Astex Pharmaceuticals Has a Catalyst-Driven Year Ahead (Part I)
April 4, 2013
The spotlight has been on Astex Pharmaceuticals (ASTX) in the last month, and as investors have taken notice of the oncology developer, shares have rallied 66%. While ASTX seems to be tiring out a bit on the chart, we believe fair value is at least $1.00 per share higher than the current level. With important oncology meetings approaching like AACR (this weekend), ASCO (late May), and ASH (early December), we think the stock can continue to work higher. On Wednesday, an 11% gain was driven by a “Buy” rating from RBC Capital Markets, which gave the stock a $9.00 price target. Astex already has one revenue-generating cancer therapy on the market, Dacogen (decitabine, a hypomethylating agent), partnered with Eisai in North America and Jansen (J&J (JNJ)) ex-US. Astex collects significant royalties on Dacogen, and we believe that this existing product, despite possible generic entrants next year, combined with the company’s strong balance sheet, creates a partial valuation backstop. Its lead clinical candidate, SG-110, is a “second generation” Dacogen being tested as a treatment for myelodysplastic syndromes (MDS), acute myeloid leukemia (AML), advanced hepatocellular carcinoma (HCC), and platinum-resistant ovarian cancer (PROC); and early clinical results have shown that SGI-110 may offer valuable improvements over Dacogen. In addition, Astex develops an Hsp90 inhibitor, AT13387, in Phase II studies for refractory gastrointestinal stromal tumors (GIST), castration resistant prostate cancer, and ALK+ lung cancer. The company has a number of meaningful catalysts this year, and we believe there’s upside left in the stock ahead of the major cancer meetings, which tend to drive oncology companies, particularly those with product candidates that are going to showcase good data, to new highs. As the stock gives back some of its gains from the RBC coverage initiation, investors can start building a position in ASTX.