AstraZeneca Trials Provide Zest and Zeal for OSI Pharmaceuticals

When drug companies choose bullish, optimistic-sounding acronyms for clinical trials they should, perhaps, choose more wisely lest they backfire when the tests don't turn out like they hope they will. Witness what happened yesterday morning to AstraZeneca (AZN).

It named two studies of an experimental lung cancer drug, called Zactima, ZEAL (Zactima Efficacy with Alimta in Lung cancer) and ZEST (Zactima Efficacy Study versus Tarceva).

Alimta is a cancer drug made by Eli Lilly (LLY), Tarceva is made by OSI Pharmaceuticals (OSIP) and Genentech (DNA). The ZEAL and ZEST test results released today are providing neither for AZN. And in a double-dose of bad news, shares of AZN may also be trading lower because Teva (TEVA) is going to start making a generic version of an AstraZeneca asthma drug.

As a result of the mixed to negative outcome of the studies, shares of OSIP are rallying for the second in two weeks. Earlier this month a study came out showing Tarceva works well on lung cancer patients right after they complete a round of chemo. And now analysts are saying the AZN studies essentially remove a competitive threat to Tarceva.

AZN is not deterred, however. The company still plans to file for FDA approval of Zactima in the first half of next year. But in a research note to clients Dr. Christopher James, the new senior biotech analyst at Rodman & Renshaw, writes, "We doubt Zactima receives a first pass approval or will be a significant threat to Tarceva...." R&R makes a market in OSIP. BioMed Tracker, which handicaps drug prospects for investors, says Zactima has a 25 percent lower chance of winning FDA approval. The researchers there now peg the odds at less than 50-50.

Lung cancer is the leading cancer killer. It is a very tough cancer to treat, especially since most patients aren't diagnosed until it's too late. In one major study, the pricey Tarceva was shown to help some people live as little as two weeks longer. AstraZeneca even took a once-promising lung cancer drug, Iressa, off the U.S. market a few years ago because it didn't improve survival. Soon it may face a similar challenge with Zactima, despite its zeal and zest.