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3 Things You Need to Know From Astex Pharmaceuticals, Inc. (ASTX)’s Q2 Earnings

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Astex Pharmaceuticals, Inc. (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 Corporation (NASDAQ:CELG)‘s 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.

Astex Pharmaceuticals, Inc. (NASDAQ:ASTX)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 Limited (ADR) (NYSE:RDY) 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 Pharmaceuticals, Inc. (NASDAQ:ASTX)’s better-than-expected financial performance. Dr. Reddy’s will likely make similar results more difficult in the months ahead.

However, Astex Pharmaceuticals, Inc. (NASDAQ:ASTX) still has patent protection outside of the U.S. Johnson & Johnson (NYSE:JNJ)‘s 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 Pharmaceuticals, Inc. (NASDAQ:ASTX)’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 Pharmaceuticals, Inc. (NASDAQ:ASTX) 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 Pharmaceuticals, Inc. (NASDAQ:ASTX) 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 Pharmaceuticals, Inc. (NASDAQ:ASTX) 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 Pharmaceuticals, Inc. (NASDAQ:ASTX)’s Pyramid discovery platform. Novartis AG (ADR) (NYSE:NVS) 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 plc (ADR) (NYSE:AZN) 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 Pharmaceuticals, Inc. (NASDAQ:ASTX)’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 Pharmaceuticals, Inc. (NASDAQ:ASTX) CEO James Manuso added that the company also expects that research and development expenses will increase “markedly” as drugs progress in the pipeline.

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