Why did AstraZeneca shares slump 8%

Yesterday, AstraZeneca (LSE: AZN) revealed that their groundbreaking precision drug aimed at tackling lung cancer showed slower progression than standard chemotherapy in a late-stage trial. However, this news was met with disappointment by investors, causing a drop of nearly 8% in the company’s shares. Analysts voiced concerns that the drug’s benefits may not be as significant as initially hoped.

Known as datopotamab deruxtecan, this drug is a joint venture between AstraZeneca and Japan’s Daiichi Sankyo. It demonstrated a prolongation in progression-free survival among patients with non-small cell lung cancer, whose condition had relapsed despite one or two prior treatment attempts, according to AstraZeneca.

The drug belongs to a promising class called antibody drug conjugates (ADC). These cutting-edge medications combine tumor-targeting monoclonal antibodies with a potent chemotherapy payload, effectively seeking out and destroying cancer cells.

AstraZeneca acknowledged that some participants in the trial had unfortunately succumbed to interstitial lung disease, a condition involving lung tissue scarring. However, they reassured the public that the drug’s safety profile was consistent with observations from previous clinical trials. Detailed trial data, including these unfortunate events, will be presented at an upcoming medical conference whose specifics are yet to be disclosed.

The drug’s mechanism of action revolves around its cell-killing molecules attaching themselves to a protein called TROP2, which is prevalent in the majority of lung cancers. Gilead has already made strides in targeting TROP2 with their ADC named Trodelvy, approved for certain breast and bladder cancer types. Merck & Co, along with their Chinese partner Kelun-Biotech, are also in the early stages of developing a drug in the same class.

AstraZeneca secured collaboration rights for this experimental drug in a deal worth up to $6 billion with Daiichi in 2020, including a sales-contingent portion of up to $4 billion. This partnership builds upon their successful collaboration on the ADC drug Enhertu, which has shown promise against breast cancer and other tumor types.

AstraZeneca assured stakeholders that the trial for datopotamab deruxtecan would proceed as planned to evaluate the drug’s impact on overall patient survival, an essential criterion for its efficacy.

Barclays, in an analyst note, acknowledged the trial’s success but highlighted the need for more data. Until further evidence emerges, some investors and analysts may harbour concerns about the drug’s potential as a first-choice treatment following diagnosis.

“We believe it’s premature to write off Dato-DXd, and we have several reasons to favour AstraZeneca. Therefore, we see any negative market response today as an opportunity to buy,” stated the Barclays note.