Shares in AstraZeneca have dropped nearly 12% after the company announced disappointing news about its new cancer drug, Iressa.

The drug is used to treat non-small cell lung cancer - the most common form of the disease.

Early tests showed that it was able to reduce tumours, and patients reported feeling better.

But the company said that in further trials it had failed to help lung cancer patients to live longer when given alongside standard chemotherapy treatment.

AstraZeneca will now consider using Iressa as a treatment for head, neck, colon and breast cancers.

The company also plans to continue to seek approval for the drug to be used on its own in the US and Europe.

But investors took fright and AstraZeneca shares fell �2.80 to close at �20.90.

New type of drug

There are already about 17,000 patients around the world using Iressa.

It is a new kind of 'smart bomb' cancer drug called an epidermal growth factor receptor (EGFR) inhibitor.

It targets proteins that are produced only by cancer cells, so it does not cause problems such as nausea and hair loss often associated with chemotherapy.

It is one of several treatments AstraZeneca is developing with sales potential of more than $1bn a year.

The company needs to reduce its reliance on its Losec/Prilosec ulcer pill, which is now facing competition from generic drugs.

Two weeks ago AstraZeneca said its cholesterol-lowering drug Crestor faced a new delay in winning US approval.