Woodford darling AstraZeneca takes $381.5m R&D hit

AstraZeneca, a favourite stock of investors such as Invesco Perpetual’s Neil Woodford, will take a $381.5m (£245m) hit after two drugs in its development pipeline were set back.

The pharmaceutical giant announced that investigational compound olaparib will not enter Phase III development for the maintenance treatment of ovarian cancer, while the second RENAISSANCE Phase III study of TC-5214 for patients with major depressive disorder failed to meet its primary end point.

As a result, the company will book a $381.5m research and development expense for the final quarter of the year. It says it will complete the remaining trials for TC-5214 in the first half of 2012 and could still file drug applications with regulators.

The firm still expects to meet its profit target for the year but warns that earnings per share will likely be at the lower end of the $7.20 to $7.40 range. AstraZeneca’s shares were down 2.75% to 2,868.00p at 0833 GMT, making it the FTSE 100’s largest faller in early trading.

AstraZeneca is the top holding of Woodford’s £11 billion Invesco Perpetual High Income fund and his £8.7 billion Invesco Perpetual Income fund, accounting for 8.46% and 8.58% of the respective portfolios.

It is also found in the top-ten holdings of Anthony Nutt’s £2 billion Jupiter Income fund, Derek Stuart’s £1 billion Artemis UK Special Situations fund and Kevin Murphy and Nick Kirrage’s £1.2 billion Schroder Income fund.

In October, AstraZeneca reported that third-quarter profits dropped by 2% year-on-year at constant exchange rates to $8.2 billion, with competition from generic drugs and government rulings on price given as the main reasons for the fall.

Investors are concerned about the state of the company’s drug catalogue, which is under increasing competition as patents expire and supported by a limited pipeline of new products.

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