Pfizer bought some extra time for its blockbuster cholesterol drug Lipitor (atorvastatin) by reaching a settlement with Ranbaxy Laboratories delaying the US launch of a generic version of the world’s top selling pharmaceutical brand.

Under the deal, Ranbaxy will gain license to sell generic versions of Lipitor and Caduet, in the US effective November 30, 2011 – about 20 months after the main patent on atorvastatin is scheduled to expire. (Caduet combines the active ingredients of Lipitor and Norvasc to treat high blood pressure and high cholesterol). Pfizer initially sued to block introduction of a generic Lipitor version until 2016.

Sales of Lipitor in 2007 sales were at $12.7 billion – roughly one-fourth of Pfizer’s total company sales.

Under the agreement, Ranbaxy will also have a license to sell atorvastatin on varying dates in an additional seven countries, including: Canada, Belgium, Netherlands, Germany, Sweden, Italy and Australia. Ranbaxy and Pfizer have also resolved their disputes regarding the atorvastatin compound in Malaysia, Brunei, Peru and Vietnam, the companies said.

In an investor note this morning, Deutsche Bank analyst Barbara Ryan wrote: “The delay in generic availability adds about $5 billion in revenues in both 2010 and 2011 or roughly $4 billion in free cash flow each year. The current annual dividend payment is about $9 billion and Pfizer’s free cash flow with this settlement should remain at about $18 billion per year through 2011.”