Updated from 10:28 a.m. EDT

Shares of AstraZeneca ( AZN) skidded Wednesday after the company pushed back its schedule for seeking regulatory approval for an experimental diabetes drug.

At the same time, the company said it was on track to achieve the midpoint of its previous earnings guidance, which had been in the range of $2 to $2.15. The consensus among analysts polled by Thomson First Call was an EPS of $2.08. Analysts had predicted an EPS as high as $2.15 and as low as $1.98

The company's stock dropped $1.14 or 2.8%, to $39.44 on Wednesday.

AstraZeneca said it had not discovered any problems with the drug in question, Galida, which has progressed from phase II clinical studies to phase III testing -- the last step before a drug is submitted to health care regulators. However, the company is extending long-term follow-up clinical studies, citing "worldwide regulatory authority review of the safety and toxicology" of the drug group to which Galida belongs. Follow-up testing will take two years instead of one year, pushing the regulatory application back to 2007.

Galida is part of a class of drugs called PPAR, which analysts have said can be troublesome. For example, Merck ( MRK) was working on a PPAR with Japan's Kyorin Pharmaceutical; but Merck halted phase III testing 11 months ago when a safety review program detected rare malignant tumors in mice. "The clinical relevance of these findings in humans is unknown," Merck acknowledged.

Sir Tom McKillop, AstraZeneca's CEO, said Tuesday he had high hopes for Galida and for Cerovive, a stroke treatment. "With Galida, we had over 1,000 patients in our phase II studies, so we've got a lot of experience already," he said in remarks released during an annual meeting with analysts. "Cerovive is already into two big phase III studies. There is a safety monitoring committee ... and they have given no indication of any reason to stop to date."

Jan Lundberg, head of global research, said the extra year of testing on Galida represents a "safety first" approach to a class of drugs that has "enormous potential." Galida is designed for treating Type 2 diabetes, the most common form of the disease in which the body fails to produce enough insulin or the cells ignore the insulin. Insulin is necessary for the body to use sugar, which is an important fuel for cells in the body.

"With 10 billion in annual sales of newer products growing strongly, good progress across the development portfolio and success in emerging markets, AstraZeneca is well-positioned to overcome the recent disappointment of Exanta and to meet wider challenges facing the industry," McKillop said.

Last month, an advisory committee of the Food and Drug Administration rejected the company's application for Exanta, which is designed to reduce the risk of blood clots. The FDA advisory committee said the blood thinner's benefits were outweighed by its risks of liver damage and the potential increased risk of heart attacks. The FDA usually follows its advisory committee's recommendations, and in this case, the advisory panel's votes were overwhelmingly against AstraZeneca. An FDA decision is expected in late October.

"We believe the benefit/risk ratio for Exanta is overwhelmingly positive," McKillop said. "We will go on arguing the case for Exanta and trying to seek constructive dialogue with regulatory authorities to ensure that it is put on the market in a responsible way."

AstraZeneca had asked the FDA to approve Exanta for preventing blood clots in veins for patients undergoing knee-replacement surgery; preventing stroke and other clot-induced complications of the erratic heartbeat known as atrial fibrillation; and long-term prevention of blood clots in veins after a patient has gotten a standard blood clot treatment.

The company began marketing Exanta in Germany on June 21 after having received European Union approval in late 2003 for preventing blood clots in patients who had undergone elective hip- or knee-replacement surgeries. It is seeking broader uses of Exanta in Europe.

"AstraZeneca's late-stage research pipeline appears thin with no major launches likely over the next two years," said Tim Anderson, a Prudential Equity Group analyst, in a report to clients Wednesday as he reaffirmed a neutral rating.

The next major U.S. launch probably will be the asthma drug Symbicort in the second half of 2005. "But timing of approval is uncertain because respiratory products in the U.S. often run into regulatory delays," said Anderson, who added that the experimental stroke drug Cerovive is a "high-risk product" which has "a high chance of failure." (He doesn't own shares; his firm doesn't have an investment banking relationship.)

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