UPDATE 3-AstraZeneca sees off Nexium threat with Teva deal

* Teva won't sell generic Nexium in U.S. before 2014

* Deal follows similar Ranbaxy settlement in 2008

* Protects blockbuster Nexium from immediate generic threat * AstraZeneca shares up 1.4 pct, Teva down 0.2 pct

(Adds analyst comments, latest shares)

By Ben Hirschler

LONDON, Jan 7 (Reuters) - AstraZeneca (AZN.L) settled a U.S. patent row over Nexium with Israel's Teva Pharmaceuticals (TEVA.TA) on Thursday, protecting the Anglo-Swedish drugmaker's top-selling heartburn drug from immediate generic competition.

AstraZeneca shares rose 1.4 percent in a weaker market for drug stocks .SXDP by 0915 GMT, while Teva slipped 0.2 percent.

The deal with Teva, the world's biggest generic drug producer, mirrors a similar agreement in April 2008 with Indian firm Ranbaxy Laboratories (RANB.BO), which had also challenged patents on the drug.

In both cases, AstraZeneca has granted a licence allowing the generic firms to start selling a cheap copy of Nexium, or esomeprazole, in the U.S. market on May 27, 2014, when the first of its patents expire.

Ranbaxy, however, has an edge over Teva since it was the first to file for a U.S. generic version of Nexium, entitling it it to 180 days of exclusivity before rivals enter the market.

"This settlement strikes an appropriate balance between protecting the value of our shareholders' investment in Nexium, mitigating uncertainties and addressing the many other costs associated with patent litigation," said AstraZeneca spokesman Neil McCrae.

The deal with Ranbaxy two years ago was seen by analysts at the time as removing the main threat to Nexium but there had been speculation Teva might fight on rather than agreeing to settle.

DR REDDY'S DEAL NEXT?

AstraZeneca's Nexium patent infringement litigation against another Indian company, Dr Reddy's Laboratories (REDY.BO), is still continuing.

"While the challenge from Dr Reddy's remains, along with earlier stage challenges from (Novartis (NOVN.VX) unit) Sandoz and Lupin (LUPN.BO), the odds of these companies winning -- and thus launching an early generic of Nexium -- would appear to have receded given the precedent with Ranbaxy and Teva," said Deutsche Bank analyst Mark Clark.

Morgan Stanley analysts Dr Reddy's posed the only credible risk to Nexium sales before 2014 and predicted AstraZeneca would settle with the company before the end of 2010.

Nexium is AstraZeneca's biggest seller but sales are declining, particularly in the United States, where the firm has been forced to cut prices in an increasingly competitive marketplace.

U.S. sales of the medicine fell 7 percent to $2.1 billion in the nine months to end-September, while global sales were flat at $3.7 billion.

AstraZeneca and Teva also agreed separately to settle patent litigation related to the older heartburn and ulcer drug Prilosec, or omeprazole, under which Teva will make a small payment to AstraZeneca for past infringing of sales. Teva will continue to sell its generic medicine in the United States.

AstraZeneca said the terms of the Prilosec agreement were not financially material.

Merck & Co (MRK.N), which gets a slice of the revenues from both products, also entered into the settlement agreements. (Editing by John Stonestreet, Mike Nesbit)