What to Watch With Astex in 2013

What a difference one year can make. In 2011, Astex Pharmaceuticals (NASDAQ: ASTX  ) shareholders saw the stock plummet by 30%. The next year, though, shares rebounded by nearly 50%. What kind of year will 2013 be for Astex? Here are three factors to watch that will make the difference.

1. Drop-off for Dacogen
When it comes to revenue, it's practically all about Dacogen. Astex receives royalties from Eisai, which markets the drug in North America. Eisai sub-licensed commercialization rights for Dacogen outside of North America to Johnson & Johnson (NYSE: JNJ  ) . 

Astex estimates that it hauled in $70 million in royalties for 2012. However, the company projects a drop-off in royalties for this year -- down to around $60 million. Why are Dacogen sales predicted to fall?  Probably the biggest factor is that U.S. orphan drug exclusivity for Dacogen expires in May.  

The possibility exists, though, that Astex shares could benefit from less attrition in revenue than expected. Dacogen's biggest rival, Celgene's (NASDAQ: CELG  ) Vidaza, lost patent protection in 2011. However, no generic version has yet hit the market. Astex could experience the same delay in cheap competition.

Europe could provide another cushion. Johnson & Johnson's Janssen unit obtained approval for Dacogen in treating acute myeloid leukemia, or AML, last September. If royalties are stronger than expected for AML, Astex could beat its projections.  

2. Potential prizes in the pipeline
Astex has two drugs in its pipeline that could be big winners. SGI-110 appears positioned to be the company's follow-up to Dacogen. The drug is currently being tested in a phase 1/2 clinical trial targeting treatment of AML and MDS, the same indications for which Dacogen is used. Astex hopes to advance to late-stage studies that would probably extend through 2015.

SGI-110, though, could have even greater potential than Dacogen. Phase 2 studies are also in progress with the drug in treating ovarian cancer and advanced liver cancer. 

The other potential pipeline prize is AT13387. This drug inhibits a heat shock protein known as HSP90, which is thought to be involved in the development of several types of cancer. Astex currently has phase 2 clinical studies under way for AT13387 for multiple indications, including refractory gastrointestinal stromal tumors, non-small-cell lung cancer, and prostate cancer.

Watch for release of preliminary results for the phase 2 studies for both SGI-110 and AT13387. Good news on either front could propel shares higher. Bad news, particularly for SGI-110, could make 2013 a repeat of the disastrous 2011.

Astex also claims several partnerships that could be factors this year. AstraZeneca (NYSE: AZN  ) is collaborating with Astex, the Institute of Cancer Research, and Cancer Research Technology Limited on a phase 1 study of experimental cancer drug AZD5363.

Novartis (NYSE: NVS  ) has an option to market AT7519, which is in phase 2 studies for treatment of multiple myeloma, chronic lymphocytic leukemia, and mantle cell lymphoma. Novartis also is partnering with Astex on a phase 1 study of experimental cancer drug LEE011.J&J's Janssen Pharmaceutica NV also has a phase 1 study under way using Astex's Fibroblast Growth Factor Receptor inhibitor program.

3. Consequences of cash burn
Astex looks better on the cash front than many small biotechs. The company reported nearly $130 million in cash, cash equivalents, and short-term investments as of the end of third quarter of 2012. Astex says that it has enough cash to carry it through this year. 

Expenses are growing, however, with all of the clinical studies under way. As mentioned earlier, royalties are expected to decline. This means that the company will burn through cash faster than it did in 2012.

Astex shouldn't have to make any moves to raise additional cash during this year. However, that time will come sooner or later. If the company opts to undertake a secondary public offering in 2013 rather than hold off, shares will take a hit.

Relatively speaking
In many ways, Astex looks good compared to similar-sized biotechs. It actually has a revenue-generating product, which isn't the case for many. Plenty of small companies only have one potential winner in the pipeline; Astex has at least two. Some companies struggle to establish partnerships with bigger organizations. Astex has good relationships with several large companies.

I won't attempt to predict how 2013 will turn out for Astex, because I don't know. However, the company's chances of having a good year look as good as or better than many of its peers. Slightly better sales than expected for Dacogen, good clinical results for its pipeline, and no share dilution could mean that 2013 looks great for Astex even compared to last year.

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