Double R&D setback for AstraZeneca; new deal for cancer candidate

Anglo-Swedish drug major AstraZeneca (LSE: ANZ) had a double dose of bad news, when the company said that its investigational compound olaparib will not progress into Phase III development for the maintenance treatment of serous ovarian cancer. In addition, it announced that the second RENAISSANCE Phase III study of TC-5214 (licensed from Targacept under a potential $1.24 billion deal) for patients with major depressive disorder did not meet its primary end point.

As a result, AstraZeneca says it will take pretax impairment charges totalling $381.5 million to R&D expense in the fourth quarter of 2011. The company confirms its expectation for full year Core earnings per share in the range of $7.20 to $7.40, but with the inclusion of these intangible impairments, core EPS is likely to be in the lower half of this range. AstraZeneca's shares were down 2.4% to £28.77 in morning trading yesterday after the announcement, though just 1.5% lower at £20.05 by close. Suffering rather more dramatically, Targacept’s shares plummeted 34% to $5.12 in afternoon trading yesterday

“AstraZeneca seems to have had more than its fair share of misfortune when it comes to the development pipeline,” say analysts at Barclays Capital quoted by Bloomberg, who added: “Additional development failures increase the probability that management will reassess the likely return on investment from additional R&D investment and cut costs further.”