Astex Pharmaceuticals Has a Catalyst-Driven Year Ahead (Part IV)
It’s worth noting that Dacogen may face generic competition this year, a detriment to sales, but generic Dacogen coming to the market is known, and if trial data supports SGI-110’s superiority (Phase II data later this year), generic Dacogen may not be relevant to the long-term story. Importantly, Dacogen is not approved for AML in the U.S., thus, there remains an exclusive market opportunity for SGI-110 in this indication. And, Dacogen retains exclusivity in the EU for AML through 2022. Despite the generic threat, SGI-110 has two potential opportunities in the MDS and AML markets: as a better agent in first-line treatment (if superior to Dacogen and/or Celgene’s (CELG) Vidaza), or if it demonstrates activity in relapsed or refractory patients it would become the go-to second-line therapy, as there are currently none approved.
Given its numerous catalysts this year and robust financials, which is a preferred in the biotech space, we believe ASTX provides an opportunity for investors this year. However, chasing the stock in the mid-$5 range may not be wise, so entering slowly and on pullbacks makes the most sense. RBC’s recent $9 target for ASTX is a little stretched in our opinion (without Phase II data), although we agree with the attribution of ~$2/share for Dacogen royalties (4x ~$50M sales after U.S. generic competition), $4 for SGI-110, and roughly $1.21/share for cash (although some of this capital will be used this year). We consider the rest of the pipeline a free option in the stock. Given the momentum that surrounds oncology meetings like AACR, ASCO, ESMO and ASH, we believe there’s at least a dollar of upside left in ASTX from current levels. As a result, we think the ASTX story will continue to gain visibility in the coming weeks, taking the stock higher.