Generic player, Teva Pharmaceuticals Industries Ltd. (TEVA) recently settled its patent dispute with AstraZeneca (AZN) related to its generic version of AstraZeneca’s Nexium. The companies entered into another agreement as well, related to Teva’s generic version of AstraZeneca’s Prilosec.

Under the terms of the Prilosec agreement, Teva will continue to market its generic version of the product in the U.S. and will make a one-time payment to AstraZeneca, which will release Teva from liabilities associated with its “at-risk” launch of its generic version of Prilosec.

Meanwhile, under the terms of the Nexium agreement, Teva will be allowed to market its generic version of Nexium on May 27, 2014, or earlier in certain circumstances. Financial details were not provided. Nexium, a second-generation proton pump inhibitor (PPI) for ulcers and acid-reflux disease, is an important product in AstraZeneca’s portfolio. Nexium sales came in at $5.2 billion in 2008.

We view the settlement of these patent disputes as a positive for Teva. With this agreement, the company will have the right to launch its generic version of Nexium in 2014 with the expiry of the first patent on the drug.

Over the years, Teva has been very active in entering into settlement agreements. The company’s record in successfully resolving patent challenges has contributed to its growth, and challenging patents continue to be an important part of the company’s generic product selection and development strategy.

Active patent challenges require litigation, thereby leading to higher general and administration expenses. Therefore, the settlement of these challenges accelerates the availability of low cost generic products and also removes uncertainties and expenses associated with litigation.

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