Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

When a failed drug trial moves the market caps of three different pharma companies by an aggregate $20 billion, you know it's important.

AstraZeneca PLC's big effort to gain ground in the red-hot market for immune-boosting cancer drugs -- a combination of its already approved Imfinzi and a second immune-oncology (IO) drug tremelimumab -- was revealed as a flop in treating lung cancer Thursday morning. This trial -- code-named "Mystic" -- was always something of a Hail Mary. But it was one Astra desperately needed to work.

The company's shares fell more than 15 percent on Thursday, the biggest one-day decline in its history. Shares of rival IO drugmakers Merck & Co Inc. and Bristol-Myers Squibb Co. felt the tremors:

Triple Jolt
AstraZeneca's cancer drug trial results were big enough to move shares of two other drug giants
Source: Bloomberg
Intraday times are displayed in ET.

Thursday's data were preliminary and limited. Astra clings to the hope that more-complete data, due next year, will salvage this program. It's also possible studies of this combo in other cancers may yield better results.

But even if the numbers do improve, Astra has already lost a lot of potential upside in lung cancer, the biggest market available to these medicines. Merck and Bristol had a years-long start in this drug class. Astra tried to play catch-up by focusing on drug combos and with quick trials.

Mystic's failure means a similar combination of drugs from Bristol may get to market first. It also means Merck's already approved combination of Keytruda with an older chemotherapy could have a year or more alone on the market, cementing its dominance. And a third competitor, Roche Holding AG, will reveal data from a couple of combo approaches before Astra gets its final lung verdict. 

And this is before we know how the safety of Astra's approach -- a big concern for a combination of two potent medicines  -- stacks up to Merck's potentially more tolerable chemo-combo approach. 

Outside of IO, Astra's growth prospects aren't stellar. Several late-stage assets in Astra's pipeline have failed in late-stage trials, and the FDA rejected one due to manufacturing issues.

A significant chunk of Astra's newer medicines are in the highly competitive respiratory disease sector. The company is set to lose revenue as older drugs come under generic or price pressure. Without a major contribution from Imfinzi or its shaky pipeline, Astra will have a hard time boosting sales over the next few years. 

Shaky Ramp
AstraZeneca very much needs its flagship cancer drug program to deliver

Astra also announced a deal Thursday to split the profits of another promising cancer drug, Lynparza, with Merck. This isn't the first such deal Astra has made recently. Pruning the pipeline is fine if a company is looking to re-focus or has lost confidence in medicines. But at some point, too many disposals will further hamper Astra's growth and upside.  

Mortgaging the Future
AstraZeneca has been particularly aggressive about selling off medicines to raise extra cash
Bloomberg/company filings

Disposals and pipeline woes also tie Astra even more tightly to its IO combination approach. The company is running more than a dozen trials testing the Imfinzi-tremelimumab combo in lung cancer and beyond. It is running many others on Imfinzi alone or in other combinations. A substantial portion of the firm's above-average R&D spending will be tied up in these trials for some time to come. 

Playing IO catch-up has come at a cost for AstraZeneca,
Source: Bloomberg

Astra is constrained in its ability to fix things, with a deal or aggressive new investment, by the size of its IO commitment, a hefty dividend it may have trouble paying, a nearly $20 billion debt load, and weak free cash flow relative to its peers. As my Gadfly colleague Chris Hughes points out, its position as a takeover target is now weaker, too.

Whether it bet too heavily on the wrong thing or just executed poorly, Astra will feel the repercussions of this failure for years.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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