The last thing

AstraZeneca

(AZN) - Get Report

needs is more bad publicity for its cholesterol drug Crestor.

The last thing financial analysts need is more uncertainty about the drug and the company.

In the last few weeks, however, the drug's name has been dragged through the mud repeatedly, giving analysts fits and making it hard for anyone to come up with fair value on the stock.

Analysts call this "headline risk," and it can cause confusion among patients, physicians, investors and money managers. Many analysts suggest that even a vigorous defense by AstraZeneca and favorable clinical trial data won't offset the market's skittishness.

"We doubt this move

AstraZeneca's defense can gain sufficient media coverage or credence to reverse the damage already sustained from the negative publicity," said Craig Maxwell of J.P. Morgan's European equities research team, in a report to clients on Nov. 22.

Since Crestor was approved in the U.S. in August 2003, AstraZeneca has fought with a U.S. consumer group that alleges the drug has an unacceptably high rate of kidney-related and muscle-damage side effects. The group, Public Citizen, issued its latest demand for Crestor's ban on Oct. 29 in a letter to the Food and Drug Administration; AstraZeneca said the drug's side effects are similar to those of other cholesterol drugs known as statins.

Last year, the British medical journal

The Lancet

editorialized against Crestor, alleging that AstraZeneca used "adventurous statistics" in publishing "blatant marketing dressed up as research." CEO Tom McKillop, pointing to clinical trials data, responded that "regulators, doctors and patients as well as AstraZeneca have been poorly served by your flawed and incorrect editorial."

Most recently, an FDA official, Dr. David J. Graham, told a Senate hearing that Crestor needs more scrutiny. Graham's comments were immediately rebutted by higher-ranking FDA officials who say Crestor is safe.

The media coverage of Graham's testimony "suggests Crestor prescription trends may suffer at least in the near term," said Tim Anderson of Prudential Equity Group in a Nov. 22 report to clients, as he maintained a neutral rating. (He doesn't own shares; his firm doesn't have an investment banking relationship.)

"Put simply, we doubt the market will be willing to revalue Crestor's cash flow, given its current uncertainty," said J.P. Morgan's Maxwell, who has an overweight rating on the stock but who has cut his stock price target by 10%. (He doesn't own shares; his firm has an investment banking relationship with AstraZeneca.)

Maxwell added that the "substantial media attention" and anti-Crestor marketing from competitors' sales representatives will "hit Crestor prescriptions near term." Competing statins include Lipitor, made by

Pfizer

(PFE) - Get Report

; Zocor from

Merck

(MRK) - Get Report

; Pravachol from

Bristol-Myers Squibb

(BMY) - Get Report

; and Vytorin from Merck and

Schering-Plough

(SGP)

.

So far, analysts say Crestor has been a disappointment. Initial predictions of a 20% market share now seem less realizable; many analysts have lowered their sights for the drug despite clinical tests showing that it is the most potent statin for reducing so-called bad cholesterol.

In terms of dollar market share for total U.S. prescriptions, Crestor remains a distant fourth with 5.6% for the week ending Nov. 12, according to NDCHealth, a health care information company. Lipitor has 49%, followed by Zocor with 25.2% and Pravachol with 11.9%.

Since early August, Crestor's U.S. dollar sales have crept up from $14.9 million to $18.4 million, while the market share rose from 4.8% to 5.6%. Sales of the biggest statin drugs remained flat or in slight decline, the firm says. NDCHealth tracks drugs that are dispensed in retail outlets and by mail-order pharmacies. The dollar amounts represent the estimated cost incurred by the wholesaler to purchase product from the drug manufacturer.

Headlines and Data

The latest furor was ignited Nov. 18 when Graham told the Senate Finance Committee that Crestor was one of five drugs now on the market that should merit greater review by the FDA, more focus on their side effects and/or greater restrictions on their use. He was testifying at a hearing into the actions of the FDA and Merck concerning the approval, monitoring and subsequent withdrawal of the arthritis drug Vioxx.

AstraZeneca's stock fell 8.6% after Graham mentioned Crestor. During his testimony, he alluded to an upcoming article in the

Journal of the American Medical Association

, suggesting that it would discuss side effects. But the article, which was issued online Nov. 22, didn't refer to Crestor, prompting one analyst to refer to the article as a "red herring."

The article, of which Graham was the lead author, said Lipitor, Zocor and Pravachol each had very low rates of the muscle disorder called rhabdomyolysis. The article said the risk of this dangerous side effect was approximately a dramatic 1 in 10 for patients who took Baycol, which was pulled from the market three years ago. Baycol was made by

Bayer

(BAY)

. The FDA received reports linking 31 deaths from the muscle disease to the drug. Baycol was launched in the U.S. in 1997.

Shortly after Graham testified, another FDA official testified before the Senate Finance Committee that Graham's comments did not reflect agency policy.

But earlier in the day, yet another high-ranking FDA official was quoted by the

Washington Post

as saying the agency "has been very concerned about Crestor since the day it was approved, and we've been watching it very carefully." Steven Galson, acting director of the FDA Center for Drug Evaluation and Research, also was quoted as saying the FDA is "concerned about the same issues with Crestor as Public Citizen." That night, Galson issued a formal statement, saying Graham's testimony "does not reflect the views of the agency." The drugs Graham cited "are currently approved as safe and effective for use in the United States," Glason added.

AstraZeneca issued two statements -- a few hours after Graham testified, and one day later after executives had talked to the FDA. "We have been assured today at senior levels in the FDA that there is no concern in relation to Crestor's safety," the company said Nov. 19.

Four days later, AstraZeneca published full-page ads in major U.S. newspapers. "There was a great deal of misinformation" in Graham's testimony, said an AstraZeneca spokeswoman, adding that Crestor's safety profile "is in line" with other statins.

Trying to Decide

To illustrate the dilemma over headline risk, just take a look at Citigroup Smith Barney.

On Nov. 18, analyst Kevin Wilson stood by Crestor, telling clients that the clinical information so far "does not indicate that it has a safety profile materially different from other statins."

Maintaining a buy rating on the stock, he said that a recent report in the

American Journal of Cardiology

showed that certain Crestor side effects were "comparable" to those of other statins. The side effects include proteinuria (protein in the urine), which is an indicator of possible kidney problems. The article reported no deaths and no cases of rhabdomylosis. "The conclusion is that Crestor has a safety profile similar to other statins," he said. (The firm has an investment banking relationship with AstraZeneca; one relative of one of the members on Wilson's research team owns shares.)

On the same day, however, another Citigroup Smith Barney analyst said Crestor might get hit with a tougher label from the FDA because of Graham's comments, the

Washington Post

article and heightened congressional interest in the FDA drug review process. These events "cause us to lean toward the agency at the very least requiring a new warning on the label for Crestor," said Paul Heldman, a policy analyst for the investment banking firm, in a report to clients. (He doesn't own shares.)

Then, on Nov. 24, Kevin Wilson cut his rating on AstraZeneca to hold, citing the recent headlines plus the decision by European drug regulators to review the recommended starting dose for Crestor. "The net result of all of these is to increase the risk that Crestor growth will not be as strong as we currently forecast," Wilson said in a research report.

Wilson didn't change his Crestor sales forecasts for 2005 and beyond. He said he needed at least another year's worth of safety data "to reassure the market that Crestor is the same" as several leading statin drugs that have low rates of the dangerous muscle disorder, rhabdomyolysis. His source of information was David Graham's article in the

Journal of the American Medical Association

.