We are pleased with AstraZeneca’s (AZN) decision (on July 8) to go ahead with the development of AZD1446 for the treatment of Alzheimer’s disease (AD). This drug, currently in phase I, was discovered in collaboration with Targacept.

The company also decided to conduct additional trials of AZD3480 (another drug for neuroscience) by initiating phase IIb studies in attention deficit/hyperactivity disorder (ADHD). Last year, the evaluation of AZD3480 for the treatment of AD and Schizophrenia had been inconclusive.

But in May 2009, preliminary result of AZD3480 showed significant improvement in symptoms of ADHD. With the progress of this drug candidate, AstraZeneca has agreed to make a milestone payment of $10 million to its collaborating partner Targacept.

Many pharma players have been eyeing this segment as AD had been the third-leading cause of death in the recent past. More than 24 million people are already affected worldwide and the number could reach 40 million by 2020. The market potential of this disease is well understood. Revenue estimates for the only approved AD drugs across major markets (US, Japan, France, Germany, Italy, Spain and the UK) were pegged at over $3 billion in 2006, and is expected to exceed $5 billion by 2012.

As both drug candidates are in early stage of development, it is difficult to estimate if they would be successful at all. But we are hopeful based on the strong R&D initiatives of the company and encouraging phase IIa data of AZD3480. As far as pipeline is concerned, the company currently has ten projects which are either in phase III trials or have filed for registration.

The company’s goal is to file up to three new license applications per year and bring at least two new drugs to market every year through 2010. We have a Hold rating on the stock as we see the current price as quite attractive given AstraZeneca’s long-term potential.

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