AstraZeneca hits hurdles

AstraZeneca's management will have been relieved that the Christmas break helped distract from some discouraging news flow. First, the pharmaceutical company struggled to get its blood thinning product Brilinta past the US Food and Drug Administration (FDA), which demanded additional data analysis from the late-stage trials. Although the Brilinta clinical trials had positive results, the PLATO trial found less benefit for patients in North America and the question now is whether this is just a statistical anomaly, or the hint of a deeper problem with the trial design.

AstraZeneca also had to write off a $445m (£285m) investment in Motavizumab, a mono-clonal antibody for the treatment of lung infections, which it inherited after the takeover of Medimmune. The drug was supposed to be the successor to Astra's best-selling vaccine Synagis but failed to show any real superiority to that drug in clinical trials, and the FDA had expressed its reservations as early as 2008.

Another clinical setback was the voluntary withdrawal of Astra's experimental painkiller Medi-578, a nerve growth inhibitor and another inheritance from Medimmune. The FDA recently forced Pfizer to withdraw a similar drug, Tanezumab, from development after some patients had to have joints replaced, although Astra insisted it had not seen any similar cases among patients treated with Medi-578.

Seymour Pierce says...

Reduce. The news flow over the Christmas period has been consistent with the view that there are still considerable risks to outsourcing research & development, particularly in an increasingly onerous regulatory environment where the FDA has consistently demanded more information from late-stage clinical trials. Consequently, more approvals were delayed last year and there is little sign that this situation will change. But, the basic reason why AstraZeneca is struggling to impress the market is that it is still a pure research & development company with limited scope to diversify, that sits in contrast to GlaxoSmithKline which has switched more resources into consumer healthcare and emerging markets.

Shore Capital says...

Buy. AstraZeneca has always had a higher risk/reward profile because of its emphasis on pure research and development, but the market does understand that it faces challenges over the next few years from generic competition. The company's pipeline looks reasonably robust, although the delay to Brilinta is naturally disappointing. But, it should be noted that the FDA has not asked for additional trials and we do not know yet what is in the so-called "complete response" letter that the regulator has given the company. The withdrawal from development of Motavizumab is unlikely to have any material consequences as Astra's Synagis drug is in fact a vaccine and consequently difficult for generic competitors to copy. Our 2011 forecasts are currently under review but predictions are for pre-tax profits of £8.36bn ($13bn) and EPS of 428p (667¢).