Can the AstraZeneca share price hold up after a failed drug trial?

With news of a $100m write-down over its Epanova drug this month, will we see a long-term impact on AstraZeneca shares?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s a fact of the pharmaceutical business that not all drug trials result in a promising product, unfortunately for pharmaceutical companies, shareholders and most importantly patients. Indeed it’s the very nature of drug trials to discover if the proposed medication works as planned. A failed drug trial, as much as investors may not like it from a financial standpoint, scientifically is almost as valuable as a successful one – the trial did its job.

It’s in this light that news this month from AstraZeneca (LSE: AZN) saying the company will be writing-down $100m after trials of its heart disease drug Epanova were “disappointing”, must be taken. In fact it should be noted that the drug in question is actually successful and already in use. It’s a treatment for a specific type of condition that increases the risk of heart disease. The failed trial was undertaken in hopes that it may work on another specific type of condition, which it failed to do.

Research and development

In many ways, the R&D departments of big pharmaceutical companies are where the money is made. Developing new and better medications, I’d argue, is usually more important than all the admin, sales work and perhaps even management that a company has. I’d say, for example, that a pharmaceutical company could make money if it invented a cure for cancer, even if it was badly managed and had poor sales staff.

R&D is an area in which AstraZeneca has really stepped up over the past few years, and in no small way has been responsible for what many call a turnaround following a rather lacklustre period. Its new medicines have been accounting for a big chunk of its sales, with heart disease treatments and oncology medications some of its most notable money-makers.

Carving out a niche

It’s with its oncology treatments that Astra has in many ways been distinguishing itself from the competition. While the majority of cancer treatments have generally focused on later stages of the disease, AstraZeneca has instead been focusing more towards early detection, prevention and treatment. This has been giving it an advantage.

And it has been pro-active in addressing one major issue facing ‘big pharma’ too. This is, of course, the growth of cheap, generic versions of branded drugs, particularly after the patents end, and particularly in China. While AstraZeneca has not been immune to these troubles, it has managed to offset much of the damage through working with local hospitals and the government in China to help secure fair prices for its treatments.

So to answer the title question of this article, I think the failed trial will by no means have a detrimental impact on Astra shares. As I said earlier, the aim of the trial was to see if this drug could work or not in a specific case – it couldn’t, and so the trial actually did what it was supposed to.

Far more important for the company is its increased interest in and spending on the R&D of new drugs. If it keeps that up, a few failed trials will easily be absorbed by the exponential benefits of just one or two great drugs.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

The Motley Fool UK has recommended AstraZeneca. Karl has shares in AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

The Nasdaq index keeps hitting new all-time records in 2024, as US tech stocks fly. How much could I have…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£500 to invest a month? Consider aiming to turn that into a £20,000 passive income like this!

With a regular monthly investment, it's possible to build a large and steady passive income for retirement. Royston Wild explains.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Investing Articles

As retirement needs soar 60%, here’s how I’m building wealth with UK shares

A regular investment in UK shares and funds could help Brits create a large and lasting pension. Our writer Royston…

Read more »

Investing Articles

I’d buy Games Workshop shares before they reach the FTSE 100!

Games Workshop shares look likely to join the FTSE 100 soon. Here’s why I think investors should consider buying the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Could me buying this stock with a $2.5bn market-cap be like investing in Tesla in 2010?

Archer Aviation (NASDAQ:ACHR) stock's nearly doubled so far in November. Could this start-up be another Tesla in the making?

Read more »

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »