Onyx Gets $160 million for Nexavar,
Plus Regorafenib Royalties

October 12, 2011 by William P. Meyers

Onyx today announced it is receiving a major cash infusion at a time when it is transitioning from being a successful biotechnology startup into a major player. The cash, $160 million from Bayer, is for the Japanese rights for Nexavar, a cancer therapy. The deal is in the context of settling litigation about Regorafenib, an analog of Nexavar developed by Bayer. Onyx Pharmaceuticals will receive a 20% royalty on future worldwide sales of Regorafenib.

Nexavar is sold by Bayer. Onyx, which discovered and co-developed the drug, gets a share of the profits after Bayer's expenses. But in most quarters so far Onyx's own operating expenses have been sufficient to wipe out the receipts from Bayer. An important treatment for liver and kidney cancer, sales of Nexavar continue to ramp globally. Liver cancer rates are far higher in Asia than in the West, but Asia is the last area Nexavar has become available, so sales are just beginning to ramp in China and other nations in the region.

Bayer and Onyx have been running Nexavar through a set of clinical trials that have shown it may be effective for other forms of cancer, and to strengthen its role in liver caner. If you subtract out the research and development (R&D) costs, in most quarters Onyx would have shown a profit. Onyx has started recruiting patients for Nexavar Phase III trials for breast cancer and thyroid cancer, and has Phase II trials underway in colorectal and ovarian cancer.

Fortunately Onyx Pharmaceuticals has been able to maintain a high cash balance despite the regular losses, ending Q2 2011 at $550 million. Assuming the $160 million payment is a Q4 event, cash at the end of the year should approach $700 million.

Regorafenib does not yet have its first FDA approval. It is in a Phase III trial for a type of stomach cancer, and will doubtless be tried for a variety of solid cancer types. I would not expect any revenue until 2014, and like any drug it could fail for a currently unknown reason, but the future royalties are a great thing to have in Onyx's likely future.

Given the background of success with Nexavar, tempered with losses due to R&D spend, Carfilzomib is still the key to Onyx's value in the 2012 to 2015 time frame. Carfilzomib is a proteasome inhibitor that had positive data for relapsed and refractory multiple myeloma in a Phase IIb trial. In fact the data was good enough that it is being submitted to the FDA for approval. At the same time two Phase III trials have been initiated.

If both Regorafenib and carfilzomib is approved by the FDA the nature of Onyx's model will change. It should be possible, starting in 2013, to have a vigorous R&D program to continue expanding the indications for Nexavar and carfilzomib without actually throwing the bottom line into the red.

Yesterday Onyx ended with a market capitalization of $2.0 billion, at $31.91 per share. As I write the market cap has risen to $2.15 billion, with the stock price at $33.80. I believe that there is always risk in biotechnology stocks from competition, the need for FDA and other national medical agency approvals, and from failure to execute.

Disclosure: I am long Onyx Pharmaceutical. I have no plans to sell or buy ONXX in the immediate future.

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See also my notes on the Q2 2011 Onyx Pharmaceuticals analyst call

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Copyright 2011 William P. Meyers