MARKET REPORT: Pharmaceutical giants AstraZeneca and BTG take a hit after failing drugs test

| August 9, 2012 | 0 Comments

Roger Baird

16:28 EST, 8 August 2012


16:28 EST, 8 August 2012

Both AstraZeneca and its smaller partner BTG took a hit in the markets after announcing the failure of a key drug they were jointly testing.

BTG said testing on around 300 subjects to see whether its CytoFab drug would treat Sepsis, or severe blood poisoning, ‘did not show any significant improvements’.

AstraZeneca said it would cancel this 18-month trial of CytoFab and would book a £32million charge this year.

Hit: AstraZeneca ended the day down 68p, or 2.2 per cent, at 3,015p

Hit: AstraZeneca ended the day down 68p, or 2.2 per cent, at 3,015p

BTG chief executive Louise Makin
called the move ‘obviously disappointing’ and said that it would book a
£28million charge this year.

Sepsis affects around 3million people a
year and has a 30 per cent mortality rate. Deutsche Bank said that if
CytoFab had worked, it might have generated £1billion in annual sales,
of which BTG were in line to receive up to £160million of milestone
payments and a 20 per cent royalty on sales.

Shares in BTG plunged as much as 10 per cent during the day before recovering to end the day up 5p at 343p.

AstraZeneca, which last year spent over £3.2billion on research and development, ended the day down 68p, or 2.2 per cent, at 3,015p.

Nomura’s Gary Waanders downgraded BTG
from neutral to sell, saying the move was ‘clearly disappointing’ but
he was ‘not hugely surprised’, given the difficulty firms have found in
producing treatments for this condition.

FinnCap’s Keith Redpath added that he
had placed his rating of BTG under review. He said previously he had
rated BTG as a biotech company ‘with development assets which, while
risky, represented significant upside’.

With the failure of CytoFab, BTG deserved to be valued more traditionally on a multiple of its current earnings.

However, even though much of the
investor focus was on BTG yesterday, AstraZeneca is under pressure to
replace a number of best-selling drugs that will lose their patent
protection over the next three or four years, allowing cheaper generic
drugs to compete against them.

Over that period AstraZeneca will
lose ulcer treatment drug Nexium and cholesterol-buster Crestor, which
alone generates sales of £4.2billion a year.
The need to refresh its pipeline with new drugs is pressing for both AstraZeneca and BTG alike.

The FTSE 100 edged up just 4.68
points to 5,845.92, weighed by a raft of blue-chip firms trading without
entitlements to their latest dividend, which offset gains by banks and
miners. In New York the Dow Jones Industrial Average followed suit,
closing virtually flat at just 7.04 points higher at 13,175.64 as
investors on Wall Street awaited more signals from the US or the
European Central Bank on action to support the stalling global economy.

In London, 15 blue-chip stocks went  ex-dividend, which meant they lost their payout attractions for shareholders.

The firms included telecoms giant BT,
down 2.7p to 221.7p, water group Pennon, off 23.5p to 730p, and oil
firm BP, which fell 2.85p to 450.95p. AstraZeneca also went ex-dividend

Standard Chartered, which was also trading ex-dividend, gained 87p to 1,315.5p, after losing more than 20 per cent over
the previous two days after New York’s regulator accused the
London-based bank of hiding £160billion transactions tied to Iran, in
violation of US law.

Other UK banks rose on this news, including HSBC, up 2.6p to 563.3p, and Royal Bank of Scotland, up 1.4p to 228.9p.

Miners were strong performers, led by
Rio Tinto which gained 89.5p to 3,220p after its first-half results
came in at the better end of expectations.

Rio saw its first-half profit drop by
around a third to £3.3billion, but said it was sticking to its
£10.2billion spending plans for the year.

Rival Xstrata was 15.6p higher at 912.5p after its well-received first-half results on Tuesday.

Heritage Oil rose 28.2p to 177p,
making it two days of gains in a row. The shares had been suspended for
more than a month after the explorer announced a £236million rights
issue  as part of its plans to set up operations in Nigeria.

The FTSE 250 business came back to
the market on Tuesday and investors continue to have an appetite for the
stock. However, the stock is still below the 480p it changed hands for
last January, when the firm disappointed investors by finding mainly gas
rather than oil at its site in the Kurdish region of Iraq.

Shares in small cap biotech company
Xenetic Biosciences rose 0.62p on strong  volumes to 6.25p on talk that
rivals are  considering a bid for the business.

- Trifast rose
0.75p to 42.5p after the car parts manufacturer said its ‘trading has
remained consistently ahead of budget’. The Sussex-based firm, which is
in the second year of a three-year growth programme, added that it is
‘on track with its ongoing margin improvement strategy’. Trifast, which
recently bought a factory in Malaysia, will give shareholders a further
progress report at its annual meeting in September.

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