April 15 (Bloomberg) -- AstraZeneca Plc, the U.K.'s second- largest drugmaker, and Indian rival Ranbaxy Laboratories Ltd. jumped after settling a patent infringement lawsuit over the European company's top-selling ulcer treatment Nexium.

AstraZeneca rose 7.1 percent, the most since January 2003, in London trading and Ranbaxy, India's biggest drugmaker, gained 8.6 percent on the Bombay Stock Exchange, the most since July. Ranbaxy can begin selling a copy of Nexium in 2014 and will start making the active ingredient for AstraZeneca next year.

The agreement means London-based AstraZeneca faces one fewer generic challenge to its biggest product and Gurgaon, India-based Ranbaxy will be able to sell its copy without competition for 180 days. The ulcer medicine brought in $5.22 billion for the U.K. drugmaker in 2007, 2 percent less than in 2006 because of competition from generic Prilosec, an older ulcer medicine, and lower prices in the U.S.

``It's understandable that we see a little bit of a sigh of relief now that this deal is done, but it doesn't remove all of the threats to Nexium,'' analyst Mike Ward of Nomura Code Securities in London said in a telephone interview.

AstraZeneca rose 141 pence to close at 2,122 pence in London, giving the company a market value of 31 billion pounds ($61 billion). Ranbaxy gained 38.25 rupees to close at 481.8 rupees. That gives the company a market value of 180 billion rupees ($4.5 billion).

Patent Expiry

Ranbaxy can start selling a copy on May 27, 2014. Patents on Nexium expire from 2014 to 2019, the U.K. drugmaker said. Teva Pharmaceutical Industries Ltd. and Indian generic drugmaker Dr. Reddy's Laboratories Ltd. are also challenging the patent and AstraZeneca plans to continue litigation against them, Chief Executive Officer David Brennan said.

``The agreement allows us to spend more of our time and money in the laboratory and less in the courtroom,'' Brennan said in a telephone conference with journalists.

JP Morgan Cazenove Ltd. analysts raised their rating on AstraZeneca shares to ``in-line'' from ``underweight'' today, citing the potential effect of the settlement on other challenges to AstraZeneca's Nexium patents.

``In effect it has put a `cork in the bottle' stopping the remaining generic challenges to Nexium coming from Teva and Dr. Reddy's,'' analyst James Millett and colleagues wrote in a note to clients. ``Since we are unlikely to see a court trial until the first half of 2009 at the earliest, we believe the generic risk surrounding Nexium has greatly diminished in the near term.''

`Valid and Enforceable'

Ranbaxy conceded that six patents on the product were ``valid and enforceable,'' AstraZeneca said. The Indian company also accepted that its proposed generic medicine would infringe four of the patents if it were sold without a license, AstraZeneca said.

``We are pleased with the agreement which will provide certainty as to the launch of a generic formulation of Esomeprazole magnesium in the U.S.,'' Malvinder Singh, Ranbaxy's chief executive, said in a statement.

AstraZeneca and Ranbaxy have separately agreed that Ranbaxy will make a portion of AstraZeneca's U.S. supply of Nexium from May 2010 and manufacture the active ingredient in Nexium from May 2009. The companies also said that Ranbaxy will distribute authorized generic versions of its high blood pressure medicine Plendil and stomach acid drug Prilosec.

`Comprehensive'

Ranbaxy expects to earn revenue of as much as $1.5 billion from when it starts supplying AstraZeneca next year until the end of its six-month exclusive marketing rights in 2014, Singh said today in a telephone interview.

``This is the biggest and the most comprehensive settlement to date by any generic company globally,'' he said.

Brennan wouldn't disclose the terms of the contracts.

AstraZeneca expects to stop producing the active ingredients in all its products and outsource the work to other companies within five to 10 years, the chief executive said. The drugmaker has also established a site in China for outsourcing, he said.

To contact the reporter on this story: Andrea Gerlin in London at agerlin@bloomberg.net

Last Updated: April 15, 2008 12:15 EDT