LONDON—Sharesin AstraZeneca PLC of Londonrose sharply last week after the company settled a legal battle against genericdrug maker Ranbaxy Laboratories Ltd., an Indian firm seeking to put out ageneric version of AstraZeneca's heartburn drug Nexium.
Shares in AstraZeneca jumped nearly 11 percent April 15 afterRanbaxy agreed not to launch a generic version of Nexium until May 2014, whenits patents begin to expire. Shares in Ranbaxy climbed 8.6 percent in Mumbai. 
The lawsuit, filed in the U.S. District Court for the District ofNew Jersey, was dismissed after Ranbaxy conceded that all six patents assertedby AstraZeneca in the patent litigation are valid and enforceable. Ranbaxy alsoaccepted that four of the patents would be infringed by the unlicensed sale ofits proposed generic product.
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Read MoreIn a statement, AstraZeneca CEO David Brennan said he believes theagreement was "the right business decision" and one that gives "increasedclarity and stability."
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Read More"We continue to have confidence in the strength of our patents andwill vigorously defend our intellectual property," Brennan added.
The two companies also entered into two separate agreementsdesignating Ranbaxy as the U.S. distributor for authorized generic versions ofPlendil (felodipine) and 40-mg Prilosec (omeprazole). Ranbaxy will becompensated for its distribution services on standard commercial terms.
"It is a very significant and substantial deal," Ranbaxy CEOMalvinder Singh told Reuters in an interview. "We will get revenue every singleyear starting in 2009."
Merck & Co. Inc., through KBI Inc. and KBI-E and under theterms of Merck's restructured partnership with AstraZeneca announced in 1998,has also entered into the settlement agreement.
Since the legal battle began, investors have expressed concernthat a generic launch could slash sales of Nexium, which is AstraZeneca'sbiggest seller and had sales of nearly $5 billion last year. Analysts have alsoargued that AstraZeneca should trade at a discount to its competitors becauseof the uncertainty over litigation. AstraZeneca is still in litigation overNexium with generic drugmakers Teva Pharmaceutical Industries and Dr. Reddy'sLaboratories, which are also seeking to market a generic formulation of theproduct.
However, following the news, securities firm Cazenove upgradedAstraZeneca to "in-line" from "under-perform," stating significant downsiderisk to the shares had been removed. Other firms have followed suit.
Barclays analyst Andy Penman told MarketWatch the terms of the settlement give a "very strongindication" that the patents over Nexium will be upheld in any futurelitigation.
Analysts say Ranbaxy's revenuescould increase by $500-600 million in 2014 alone on account of the deal.Prashant Vaishampayan and Priti Arora, analysts with Kotak Securities Ltd,wrote in their latest report that the "settlement with AstraZeneca on genericNexium serves Ranbaxy's long-term interest the best."
