1 Biotech to Buy Post-Plunge

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Well that made me look pretty silly now, didn't it?

Just one week ago I was touting with confidence my excitement in discovering what I suspected was a rare gem in the biotechnology sector -- a profitable small-cap company with a deep pipeline of drug hopefuls.

Well, that was last week...

This week, Astex Pharmaceuticals (Nasdaq: ASTX  ) received news that the Oncologic Drugs Advisory Committee had voted 10-to-3 against recommending Dacogen as a treatment for acute myeloid leukemia for patients over the age of 65. One person abstained from the vote.

The ODAC is an advisory panel that the Food and Drug Administration doesn't have to follow, but it is usually a good forecaster of which way the FDA will sway. At the heart of the vote was the notion that Dacogen's risks outweigh the 2.7-month median survival benefit noted against placebo in phase 3 clinical trials. The FDA will have its final say on the matter on or before March 9.

My message to Astex shareholders in the meantime would be, "Relax!" Relax because your investment has $1.35 in cash per share with no debt. It still has Dacogen for the treatment of myelodysplastic syndrome, and the royalty revenues derived from its partnerships with Eisai Pharmaceuticals (OTC: ESALY) and Janssen-Cilag, a subsidiary of Johnson & Johnson (NYSE: JNJ  ) , are currently enough to keep the company marginally profitable even while running multiple clinical studies.

Relax because your pipeline is rich with drug hopefuls and has the potential for major partnerships. Astex is working on two phase 1 clinical trials with AstraZeneca (NYSE: AZN  ) targeting Alzheimer's and various types of tumors. It's also involved with one phase 2 and one phase 1 clinical trial with Novartis (NYSE: NVS  ) for therapies aimed at treating various types of tumors and forms of leukemia.

Was the ODAC news a setback? Obviously it doesn't bode well for the FDA decision on Dacogen as a treatment for AML. But the news also brought Astex back to a very reasonable buy point. At just 84% of book value and still decisively profitable, Astex still looks like a strong long-term buy candidate. I plan on using this pullback in the stock to make a CAPScall of outperform on Astex to show my long-term conviction in its pipeline.

Disagree with me? Let's hear your thoughts in the comments section below.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, and Novartis, as well as creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that believes transparency comes first.

Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 10, 2012, at 1:12 PM, botlycool wrote:

    is this in your stock picks?

  • Report this Comment On February 10, 2012, at 1:17 PM, Momentum21 wrote:

    I bought a chunk at 2.03...just for you Sean!

  • Report this Comment On February 15, 2012, at 10:23 AM, papsrus wrote:

    It would seem likely that the March 9 FDA decision will also go against ASTX. It's reasonable to assume that this event could again negatively affect the share price in the short term.

    Might be prudent to wait until after the FDA decision to buy more shares.

    Course, that March 9 decision is probably pretty much factored into the share price at this point. Long-term, I like this one for the more speculative part of a portfolio.


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