Setbacks put drug firms under pressure

The pharmaceuticals sector was under pressure today after high-profile setbacks for AstraZeneca and GlaxoSmithKline spooked investors.

Shares in AstraZeneca plunged more than 8% after it ditched experimental stroke drug NXY-059 following its failure during clinical trials.

It was followed down by rival Glaxo, which lost nearly 5% of its value after it delayed filing cervical cancer vaccine Cervarix for approval in the United States.

The disappointment overshadowed strong results for both firms and put them under renewed pressure to improve their weakened drug development pipelines.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said: “Delays and difficulties in relation to new developmental drugs is not what investors wanted to hear.”

AstraZeneca kicked off the disappointing session when it ended development of NXY-059 after patients showed no improvement during tests.

The drug was designed to protect patients from permanent damage after a stroke and was expected to deliver annual sales of $3.8bn (€3bn) from 2008.

Dropping the stroke drug leaves AstraZeneca with just one other major drug in development, the heart drug AGI-1067, which is in the final round of testing.

This follows on from the failure of diabetes drug Galida and blood-clot-prevention drug Exanta.

Analyst Navid Malik, of Collins Stewart, said it was “a major concern for the future growth prospects for the company”.

He added: “Management have been putting a brave face on this disappointment, stating the NXY-059 was a risky project and that the drug would not impact its long-term plans.

“However, while AstraZeneca can of course maintain short-term momentum by continuing its cost-cutting for the next two years, it desperately needs to bring new products to the market, without which no amount of cost-cutting will help the company’s future earnings growth.”

The decision to scrap NXY-059 overshadowed a 25% rise in pre-tax profits for the third quarter to $2.19bn (€1.7bn).

Glaxo also delivered strong third-quarter results with pre-tax profits up 21% to €3bn during the three months to September 30.

The company raised its guidance for earnings per share growth from 12% to the “mid teens” as sales increased by 7% to £4.9bn (€7.3bn).

However, news that Cervarix will not be filed for approval in the US until April dominated the thoughts of investors today.

Glaxo also revealed setbacks to the development of diabetes drug Redona and the scrapping of a sepsis treatment.

The disappointment was partly offset by an €8.9bn share buyback programme and an increase in the dividend for the year from 44p in 2005 to 48p.

The company is hoping for a boost this winter from new influenza vaccine FluLaval and expects to bring 25 million doses to the US market, while its Tykerb breast cancer treatment has been filed for approval in both the US and Europe.

Martin Slaney, head of spread betting at GFT Global Markets, said: “Good figures overall, but as always with pharmaceuticals the pipeline is the key to future prospects. The sector was already hurting today following AstraZeneca’s stroke drug failure.

“And Glaxo’s problems with Cervarix and Redona have exacerbated what is possibly just a knee-jerk, short-term reaction. Longer term the buyback should help support the stock.”

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