Pharma giant AstraZeneca (AZN) suffered two consecutive pipeline setbacks. The company recently announced that the development of its ovarian cancer candidate olaparib will be discontinued. Additionally, a phase III study of TC-5215 for major depressive disorder (MDD) did not meet its primary endpoint.
AstraZeneca decided to stop the development process of olaparib as maintenance treatment of serous ovarian cancer following an interim analysis of a phase II study (study 19). The analysis indicated that the progression free survival benefit demonstrated earlier would most likely not translate into an overall survival benefit.
Moreover, the company was unable to find a suitable dose for the phase III studies. Olaparib became a part of AstraZeneca’s pipeline following the December 2005 acquisition of UK-based KuDOS Pharmaceuticals. The company will incur a pre-tax impairment charge of $285 million due to the discontinuation of olaparib for the serous ovarian cancer indication.
Meanwhile, TC-5214, which is being developed in collaboration with Targacept Inc. (TRGT), failed to meet its primary endpoint in a late-stage study. The companies reported results from the second of four RENAISSANCE phase III efficacy and tolerability trials that were evaluating TC-5214 as an adjunct treatment for MDD patients who do not respond adequately to initial antidepressant therapy.
This is the second setback associated with the development of TC-5214. Earlier, on November 8, 2011, AstraZeneca and Targacept had reported negative top-line results from the first of four RENAISSANCE phase III studies.
The companies will pursue the remaining two phase III studies and see a potential submission of the New Drug Application (NDA) to the US Food and Drug Administration (FDA) in the second half of 2012. Additionally, the EU filling is planed for 2015.
AstraZeneca has decided to reduce the value of intangible assets of TC-5214 by 50% by taking a pre-tax impairment charge of $96.5 million, indicating a lower probability of success in future trials.
The pre-tax impairment charges totaling $381.5 million will reduce fourth quarter earnings by 21 cents per share. Although AstraZeneca has reiterated its earnings guidance range of $7.20 – $7.40 per share, the company now expects the actual figure to lie in the lower half of the range.
Our Recommendation
We currently have a Neutral recommendation on AstraZeneca, which carries a Zacks #3 Rank (short term Hold rating).The recent pipeline failures are disappointing. The company is already facing generic competition for key products and the generic threat is expected to intensify further in the coming years.
In such a scenario, the company’s pipeline needs to deliver. We expect AstraZeneca to seek additional partnering deals and acquisitions to grow its pipeline.
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