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by Susanna Twidale

A settlement reached by pharma giant AstraZeneca over the patent for its best-selling drug Nexium has led to a swathe of upgrades and positive sentiment for the company.

The deal ends legal wrangling which first began in 2005 with India’s Ranbaxy Laboratories and means that Astra’s patents over the drug will be upheld, protecting its sales until 2014. Dresdner Kleinwort analyst Tim Franklin says the agreement ‘significantly de-risks the business,’ as he had valued the potential loss of Nexium to the company at £6 per share, a significant portion of its current trading level around £21.

‘We had a worst case target of £17 and a base case of £25. Our previous target was a blend of these two extremes assuming a 70:30 probability (worst:base). Adjusting for Nexium increases our target to £23.50,’ he says justifying the upgrade in recommendation to ‘buy’ from ‘hold’.

The news also led to upgrades from Cazenove’s David Adlington, to inline from underperform, and ING’s David Seemungal to hold from sell. Both agreed that the the deal significantly reduces Astra’s risk profile. Evolutions’ Peter Cartwright says that Astra’s low rating ‘has derived in part, from a number of near-term specific threats,’ including the threat of generic launches of Nexium. ‘The removal of one of these threats should be reflected in the share price rising to narrow the PE discount to an international peer group,’ he says.

JP Morgan analyst Craig Maxwell, however, took a contrary view to the others and downgraded his recommendation from ‘neutral’ to ‘underweight’ and trimmed his price target by 3p to 2042p. He says that his future forecasts for the company are below consensus because his models take into account the downside potential to the company of other key product patents expiring. Another lead product Seroquel, is also under generic threat and this still poses a risk to the company.