Onyx Pharmaceuticals Jumps on Carfilzomib Revenue
ONXX

November 22, 2010

As I have discussed several times, most recently in Onyx Pharmaceuticals Jumps on Carfilzomib Data [August 8, 2010], Onyx could have shown a nice profit in 2009 with revenues from its liver and kidney cancer drug Nexavar. Instead it has spent its potential profits on research and development, seeking proof that Nexavar is effective in more kinds of cancer, and acquiring other potential therapies, notably Carfilzomib.

The payoff from that strategy was seen in the Onyx report on Q3 2010, which included a $59.2 million payment from Ono Pharmaceutical of Japan for the rights to develop and sell Carfilzomib in Japan. Carfilzomib was acquired with Proteolix. Its first indication is for multiple myeloma. It is in a class of drugs known as proteasome inhibitors. It causes cell death by preventing protein degradation, essentially poisoning the cell with its own products. The hope is that it kills cancer cells with minimal harm to other cell types.

A Phase II trial of Carfilzomib has been completed, with full data to be reported at the ASH (American Society of Hematology) meeting beginning December 7th. This trial data may support FDA approval; it has to be very good data to get approval from a phase II trial, because of the small number of patients enrolled. A full Phase III trial is also already being enrolled.

The payment from Ono is not indicative of regular quarterly revenues. Most revenue in 2011 will be from Nexavar sales through Bayer. This means net income may be positive or negative on a quarterly basis. So expect volatility in the stock price. Good news on Carfilzomib will drive the stock higher; there should be a floor under bad news because of Nexavar sales.

Nexavar itself is being tested for further indications: adjuvant liver and kidney cancers; non-small cell lung cancer; thyroid, breast, and ovarian cancer. These trials are mostly in Phase II or early in Phase III.

Onyx currently has 6 additional compounds in preclinical or in clinical trials. In biotechnology it is a good idea to have a wide pipeline, because most promising therapies bomb out at some point. Having six compounds in addition to Nexavar and Carfilzomib is reasonable for a company with Onyx's resources.

Onyx Pharmaceuticals is also sitting on a good pile of cash, $588 million. That is a good cushion for the dicey game of drug development and sales.

On the negative end, while liver cancer sales for Nexavar are still ramping as it gains approval in more countries, kidney cancer sales are about flat, due to increased competition.

I think the chances of Onyx fizzling are reasonably low, and the upside potential is very good. The price ($29.65 as I write) strikes me as still not taking into account its full future profit making potential if Carfilzomib is approved, but it isn't in the bargain basement the way it was earlier this year (52 week low $19.54).

See also:

Onyx Pharmaceuticals site
My Onyx Pharmaceuticals main page

William P. Meyers

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