Lundbeck said that it saw weak efficacy for its drug idalopirdine, a symptomatic treatment for Alzheimer's disease. Axovant's lead Alzheimer's product uses the same mechanism as Lundbeck's.
The company is disappointed by the outcome of the study, Anders Gersel Pedersen, executive vice president and chief scientific officer at Lundbeck, said in a statement.
"The phase II data were very encouraging but unfortunately, these data failed to replicate those findings," he said.
Axovant shares were briefly halted for volatility in intraday trade on Thursday. They closed about 12 percent lower.
A spokesman for Axovant told CNBC that the results from Lundbeck's study were expected and that "weak efficacy" in their trial "is not surprising to" Axovant.
"By contrast, the objective of our Phase 3 1150-patient MINDSET study is to confirm the results of a 684-patient Phase 2 study that demonstrated statistically significant improvements on cognition and function," he said. "Based on today's news, and subject to FDA approval, intepirdine could now be the first drug of its class to be approved for the treatment of mild-to-moderate Alzheimer's disease – potentially becoming the first approved treatment for this disease since 2003."
Copenhagen-listed shares of Lundbeck closed up about 0.89 percent in European trade. The stock is up 15 percent this year, while Axovant shares have fallen 20 percent in the same period.