Astex Pharmaceuticals (NASDAQ: ASTX) announced its second-quarter financial results on Thursday prior to the market open. The company reported a net loss of $0.04 per share, better than the average analysts' estimate of a $0.06-per-share loss. Here are the key things you need to know from the latest update.
1. Dacogen is still going strong for now.
Revenue for the second quarter topped $16.6 million, up 15% year over year. This figure beat analysts' expectations of $15.5 million.
Dacogen is approved in the U.S. as a treatment for anemia in patients with myelodysplastic syndromes, or MDS. Its primary competition so far has stemmed from Celgene's (CELG) Vidaza. While Dacogen generated an estimated $250 million in U.S. sales over the 12-month period ending in July, Vidaza brought in nearly that amount in the second quarter alone.
Vidaza lost U.S. patent protection in 2011, but has managed to avoid generic competition so far. Dacogen won't be so lucky. Its orphan drug exclusivity for the U.S. expired in May. While no generic rival entered the market during the second quarter, Dr. Reddy's Laboratories announced the launch of its generic version of the drug in July.
The lack of generic competition in the last quarter was the primary reason for Astex's better-than-expected financial performance. Dr. Reddy's will likely make similar results more difficult in the months ahead.
However, Astex still has patent protection outside of the U.S. Johnson & Johnson's (JNJ -0.69%) Janssen business unit markets Dacogen in all markets other than North America. J&J obtained European approval for Dacogen in treating acute myeloid leukemia, or AML, last September. The size of Europe's AML market exceeds that of the U.S. and represents a good opportunity for continued sales growth.
2. The pipeline is progressing.
Astex's long-term success depends on moving beyond reliance on Dacogen for all of its revenue. To that end, the company has several clinical trials under way that are making progress.
Preliminary data from a phase 2 study of experimental drug SGI-110 in the treatment of AML is expected by December. Astex plans to present this data at the American Society of Hematology conference. SGI-110 is also in other clinical studies for platinum-resistant ovarian and liver cancer. Initial data is expected in 2014 from these studies.
The company's HSP90 inhibitor, AT13387, is being studied as a potential treatment for ALK-positive lung cancer and prostate cancer. Astex said that both phase 1/2 clinical studies are progressing well. It expects to wrap up the phase 1 part A for both in the fourth quarter of 2013, with phase 2 likely starting by early 2014 or before.
Astex announced in July a new addition to its pipeline -- oral hypomethylating agent ASTX727. The drug is a fixed-dose oral combination product consisting of Dacogen and E7727, which was licensed from Eisai. ASTX727 allows Dacogen to be taken orally and absorbed in the gastrointestinal tract. Astex intends to file an Investigational New Drug, or IND, application later this year.
Progress is also being made for drugs being developed by other companies that are using Astex's Pyramid discovery platform. Novartis (NVS 1.10%) announced eight different phase 1 or phase 1/2 studies focusing on CDK 46 inhibitor LEE011. The development of the drug will focus on melanoma and breast cancer.
British drugmaker AstraZeneca (AZN 0.49%) has five phase 1 or phase 1/2 clinical studies under way for AZD5363. The protein kinase B inhibitor targets advanced solid tumors.
3. Next year could be tougher.
Astex's second-quarter results looked good and even prompted it to revise full-year guidance. The company now projects 2013 revenue will be $63 million, up from the $55 million previously estimated. Astex also thinks its full-year net loss will be around $25 million rather than $30 million.
However, 2014 could present a more difficult environment. CFO Michael Molkentin stated that next year probably won't be as good as this year due to lower revenue in the U.S. for Dacogen. Astex CEO James Manuso added that the company also expects that research and development expenses will increase "markedly" as drugs progress in the pipeline.
Buy, sell, or hold?
The market reacted positively to Astex's second-quarter results, sending shares up by nearly 6%. Astex has soared more than 80% so far in 2013. Should investors be looking to buy, sell, or hold?
My take is that it probably makes sense to listen to what the company is saying about the challenges it could face next year. With that in mind, buying now might not be the best idea. If you own Astex already, you couldn't be blamed for taking some profits off the table.
I think that Astex has solid potential to grow over the long run, though. Investors who hold their shares past 2014 could be glad that they did.
