On June 21, 2012, Onyx Pharmaceuticals popped 37% from the prior close of $44.58 to $61.20 per share. On June 26 it closed at $67.12 after hitting a 52 week high of $67.62. The immediate cause was the June 20 vote of the FDA's cancer advisory panel in favor of approving carfilzomib (now Kyprolis) for patients with relapsed and refractory multiple myeloma who have received at least two prior lines of therapy [See Kyprolis Receives Positive Vote from ODAC, June 20, 2012]. This vote does not guarantee an FDA approval, but makes it highly likely.
I have been an Onyx optimist (with the usual caveats) since I first bought stock at $34.87 per share in May of 2008. Is today's price too high? Should I cash in or cut back my position? More importantly, is it too late to get in, or is this a good time for new investors to get in on what might be a very nice train of future profits? Either way it is a good time to make a new back of the envelope estimate of the future value of Onyx Pharmaceuticals. That done, I'll compare it to estimates from sell-side (Wall Street investment bank) analysts.
By way of background, at analyst conferences and in investor presentations, Onyx management (led by CEO Anthony Coles) has emphasized that while they think the Kyprolis data is compelling, it comes from a Phase 2 trial. The FDA rarely approves drugs based on Phase II results, they usually require Phase III trials, which are based on considerably larger numbers of patients. The company already has two Phase III trials of Kyprolis underway. These could provide data sufficient for approval even if the FDA turns the drug down in this round, and in any case would be necessary for approval by the European medical agency.
So why should an advisory board vote (ODAC, the Oncologic Drugs Advisory Committee), even if it was for Kyprolis approval 11-0-1 (the 1 is an abstention), cause such a large jump in the stock price? Most pharma analysts are pretty good at interpreting trial data. Everyone knew, from public presentations, that the Kyprolis data was pretty darned good and so highly likely to get approved when the Phase III data is submitted, if not based on the Phase II data alone.
There are two possible reasons for disapproval: lack of effectiveness, and side effects (adverse reactions, in industry parlance). The concern of stock analysts was mainly about side effects; some serious ones showed up in the Phase II data. That said, adverse reactions have to be taken in context. If a patient has no other treatment options and is likely to die in a few weeks of blood cancer, some side effect risk is much more acceptable than if the same side effect occurred in a drug intended give long-term to control weight or blood pressure, for instance. Kyprolis so far has shown a reasonable safety profile compared to other cancer and chemotherapy drugs.
This is a very risk adverse stock market in general. Just the possibility that Kyprolis data might not get FDA clearance was enough to dog the stock. There is always the possibility that Phase III data would come in worse than the Phase II data. It has happened to other drug candidates, and statistically it should happen every so often just because of the sampling probabilities involved. The ODAC vote did not really change the likelihood that Kyprolis would be on the market sooner or later, but it did give investors a higher degree of confidence in the outcome. Of course earlier market entry also means revenue and profits sooner.
Onyx already has a successful cancer drug, Nexavar, which is marketed by Bayer. The main reason that its profits have been minimal these last few years is that it has taken the Nexavar cash flow and invested in trials for further indications for Nexavar and in other candidates in its pipeline, notably Kyprolis, which it acquired from Proteolix in 2009.
Given that Nexavar revenue already covers basic operation expenses, and that Kyprolis is not a particularly expensive drug to produce in quantity, profit margins on any new revenue generated by Kyprolis should be high.
Multiple myeloma is a fast moving, deadly disease. While current therapies slow it down, they rarely cure it. If approved for third-line therapy Kyprolis could be given to most people who develop the disease. Sadly, the drop outs from the first two lines of therapy would be patients who die.
Between 14,000 and 15,000 new cases of multiple myeloma are diagnosed each year in the United States; worldwide the number is probably between 60,000 and 100,000. A safe, ballpark estimate is that if approved by the FDA, and with no new, improved competitor, Kyprolis could serve about 10,000 U.S. patients per year, and probably about the same number in Europe. Asia has a low incidence of multiple myeloma, and while Africa has a high incidence, the system there is not likely to deliver a significant number of patients in the next few years.
So 10,000 patients U.S. How much per patient? Lenalidomide (Revlimid) with dexamethasone would be a reasonable comparison, as would bortezomib (Velcade). Available cost data varies, but Revlimid appears to run around $8,000 per month, while Velcade is around $6,000 per month, but varies more because it is injected, has more variable time schedules, and is administered by body weight.
Since this is back-of-envelope thinking, I will use $100,000 per year as a guess at Kyprolis pricing. Then, assuming these very sick patients stay on the drug on the average of 1 year, annual Kyprolis revenue to Onyx would be 10,000 times 100,000, which gives us a neat $1 billion per year in revenue.
Keep in mind that it would take some time, several years, to reach a goal of prescribing to 10,000 patients per year. I could have overestimated, or possibly underestimated, the price, duration of therapy, or number of eligible patients.
Businessweek says five (investment bank) analysts estimated 2016 revenues at $523 million. Much of the ramp in the U.S. should be in by 2016. Being conservative, I'll use $500 million rather than my $1 billion guesstimate.
Again, given other costs are covered by Nexavar, I'll figure 80% of that $500 million will be profit. That is a nice round $400 million.
Giving a price to earnings ratio of 20, also conservative, that would mean a market capitalization of $8 billion due to Kyprolis sales in the U.S. alone. Doubling that for Europe would give us $16 billion, but I should note that national healthcare agencies in Europe are sensative about the pricing of therapies.
Today Onyx Pharmaceuticals ended with a market capitalization of near $4.3 billion. Onyx ended Q1 with $620 million in cash.
By my back-of-envelope reasoning, today's stock price is still at the low end of its future range, depending on actual outcomes. If Kyprolis is not approved for some reason, obviously we are due for a fall. If it is priced high and data shows it is a compelling choice over other therapies, then with global marketing the $500 million per year estimate I used will prove to be minimal. Even at $500 million a year in revenue, and ignoring cash, the stock should roughly double in price again by 2016.
In addition, if the trials of Nexavar result in approvals for cancers in addition to liver and kidney, there is a lot of upside to the Onyx equation from that quarter.
On the whole I think Onyx is still underpriced, even given the risk of delayed approval and the other usual risks. I think we will know more after FDA approval (if it is granted) and we see how Kyprolis is priced. After a couple of quarters on the market we should also have a better idea of what profit margins will look like.
One last factor to look for in the future is R&D spend. I am not opposed to Onyx enlarging its pipeline, but R&D spend does reduce earnings. At some point investors will need to see solid earnings, or all the speculation about future profits will fall apart. Keeping R&D spend flat as Kyprolis revenue ramps would be a very nice scenario.
Disclaimer: I am long ONXX and will not trade the stock for 3 days after the publication of this report.
See also: www. onyx.com
My main Onyx Pharmaceuticals analyst conferences page.
Showing posts with label Carfilzomib. Show all posts
Showing posts with label Carfilzomib. Show all posts
Wednesday, June 27, 2012
Monday, November 21, 2011
Onyx Pharmaceuticals (ONXX) Sees New Product Upside
Onyx Pharmaceuticals (ONXX) was one of the few stocks that were up today, closing up $0.63 to $37.86. Still, it is well beneath it's 52-week high of $45.90.
Management thinks the full year will be non-GAAP EPS positive, based largely on a $160 million payment from Bayer this quarter. Bayer sells Onyx's Nexavar for kidney and liver cancer, splitting the after-costs profits. The $160 million was to buy-out the rights for Nexavar in Japan, which has been ramping up to be a lucrative market because of the high incidence of liver cancer there. This was part of a larger deal to end litigation for a Nexavar-related drug, Regorafenib. Under the settlement Onyx will get 20% royalties if the drug makes it to market.
Regorafenib recently had positive Phase III data for metastatic colorectal cancer. Like Nexavar, it appears it may be a useful therapy for a variety of cancers.
The predicted annual positive non-GAAP results were hard to predict before the deal announcement because in most quarters so far Onyx's own operating expenses have been sufficient to wipe out the receipts from Bayer. For Q1 non-GAAP net loss was $14.2 million, for Q2 net loss was $27.2 million, and for Q3 net loss was $19.5 million. One reason for the net losses is that both Bayer and Onyx have been spending large sums on 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 Q3 2011 at $530 million. Assuming the $160 million payment is a Q4 event, cash at the end of the year should approach $675 million.
I would not expect Regorafenib revenue until at least 2013, and like any drug it could fail for a currently unknown reason.
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. More detailed data from the Phase IIb trial will be presented at the American Society of Hematology (ASH) Annual Meeting, December 10-13, 2011. While there is an outside possibility carfilzomib will not gain FDA approval, the main question is when it will get approval.
If both Regorafenib and carfilzomib are 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, carfilzomib and other pipeline candidates without actually throwing the bottom line into the red.
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.
However, with expanded indications for Nexavar, plus likely revenues from carfilzomib and royalties on Regorafenib, in the next few years Onyx should become a highly profitable company. I do not think the current stock price reflects full value.
Disclosure: I am long Onyx Pharmaceutical. I have no plans to sell or buy ONXX in the immediate future.
Keep Diversified!
Management thinks the full year will be non-GAAP EPS positive, based largely on a $160 million payment from Bayer this quarter. Bayer sells Onyx's Nexavar for kidney and liver cancer, splitting the after-costs profits. The $160 million was to buy-out the rights for Nexavar in Japan, which has been ramping up to be a lucrative market because of the high incidence of liver cancer there. This was part of a larger deal to end litigation for a Nexavar-related drug, Regorafenib. Under the settlement Onyx will get 20% royalties if the drug makes it to market.
Regorafenib recently had positive Phase III data for metastatic colorectal cancer. Like Nexavar, it appears it may be a useful therapy for a variety of cancers.
The predicted annual positive non-GAAP results were hard to predict before the deal announcement because in most quarters so far Onyx's own operating expenses have been sufficient to wipe out the receipts from Bayer. For Q1 non-GAAP net loss was $14.2 million, for Q2 net loss was $27.2 million, and for Q3 net loss was $19.5 million. One reason for the net losses is that both Bayer and Onyx have been spending large sums on 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 Q3 2011 at $530 million. Assuming the $160 million payment is a Q4 event, cash at the end of the year should approach $675 million.
I would not expect Regorafenib revenue until at least 2013, and like any drug it could fail for a currently unknown reason.
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. More detailed data from the Phase IIb trial will be presented at the American Society of Hematology (ASH) Annual Meeting, December 10-13, 2011. While there is an outside possibility carfilzomib will not gain FDA approval, the main question is when it will get approval.
If both Regorafenib and carfilzomib are 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, carfilzomib and other pipeline candidates without actually throwing the bottom line into the red.
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.
However, with expanded indications for Nexavar, plus likely revenues from carfilzomib and royalties on Regorafenib, in the next few years Onyx should become a highly profitable company. I do not think the current stock price reflects full value.
Disclosure: I am long Onyx Pharmaceutical. I have no plans to sell or buy ONXX in the immediate future.
Keep Diversified!
Wednesday, October 12, 2011
Onyx Pharmaceuticals Gets $160 million for Nexavar, Plus Regorafenib Royalties
Onyx Pharmaceuticals (ONXX) 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 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 these 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 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.
Keep Diversified!
See also my notes on the Q2 2011 Onyx Pharmaceuticals analyst call
Onyx Pharmaceuticals home page
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 these 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 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.
Keep Diversified!
See also my notes on the Q2 2011 Onyx Pharmaceuticals analyst call
Onyx Pharmaceuticals home page
Wednesday, August 17, 2011
Onyx Pharmaceuticals Readies Carfilzomib
I learned about the Biotech Disappointment Curve from watching Onyx Pharmaceuticals. I started following Onyx (Nasdaq: ONXX) in 2005 and first bought stock in 2008. Often new biotechs run up large market capitalizations when they have their first positive Phase II or Phase III data in. After FDA approval, however, investors sometimes start looking at a company differently. They want to see market caps based on earnings, not on future expectations. We recently saw the down side of this curve again when Dendreon announced that its ramp of Provenge had slowed in Q2 [See Dendreon Provenge Demand Questioned].
In the case of Onyx, if you look at the stock price going back a decade, the stock in 2002 was under $7 per share. The 2003 ramp was impressive, with a peak of over $48 in April of 2004. Nexavar (sorafenib) data for advanced kidney cancer was positive, and in December of 2005 the FDA approved the therapy. Then came the show-me-the-money slump, as it takes a while for a sales force to actual get traction for a cancer therapy. At the bottom of the slump, in late 2006, you could buy the stock for under $11 per share. Then in 2007 there was another ramp when Nexavar was getting approved for liver cancer. From 2008 until present Onyx stock has mainly stayed in a broad range around $30 per share.
Another factor is that Nexavar is sold by Bayer. Onyx gets a share of the profits after Bayer's expenses. But in most quarters Onyx's own operating expenses have been sufficient to wipe out the receipts from Bayer.
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 clinical 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 losses, end Q2 2011 at $550 million.
Given the background of success with Nexavar, tempered with losses due to R&D spend, Carfilzomib is the key to Onyx's future value. 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 carfilzomib is approved by the FDA, either based on current data or after Phase III results, the nature of Onyx's model will change. Again, there is likely to be a phase of investor euphoria followed by disappointment at the time needed to ramp a new cancer therapy. It should be possible, starting in 2013, to have a vigorous R&D program to continue expanding the use of Nexavar and carfilzomib without actually throwing the bottom line into the red. If profitability comes earlier, so much the better.
Even should carfilzomib and new indications for nexavar fail, Onyx could show profits by cutting back on R&D and because it has a long ramp ahead for Nexavar for liver cancer in Asia, where the majority of global liver cancer cases occur.
Today Onyx ended with a market capitalization of $2.1 billion, at $33.52 per share. 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. However, I am a long term investor in Onyx Pharmaceutical based on the potential of Nexavar and carfilzomib. I have no plans to sell or buy ONXX in the immediate future.
Keep Diversified!
See also my notes on the Q2 2011 Onyx Pharmaceuticals analyst call.
In the case of Onyx, if you look at the stock price going back a decade, the stock in 2002 was under $7 per share. The 2003 ramp was impressive, with a peak of over $48 in April of 2004. Nexavar (sorafenib) data for advanced kidney cancer was positive, and in December of 2005 the FDA approved the therapy. Then came the show-me-the-money slump, as it takes a while for a sales force to actual get traction for a cancer therapy. At the bottom of the slump, in late 2006, you could buy the stock for under $11 per share. Then in 2007 there was another ramp when Nexavar was getting approved for liver cancer. From 2008 until present Onyx stock has mainly stayed in a broad range around $30 per share.
Another factor is that Nexavar is sold by Bayer. Onyx gets a share of the profits after Bayer's expenses. But in most quarters Onyx's own operating expenses have been sufficient to wipe out the receipts from Bayer.
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 clinical 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 losses, end Q2 2011 at $550 million.
Given the background of success with Nexavar, tempered with losses due to R&D spend, Carfilzomib is the key to Onyx's future value. 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 carfilzomib is approved by the FDA, either based on current data or after Phase III results, the nature of Onyx's model will change. Again, there is likely to be a phase of investor euphoria followed by disappointment at the time needed to ramp a new cancer therapy. It should be possible, starting in 2013, to have a vigorous R&D program to continue expanding the use of Nexavar and carfilzomib without actually throwing the bottom line into the red. If profitability comes earlier, so much the better.
Even should carfilzomib and new indications for nexavar fail, Onyx could show profits by cutting back on R&D and because it has a long ramp ahead for Nexavar for liver cancer in Asia, where the majority of global liver cancer cases occur.
Today Onyx ended with a market capitalization of $2.1 billion, at $33.52 per share. 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. However, I am a long term investor in Onyx Pharmaceutical based on the potential of Nexavar and carfilzomib. I have no plans to sell or buy ONXX in the immediate future.
Keep Diversified!
See also my notes on the Q2 2011 Onyx Pharmaceuticals analyst call.
Sunday, May 8, 2011
Onyx Pharmaceuticals Sees Future Growth
Onyx Pharmaceuticals (ONXX) reported its first quarter (Q1) 2011 results and held its analyst call on Wednesday.
I like companies that invest in the future with healthy R&D spending, but usually a biotechnology company won't spend more than 100% of its revenue on operating expenses, unless it is in startup mode.
Onyx has had revenues from its liver and kidney cancer drug Nexavar for several years now. Bayer actually distributes Nexavar; Onyx revenues are from Bayer, so there is no cost of goods sold. Revenues were $67.1 million, down 4% sequentially from $70.0 million but up 7% from $62.9 million year-earlier.
But operating expense were $108.5 million. R&D was bad enough, at $62.5 million, but they spent $34.5 million on selling, general, and administrative expenses. Since Bayer does their selling, that seems like a lot. It appears they (management) are paying themselves in advance for carfilzomib.
Carfilzomib is an admittedly promising drug for multiple myeloma, but it has not been approved by the FDA yet. Onyx has a lot of cash (not generated by Nexavar, but put in by investors), so there is little to make management act frugal. Management, being management, thinks it is their cash.
On the plus side, because Onyx keeps failing the profitability test, the stock is cheap (but not dirt cheap), on the assumption (be careful here) that carfilzomib will become a profit-generating multiple myeloma blockbuster.
Another plus is ramping Nexavar sales in Asia, where there is a much higher incidence of liver cancer than in Europe and America. With some care, Onyx could have been managed to profitability in each of the four trailing quarters. The stock price would be higher, and I suspect the carfilzomib story would not be any different.
Thankfully I am a long term investor. Right now long-term means at least two years. But keep in mind we have a pattern developing. What should happen is that combined carfilzomib and nexavar sales in 2012 should be doable with less operating expense than we are seeing in 2012. Then the stock will start pricing at actual profitability, not the cautious prices that are fair when you show losses and FDA approval is still in question. What could happen, instead, is that management will find new indications for the drugs and spend all revenues on clinical trials for new indications, or even pick up the spending pace on other drugs in the pipeline. Managing to more losses.
A biotechnology company can grow quickly and profitably. Hopefully soon the FDA will approve carfilzomib and Onyx will shift to that ideal.
Another reminder to myself and all of you to: keep diversified.
For more insight see my Onyx (ONXX) Q1 2011 analyst call summary.
See also Onyx Pharmaceuticals
I like companies that invest in the future with healthy R&D spending, but usually a biotechnology company won't spend more than 100% of its revenue on operating expenses, unless it is in startup mode.
Onyx has had revenues from its liver and kidney cancer drug Nexavar for several years now. Bayer actually distributes Nexavar; Onyx revenues are from Bayer, so there is no cost of goods sold. Revenues were $67.1 million, down 4% sequentially from $70.0 million but up 7% from $62.9 million year-earlier.
But operating expense were $108.5 million. R&D was bad enough, at $62.5 million, but they spent $34.5 million on selling, general, and administrative expenses. Since Bayer does their selling, that seems like a lot. It appears they (management) are paying themselves in advance for carfilzomib.
Carfilzomib is an admittedly promising drug for multiple myeloma, but it has not been approved by the FDA yet. Onyx has a lot of cash (not generated by Nexavar, but put in by investors), so there is little to make management act frugal. Management, being management, thinks it is their cash.
On the plus side, because Onyx keeps failing the profitability test, the stock is cheap (but not dirt cheap), on the assumption (be careful here) that carfilzomib will become a profit-generating multiple myeloma blockbuster.
Another plus is ramping Nexavar sales in Asia, where there is a much higher incidence of liver cancer than in Europe and America. With some care, Onyx could have been managed to profitability in each of the four trailing quarters. The stock price would be higher, and I suspect the carfilzomib story would not be any different.
Thankfully I am a long term investor. Right now long-term means at least two years. But keep in mind we have a pattern developing. What should happen is that combined carfilzomib and nexavar sales in 2012 should be doable with less operating expense than we are seeing in 2012. Then the stock will start pricing at actual profitability, not the cautious prices that are fair when you show losses and FDA approval is still in question. What could happen, instead, is that management will find new indications for the drugs and spend all revenues on clinical trials for new indications, or even pick up the spending pace on other drugs in the pipeline. Managing to more losses.
A biotechnology company can grow quickly and profitably. Hopefully soon the FDA will approve carfilzomib and Onyx will shift to that ideal.
Another reminder to myself and all of you to: keep diversified.
For more insight see my Onyx (ONXX) Q1 2011 analyst call summary.
See also Onyx Pharmaceuticals
Tuesday, December 14, 2010
Onyx Pharmaceuticals Clinical Trial Overview
I listened to the Onyx Pharmaceuticals (ONXX) presentation to analysts today. It mainly reported on Onyx's therapeutic pipeline. I have covered Onyx in more depth elsewhere (see my Onyx Pharmaceuticals ONXX page); here I am just recording my immediate impressions from the presentations.
Carfilzomib for multiple myeloma data seems to be excellent. Carfilzomib could become the drug of choice for MM patients. Revenues could begin in late 2011, but would more likely be a 2012 story (they already got a large milestone payment from Ono Pharmaceutical in Japan).
In addition to extending Nexavar (Sorafenib) for liver cancer, there are three main targets for Nexavar: breast, lung, and thyroid cancer.
The breast cancer results seemed somewhat marginal to me. With the right subtype target, they should be able to get results good enough for FDA approval, but it is not a sure thing. A big Phase III trial is about to get underway, which will give everyone a much better view.
The lung cancer results seemed fairly solid, again with the best chance of success being based on subtype identification. I would give Nexavar a better-than-average chance of approval based on data available so far.
The best data appeared to be for thyroid cancer. Here we have a good combination of a lack of any good therapy availability to date and the method of action of Nexavar working out well for the most common type of thyroid cancer. I would bet this indication will be approved.
In the short run, the biggest impact on the stock would come from the approval of reimbursement for Nexavar for liver cancer in South Korea. Liver cancer is far more common in Asia than in the U.S. or Europe (over 10 times as common), so the bulk of the global profits will eventually come from Japan, Korea, and China. China has approved prescribing Nexavar, but not reimbursement for the costs. The Korean approval won't take effect until January 1, so it won't effect Q4 2010 revenues.
My overal impression is that the Onyx stock I own is now very underpriced, but that is based on future trial results, FDA approvals, and marketing successes, so making stock purchases on that assumption involves pretty much risk.
Onyx stock (ONXX) ended the day up $1.04 or 3.1%, at $34.54.
See also Onyx Pharmaceuticals site
Carfilzomib for multiple myeloma data seems to be excellent. Carfilzomib could become the drug of choice for MM patients. Revenues could begin in late 2011, but would more likely be a 2012 story (they already got a large milestone payment from Ono Pharmaceutical in Japan).
In addition to extending Nexavar (Sorafenib) for liver cancer, there are three main targets for Nexavar: breast, lung, and thyroid cancer.
The breast cancer results seemed somewhat marginal to me. With the right subtype target, they should be able to get results good enough for FDA approval, but it is not a sure thing. A big Phase III trial is about to get underway, which will give everyone a much better view.
The lung cancer results seemed fairly solid, again with the best chance of success being based on subtype identification. I would give Nexavar a better-than-average chance of approval based on data available so far.
The best data appeared to be for thyroid cancer. Here we have a good combination of a lack of any good therapy availability to date and the method of action of Nexavar working out well for the most common type of thyroid cancer. I would bet this indication will be approved.
In the short run, the biggest impact on the stock would come from the approval of reimbursement for Nexavar for liver cancer in South Korea. Liver cancer is far more common in Asia than in the U.S. or Europe (over 10 times as common), so the bulk of the global profits will eventually come from Japan, Korea, and China. China has approved prescribing Nexavar, but not reimbursement for the costs. The Korean approval won't take effect until January 1, so it won't effect Q4 2010 revenues.
My overal impression is that the Onyx stock I own is now very underpriced, but that is based on future trial results, FDA approvals, and marketing successes, so making stock purchases on that assumption involves pretty much risk.
Onyx stock (ONXX) ended the day up $1.04 or 3.1%, at $34.54.
See also Onyx Pharmaceuticals site
Tuesday, December 7, 2010
Onyx Pharmaceuticals ASH Carfilzomib Conference Call
Main point is the evidence presented at ASH (American Society of Hematology) that Carfilzomib will be approved eventually by the FDA and become Onyx's (ONXX) second commercial therapy.
Repeated news about working with Ono Pharmaceutical of Japan for Carfilzomib 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 (003a1) has been completed and data was presented at ASH. This was for refractory multiple myeloma, in other words for patients who have received other therapies, but then had the disease progress. Median survival expectation for such patients is currently about 9 months. Study had over 200 patients, endpoint was overall response wait, adjudicated by an independent monitoring committee. Median patient time from diagnosis was 5.4 years. Most patients had pre-existing peripheral neuropathy. Typically had had 5 prior lines of therapy (different drugs). In other words, a very sick, very previously treated group. Overall response rate was 24%, with another 10% with minimal response. Duration of response was 8.3 months, including minimal response patients. Number and type of prior therapies did not seem to influence responses. Median overall survival was 15.5 months. Adverse events were modest for this type of therapy. Conclusion is that Carfilzomib has a robust benefit for this patient population.
004 study of Carfilzomib was a non-randomized 125 patient open label trial also with refractory multiple myeloma, in two dose cohorts. Dexamethasone was administered at beginning of trial. Median age was mid-sixties, about 3.5 years of prior therapy, typically 2 prior lines of therapy, including stem cell transplants in 73 percent. Overall response rate for cohort 1 was 41% cohort 2 was 53%. Responses were relatively fast. Time to progression 8.3 for cohort 1, with cohort 2 median time to progression has not been reached. Typical modest adverse events. Showed a very impressive overall response rate with good tolerance over extended periods of time.
In the trial of therapy naive newly-diagnosed multiple myeloma patients with Carfilzomib plus two current best approved treatments (CRD), with relatively healthy (compared to the two trials above) patients in stage 2 or 3, median age was 59. Neutropenia was surprisingly low and mild, and neuropathy was minimal. 55% complete response rate, one of the best we have seen. 22% had no detectible disease. Nearly 100% had some response. Showed the regimen did not adversely affect stem cell collection. No patient has progressed, and all survived. Concludes regimen is "highly active, demonstrating rapid responses in newly diagnosed myeloma." Consensus of myeloma experts is the results compare favorably to best current therapies.
In refractory patients, many had recieved a different proteosome inhibitor therapy, notably Velcade (Bortezomib). So the response that shows differentiation from other such therapies. In patients who are refractory, the medical community considers minimal response to be significant, but it would not be significant in first-time myeloma patients.
Analysts questioned the characterization of the sickness of patients compared to Velcade trials; the doctors explained why, if anything, the patients were sicker. Patients were able to stay on therapy longer because of the tolerance patients had for it. Doctors insisted "this is the best drug in the myeloma space."
See also:
Onyx Pharmaceuticals site
My Onyx Pharmaceuticals main page
Repeated news about working with Ono Pharmaceutical of Japan for Carfilzomib 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 (003a1) has been completed and data was presented at ASH. This was for refractory multiple myeloma, in other words for patients who have received other therapies, but then had the disease progress. Median survival expectation for such patients is currently about 9 months. Study had over 200 patients, endpoint was overall response wait, adjudicated by an independent monitoring committee. Median patient time from diagnosis was 5.4 years. Most patients had pre-existing peripheral neuropathy. Typically had had 5 prior lines of therapy (different drugs). In other words, a very sick, very previously treated group. Overall response rate was 24%, with another 10% with minimal response. Duration of response was 8.3 months, including minimal response patients. Number and type of prior therapies did not seem to influence responses. Median overall survival was 15.5 months. Adverse events were modest for this type of therapy. Conclusion is that Carfilzomib has a robust benefit for this patient population.
004 study of Carfilzomib was a non-randomized 125 patient open label trial also with refractory multiple myeloma, in two dose cohorts. Dexamethasone was administered at beginning of trial. Median age was mid-sixties, about 3.5 years of prior therapy, typically 2 prior lines of therapy, including stem cell transplants in 73 percent. Overall response rate for cohort 1 was 41% cohort 2 was 53%. Responses were relatively fast. Time to progression 8.3 for cohort 1, with cohort 2 median time to progression has not been reached. Typical modest adverse events. Showed a very impressive overall response rate with good tolerance over extended periods of time.
In the trial of therapy naive newly-diagnosed multiple myeloma patients with Carfilzomib plus two current best approved treatments (CRD), with relatively healthy (compared to the two trials above) patients in stage 2 or 3, median age was 59. Neutropenia was surprisingly low and mild, and neuropathy was minimal. 55% complete response rate, one of the best we have seen. 22% had no detectible disease. Nearly 100% had some response. Showed the regimen did not adversely affect stem cell collection. No patient has progressed, and all survived. Concludes regimen is "highly active, demonstrating rapid responses in newly diagnosed myeloma." Consensus of myeloma experts is the results compare favorably to best current therapies.
In refractory patients, many had recieved a different proteosome inhibitor therapy, notably Velcade (Bortezomib). So the response that shows differentiation from other such therapies. In patients who are refractory, the medical community considers minimal response to be significant, but it would not be significant in first-time myeloma patients.
Analysts questioned the characterization of the sickness of patients compared to Velcade trials; the doctors explained why, if anything, the patients were sicker. Patients were able to stay on therapy longer because of the tolerance patients had for it. Doctors insisted "this is the best drug in the myeloma space."
See also:
Onyx Pharmaceuticals site
My Onyx Pharmaceuticals main page
Tuesday, November 23, 2010
Onyx Pharmaceuticals (ONXX) Jumps on Carfilzomib Revenue
As I have discussed several times, most recently in Onyx Pharmaceuticals Jumps on Carfilzomib Data [August 8, 2010], Onyx Pharmaceuticals (ONXX) 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
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
Monday, August 9, 2010
Onyx Pharmaceuticals Jumps on Carfilzomib Data
Onyx Pharmaceuticals stock rose 3% today to $28.11 per share. Lately it has been on a bit of a run, after hitting a near term low of $20.37 on July 19, versus a 52 week low of $19.54. This was not, in particular, due to Q2 results reported on August 8. GAAP net income for the quarter was negative $97.2 million. Taking away a $92 million charge for a carfilzomib milestone being reached, Onyx still lost $5.2 million GAAP. Non-GAAP net income was $2.9 million, not much to crow about either.
As I have discussed before, Onyx could have had a nice profitable business if they had just stuck to selling Nexavar for kidney and liver cancer. Nexavar sales are still growing, mainly internationally, since it has taken time to get approvals in many nations. But instead of ramping some profits, and the short term stock price, management decided to use cash to do studies of Nexavar for more forms of cancer, and to acquire companies or drugs to broaden their pipeline. R&D expense in Q2 was $43 million.
In pharmaceuticals and biotechnology research and development is a risky business. Drugs can fail in stage I clinical trials, or in Phase II or Phase III trials. Good Phase III data can be disputed by the FDA, as we saw with Dendreon's Provenge. And drugs that have been on the market for years can be brought into question. Plenty of examples there.
So the strategy mapped out by Onyx management could just amount to blowing profits. Or it could be the beginning of a round of new profits. You can look at the data and make educated guesses, but you can't know for sure. If we could know for sure, we would not need double-blind clinical trials. Wise biotech investors want diversity. You can get this by spreading your bets over many small companies, or by investing in companies that have pipelines with multiple good candidates. You can bet some candidates will fail, but a company has, say, five candidates with good Phase II results, it is unlikely that all of them will fail Phase III trials. It is a probability-driven business.
Which brings us to carfilzomib for multiple myeloma. Onyx bought the potential therapy, partly for cash and partly for further payments if positive milestones are reached, because they looked at the early data and the commercial potential and thought they were making a good bet. They could have been wrong, they could still be wrong, but recent data pushes us strongly in the direction of being winners. You can learn more from the July 26, 2010 carfilzomib press release.
The hope is now that the FDA will approve carfilzomib for multiple myeloma based on the data already available. But if that does not happen, Onyx would just design and conduct a Phase III trial (or two). That is more expensive and takes longer, but it would still lead to approval if the data is good.
Add that to the possibility that Nexavar will prove to be a therapy for cancers beyond liver and kidney, and you have the potential that Onyx will be, in five years say, a company that you wish you had bought when the stock was cheap.
See also my Onyx (ONXX) Q2 2010 analyst call summary and my tools for biotechnology investors page.
Keep Diversified!
As I have discussed before, Onyx could have had a nice profitable business if they had just stuck to selling Nexavar for kidney and liver cancer. Nexavar sales are still growing, mainly internationally, since it has taken time to get approvals in many nations. But instead of ramping some profits, and the short term stock price, management decided to use cash to do studies of Nexavar for more forms of cancer, and to acquire companies or drugs to broaden their pipeline. R&D expense in Q2 was $43 million.
In pharmaceuticals and biotechnology research and development is a risky business. Drugs can fail in stage I clinical trials, or in Phase II or Phase III trials. Good Phase III data can be disputed by the FDA, as we saw with Dendreon's Provenge. And drugs that have been on the market for years can be brought into question. Plenty of examples there.
So the strategy mapped out by Onyx management could just amount to blowing profits. Or it could be the beginning of a round of new profits. You can look at the data and make educated guesses, but you can't know for sure. If we could know for sure, we would not need double-blind clinical trials. Wise biotech investors want diversity. You can get this by spreading your bets over many small companies, or by investing in companies that have pipelines with multiple good candidates. You can bet some candidates will fail, but a company has, say, five candidates with good Phase II results, it is unlikely that all of them will fail Phase III trials. It is a probability-driven business.
Which brings us to carfilzomib for multiple myeloma. Onyx bought the potential therapy, partly for cash and partly for further payments if positive milestones are reached, because they looked at the early data and the commercial potential and thought they were making a good bet. They could have been wrong, they could still be wrong, but recent data pushes us strongly in the direction of being winners. You can learn more from the July 26, 2010 carfilzomib press release.
The hope is now that the FDA will approve carfilzomib for multiple myeloma based on the data already available. But if that does not happen, Onyx would just design and conduct a Phase III trial (or two). That is more expensive and takes longer, but it would still lead to approval if the data is good.
Add that to the possibility that Nexavar will prove to be a therapy for cancers beyond liver and kidney, and you have the potential that Onyx will be, in five years say, a company that you wish you had bought when the stock was cheap.
See also my Onyx (ONXX) Q2 2010 analyst call summary and my tools for biotechnology investors page.
Keep Diversified!
Monday, October 12, 2009
Onyx Pharmaceuticals Acquiring Proteolix
Today Onyx Pharmaceuticals (ONXX) announced it is buying Proteolix in a structured deal that includes a $276 million cash payment (at closing) and potentially $575 million in payments based on clinical developments and regulatory approvals. It is a pretty sweet deal for both biotechnology companies.
Onyx is acquiring a great deal of risk in that Carfilzomib may not do well enough in Phase III trials to get regulatory approval for marketing. But Onyx is acquiring even more opportunity since if Carfilzomib is as successful as the Phase II trials indicate, the revenue stream should eventually pay for the deal many times over. On the whole Onyx is reducing its risk by acquiring a late-stage drug development company with a specialty adjacent to, but well-differentiated from, Onyx's own blockbuster Nexavar for kidney and liver cancers.
Carfilzomib is a pretty good bet. It is a proteasome inhibitor. A healthy person would not want to take proteasome inhibitors, since proteasomes are a key element of cells that break up and recycle damaged and over-abundant proteins. When proteasomes don't do their jobs, damaged proteins can build up in a cell, causing disease including cell death. However, cancer cells tend to be over-dependent on proteasomes because they have acquired a variety of mutations that create damaged proteins (which is how they became cancer cells). So a proteasome inhibitor can kill cancer cells without causing too much damage to healthy cells, particularly if they are somehow selectively targeted at cancer cells. There is already an approved proteasome inhibitor, Velcade. Carfilzomib represents a new generation inhibitor designed to be more selective than Velcade.
Phase II studies have shown Carfilzomib to be compellingly effective for multiple myeloma (MM), which is a type of hematological malignancy.
However, investors should be aware that the good results in the MM were for a trial involving only 46 patients. There are currently five ongoing Phase I or II trials; one has 155 patients and should be a far more compelling indicator if the results are statistically significant.
In theory Carfilzomib should work with cancers other than MM. This is a good example of how drug development works: you want to pick a roadmap that will get a drug its initial approval from the FDA based on its safety and efficacy. If that is achieved, then you can go back and try to expand the label for the drug to other indications. This is what Onyx has already succeeded in doing with Nexavar, which began as a kidney (renal) cancer drug, has been expanded to liver cancer, and looks like it may eventually be extended to breast cancer as well. As with carfilzomib, new drugs are typically brought in as second line therapies when established therapies have failed. If they can show better safety and efficacy than the standard of care, they may eventually be approved as a first line therapy.
The earliest we might see an FDA approval for Carfilzomib would be 2011. So in the meantime Onyx's expenses will go up. This acquisition is a play for long-term value, which fits into Onyx's past style.
In 2010 Onyx, in partnership with Bayer, expects Nexavar revenues to exceed $1 billion for the first time. Onyx splits expenses, and profits, evenly with Bayer. For the second quarter of 2009 global revenues were $201 million. Onyx ended up with GAAP net income of $9.4 million and non-GAAP net income of $15.3 million. Net income should grow much faster than revenues even with the increased expenses from the Proteolix acquisition. For details of Onyx's second quarter results, see my Onyx Q2 2009 analyst conference summary.
In summary, the Proteolix acquisition is a good bet, but involves significant risks. Onyx is not yet a stock for investors looking for safety. It does have a great deal of long-range appreciation potential.
So keep diversified!
Onyx is acquiring a great deal of risk in that Carfilzomib may not do well enough in Phase III trials to get regulatory approval for marketing. But Onyx is acquiring even more opportunity since if Carfilzomib is as successful as the Phase II trials indicate, the revenue stream should eventually pay for the deal many times over. On the whole Onyx is reducing its risk by acquiring a late-stage drug development company with a specialty adjacent to, but well-differentiated from, Onyx's own blockbuster Nexavar for kidney and liver cancers.
Carfilzomib is a pretty good bet. It is a proteasome inhibitor. A healthy person would not want to take proteasome inhibitors, since proteasomes are a key element of cells that break up and recycle damaged and over-abundant proteins. When proteasomes don't do their jobs, damaged proteins can build up in a cell, causing disease including cell death. However, cancer cells tend to be over-dependent on proteasomes because they have acquired a variety of mutations that create damaged proteins (which is how they became cancer cells). So a proteasome inhibitor can kill cancer cells without causing too much damage to healthy cells, particularly if they are somehow selectively targeted at cancer cells. There is already an approved proteasome inhibitor, Velcade. Carfilzomib represents a new generation inhibitor designed to be more selective than Velcade.
Phase II studies have shown Carfilzomib to be compellingly effective for multiple myeloma (MM), which is a type of hematological malignancy.
However, investors should be aware that the good results in the MM were for a trial involving only 46 patients. There are currently five ongoing Phase I or II trials; one has 155 patients and should be a far more compelling indicator if the results are statistically significant.
In theory Carfilzomib should work with cancers other than MM. This is a good example of how drug development works: you want to pick a roadmap that will get a drug its initial approval from the FDA based on its safety and efficacy. If that is achieved, then you can go back and try to expand the label for the drug to other indications. This is what Onyx has already succeeded in doing with Nexavar, which began as a kidney (renal) cancer drug, has been expanded to liver cancer, and looks like it may eventually be extended to breast cancer as well. As with carfilzomib, new drugs are typically brought in as second line therapies when established therapies have failed. If they can show better safety and efficacy than the standard of care, they may eventually be approved as a first line therapy.
The earliest we might see an FDA approval for Carfilzomib would be 2011. So in the meantime Onyx's expenses will go up. This acquisition is a play for long-term value, which fits into Onyx's past style.
In 2010 Onyx, in partnership with Bayer, expects Nexavar revenues to exceed $1 billion for the first time. Onyx splits expenses, and profits, evenly with Bayer. For the second quarter of 2009 global revenues were $201 million. Onyx ended up with GAAP net income of $9.4 million and non-GAAP net income of $15.3 million. Net income should grow much faster than revenues even with the increased expenses from the Proteolix acquisition. For details of Onyx's second quarter results, see my Onyx Q2 2009 analyst conference summary.
In summary, the Proteolix acquisition is a good bet, but involves significant risks. Onyx is not yet a stock for investors looking for safety. It does have a great deal of long-range appreciation potential.
So keep diversified!
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