122p a share yesterday, with other sector watchers pointing out that the group's stock has been depressed by the overhanging possibility of expensive litigation.

"AstraZeneca's shares have underperformed in the last 12 months," said WestLB's Simon Mather. "When the stock was down at £18 a share [they traded at £17.48 on 17 March] it was because the market was discounting US sales of Nexium."

According to analysts the agreement will cost AstraZeneca about $1bn of sales, but that the group would save by avoiding costly court cases. The winner of such litigation can normally expect to recover costs.

AstraZeneca is not completely free of legal wrangles concerning Nexium. It has two writs outstanding against another Indian group, Dr Reddy's, and Israeli company Teva.

Both companies have lodged proposals to manufacture their own generic version of the drug. Even though Ranbaxy opted to recognise AstraZeneca's patents, they remain to be tested by a court.