The Galileo colt filled the runner-up spot on his only appearance as a juvenile at Newbury and was beaten just a head by Sudden Wonder on his return to action in Newmarket's Tattersalls Millions 3-Y-O Trophy.
Connections stated their intention to have a tilt at Epsom's premier Classic following Observational's determined triumph in Goodwood's Cocked Hat Stakes, but those plans have now been shelved.
Charlton tweeted: "Observational will not be running in next week's Derby after a dirty scope. Disappointing for all concerned but plenty to look forward to."
Connections of Romsdal have yet to decide whether he should be supplemented for the race at a cost of £75,000. The John Gosden-trained colt, owned by Princess Haya of Jordan, was put through his paces with a gallop before racing at Newmarket yesterday.
Romsdal decisively broke his maiden at Kempton in April before he failed by just a nose to win the Chester Vase over a mile and a half on May 8.
Working with Hunter's Creek, he was bustled along a little by William Buick and finished a couple of lengths behind his stablemate. Gosden said: "He's fine, he's a lazy worker and not the type who is flashy. Hunter's Creek is a good handicapper and he had a normal blow. We'll see, we'll watch him over the weekend but there's no decision right now."
Mukhadram looks set to head straight for Royal Ascot after the weather scuppered hopes of having a prep run for the Prince of Wales's Stakes.
The William Haggas-trained five-year-old was narrowly beaten by Al Kazeem in the race last June and was also placed in the Coral-Eclipse at Sandown. He ran a superb race to fill the runner-up spot in the Dubai World Cup at the end of March and connections were keen for him to return to European action before his return to Berkshire. But Angus Gold, racing manager for owner Hamdan Al Maktoum, admits options are running out. "We're hoping for some dry weather," he said.