Shares plummet on drug-trial news; CEO does little to squelch talk of possible exit
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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 28, 2017).
LONDON -- AstraZeneca PLC reported disappointing results for a closely watched lung cancer drug trial, wiping away almost $14 billion of market value Thursday and raising fresh questions about the company's growth plans.
The trial, dubbed Mystic, aimed to show that the combination of two of AstraZeneca's immuno-oncology drugs -- designed to boost the immune system's ability to attack cancer cells -- could increase their individual disease-fighting prowess. AstraZeneca said Thursday the trial instead showed the combination was no better than standard chemotherapy at shrinking tumors in newly diagnosed advanced lung cancer.
The test was seen as an important milestone in Chief Executive Pascal Soriot's go-it-alone strategy, outlined after he rebuffed Pfizer Inc.'s 2014 takeover offer that was worth $120 billion at the time. Rejecting the rich premium that went along with that offer, he promised AstraZeneca's research and development pipeline would supercharge revenue over the next decade.
Dr. Soriot has also touted the drug-combination approach as a competitive edge that could help it take on immuno-oncology market leaders Merck & Co. and Bristol-Myers Squibb Co.
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After the disappointing results, AstraZeneca's shares fell sharply, trading down 16% in midday London trading.
Adding to investor unease, Dr. Soriot refused to rule out definitively whether he was leaving AstraZeneca. Earlier this month, an Israeli news outlet reported he was headed to run Israeli drug giant Teva Pharmaceutical Industries Ltd. Shares dropped sharply on the report, though they had recovered those losses, until Thursday.
AstraZeneca representatives have said they wouldn't comment on what they described as market rumors and speculation. Dr. Soriot did the same Thursday.
"I'm not a quitter," Dr. Soriot told reporters after fielding a handful of questions about whether he was staying or going. "That's as far as I will go." It is unusual for such a large company to allow uncertainty over a CEO's tenure to linger this long.
The Mystic setback sows fresh worry about the company's ability to meet Dr. Soriot's revenue goal, despite a string of successes in other clinical trials earlier this year that had shored up confidence in the company's cancer pipeline. As part of his Pfizer defense, he promised to nearly double revenue by 2023.
Those successes had pumped up AstraZeneca's share price this year. Last month it briefly touched the GBP55 that Pfizer offered back in 2014. After Thursday's rout, it is trading well below that level again.
Dr. Soriot said comparing the share price to Pfizer's offer was unfair. The Pfizer deal was structured as an "inversion," which would have technically relocated the tax residence headquarters of the combined company outside the U.S., where corporate taxes are lower. Dr. Soriot said subsequent opposition to such deals in Washington would have made a combination impossible anyway.
"I would wait a little longer before passing judgment on the share price, " he said.
Sean Bohen, who leads drug development at AstraZeneca, said that while the result was disappointing, the combination could yet prove effective in prolonging overall survival. Progression-free survival, the metric used in the initial result, measured how effective the treatment was at shrinking tumors. Some other cancer immunotherapy drugs have failed to improve progression-free survival, yet extended overall survival.
Still, UBS analyst Jack Scannell said the combination's prospects were "modest." Citigroup's Andrew Baum said Mystic was "essentially a failed trial."
Separately, AstraZeneca announced that another of its drugs, Tagrisso, was more effective than standard therapy at shrinking tumors in patients whose lung cancer is linked to a particular genetic mutation known as EGFR.
Astra also said it would share the rights to its ovarian cancer drug Lynparza with Merck & Co. for $1.6 billion upfront, $750 million in option payments and another $6.15 billion over time based on development and sales targets. Under the terms of the deal, the companies will share profits generated from the drug and work together on developing it to treat other cancers, including combinations with their respective immuno-oncology drugs. The deal also gives Merck access to AstraZeneca's experimental lung cancer drug selumetinib.
The Mystic result came as AstraZeneca said it swung to a net profit in the second quarter, due to lower spending on research and marketing, proceeds from several licensing deals, and a favorable year-earlier comparison. Revenue fell as sales of new drugs struggled to offset the decline of older best sellers.
The company posted net profit of $477 million, compared with a net loss of $3 million a year earlier, when AstraZeneca took a restructuring charge related to job cuts. Revenue dropped 10% to $5.05 billion. Analysts had expected net profit of $450 million on revenue of $5.05 billion.
AstraZeneca's top line has been shrinking for several years as its historic best sellers like the cholesterol-lowering pill Crestor lost patent protection, allowing cheap copycats to enter the market. Mr. Soriot has told investors that 2017 will be the year when sales bottom out.
Write to Denise Roland at Denise.Roland@wsj.com
(END) Dow Jones Newswires
July 28, 2017 02:47 ET (06:47 GMT)