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!
Showing posts with label Onyx. Show all posts
Showing posts with label Onyx. Show all posts
Monday, October 12, 2009
Thursday, February 26, 2009
Onyx Pharmaceuticals Sees Strong 2009
Onyx Pharmaceuticals (ONXX) reported strong sales of Nexavar for the fourth quarter of 2008, at the February 23, 2009 analyst conference. The liver and kidney cancer therapy, sold though a joint venture with Bayer, resulted in $49.6 million in revenues for Onyx. This is up 24% from Q3 2008 and up 90% from the year earlier.
Onyx management sees global 2009 Nexavar sales by Bayer in the range of $850 to $875 million. Operating expenses are expected to rise about 5% for the year. After costs, Onyx splits the profits with Bayer. In Q4 profit ran at about 50% of revenues.
In the fourth quarter GAAP net income was negative $30.2 million. However, this included a one-time charge for acquired research expenses of $34 million.
Onyx just became profitable this year. Prior to 2008 it had been selling Nexavar for kidney cancer. Sales for liver cancer ramped up in 2008. A number of large national markets are in the process or approving Nexavar for liver cancer, or of approving reimbursements for it. As these mostly European and Asian markets come on line in 2009 and 2010 they will drive revenue growth.
The company is also hoping that Nexavar will prove to be effective in other kinds of cancer, including lung cancer, breast cancer, thyroid cancer, and melanoma. Clinical tests have given positive indications, but they won't know for sure until Phase III tests are completed and the FDA makes its rulings.
For a more detailed report on Q4, see my Onyx analyst conference summary for February 23, 2009.
The main risks for all drug companies are competition from new products and the discover of previously-unknown adverse effects.
Onyx certainly seems poised to turn into a cash cow, but the risks should not be discounted.
Keep diversified!
Onyx Pharmaceuticals
My main Onyx page
Onyx management sees global 2009 Nexavar sales by Bayer in the range of $850 to $875 million. Operating expenses are expected to rise about 5% for the year. After costs, Onyx splits the profits with Bayer. In Q4 profit ran at about 50% of revenues.
In the fourth quarter GAAP net income was negative $30.2 million. However, this included a one-time charge for acquired research expenses of $34 million.
Onyx just became profitable this year. Prior to 2008 it had been selling Nexavar for kidney cancer. Sales for liver cancer ramped up in 2008. A number of large national markets are in the process or approving Nexavar for liver cancer, or of approving reimbursements for it. As these mostly European and Asian markets come on line in 2009 and 2010 they will drive revenue growth.
The company is also hoping that Nexavar will prove to be effective in other kinds of cancer, including lung cancer, breast cancer, thyroid cancer, and melanoma. Clinical tests have given positive indications, but they won't know for sure until Phase III tests are completed and the FDA makes its rulings.
For a more detailed report on Q4, see my Onyx analyst conference summary for February 23, 2009.
The main risks for all drug companies are competition from new products and the discover of previously-unknown adverse effects.
Onyx certainly seems poised to turn into a cash cow, but the risks should not be discounted.
Keep diversified!
Onyx Pharmaceuticals
My main Onyx page
Tuesday, November 11, 2008
ONYX Positive Surprise for Investors
Onyx Pharmaceuticals delivered investors a nice positive surprise when it reported its third quarter 2008 results at its analyst conference on November 6: better than expected revenue and earnings. Given the minefield the stock market has become lately, it is good to have a stock like Onyx in my portfolio.
Onyx is in a partnership with Bayer to develop and market a cancer therapy, Nexavar. Because Bayer takes in all the revenue and generates much of the expense, what Onyx reports as revenue is their share of the profits, which only turned positive in 2007. Since Onyx has its own operating expenses as well, at first when Bayer started transferring revenues over, Onyx still was recording net losses.
But Nexavar global sales continue to grow at a healthy clip, mainly due to its approval for reimbursement in new nations. In the quarter Bayer's Nexavar revenues were $181 million, up 73% from year earlier. Onyx's share was $40 million, more than doubling the $18 million it got in the year-ago quarter.
After taking into account Onyx operating expenses, it reported a GAAP net income of $12.2 million or $0.21 per share. For those of you who like non-GAAP numbers, the net income was $16.6 million or $0.29 per share. The main difference between GAAP and non-GAAP was stock-based compensation. This requires no cash from the company, but GAAP requires it to be valued and taken as an expense.
As I have written in earlier columns, Onyx has chosen to try to maximize long-term rather than short term profits. This has meant a high R&D spend on proving Nexavar's efficacy and safety in the two indications for which it is already approved, liver cancer and kidney (renal) cancer. They also have been spending on clinical trials for other forms of cancer, notably lung cancer, colorectal cancer, and ovarian cancer.
While Onyx's stock price popped up a bit on the news, it is still very reasonably priced because of the gloom on Wall Street. At this moment it is trading for exactly $30 per share. That is off a 1 year low of $21.66 but off the 1 year high of $61.18.
All biotechnology and pharmaceutical stocks are risky (as Anesiva showed yesterday) so ...
Keep diversified!
More data:
My Onyx (ONXX) analyst conference summaries page
Onyx Pharmaceuticals
Onyx is in a partnership with Bayer to develop and market a cancer therapy, Nexavar. Because Bayer takes in all the revenue and generates much of the expense, what Onyx reports as revenue is their share of the profits, which only turned positive in 2007. Since Onyx has its own operating expenses as well, at first when Bayer started transferring revenues over, Onyx still was recording net losses.
But Nexavar global sales continue to grow at a healthy clip, mainly due to its approval for reimbursement in new nations. In the quarter Bayer's Nexavar revenues were $181 million, up 73% from year earlier. Onyx's share was $40 million, more than doubling the $18 million it got in the year-ago quarter.
After taking into account Onyx operating expenses, it reported a GAAP net income of $12.2 million or $0.21 per share. For those of you who like non-GAAP numbers, the net income was $16.6 million or $0.29 per share. The main difference between GAAP and non-GAAP was stock-based compensation. This requires no cash from the company, but GAAP requires it to be valued and taken as an expense.
As I have written in earlier columns, Onyx has chosen to try to maximize long-term rather than short term profits. This has meant a high R&D spend on proving Nexavar's efficacy and safety in the two indications for which it is already approved, liver cancer and kidney (renal) cancer. They also have been spending on clinical trials for other forms of cancer, notably lung cancer, colorectal cancer, and ovarian cancer.
While Onyx's stock price popped up a bit on the news, it is still very reasonably priced because of the gloom on Wall Street. At this moment it is trading for exactly $30 per share. That is off a 1 year low of $21.66 but off the 1 year high of $61.18.
All biotechnology and pharmaceutical stocks are risky (as Anesiva showed yesterday) so ...
Keep diversified!
More data:
My Onyx (ONXX) analyst conference summaries page
Onyx Pharmaceuticals
Monday, August 11, 2008
Onyx Pharmaceuticals Chooses the Long Run
Onyx Pharmaceuticals (ONXX) disappointed biotechnology investors with short time horizons when management announced that most of this year's potential profits from cancer drug Nexavar will be reinvested in research and development.
Nexavar (Sorafenib) has been approved by the FDA as a therapy for liver cancer (aka HCC) and kidney cancer (aka RCC). It is marketed through a partnership with Bayer. Under this arrangement Bayer sells the drug and tracks expenses for marketing and research and development costs. The net proceeds after costs are split, with Onyx receiving 50%. Until this year the revenues from Nexavar did not cover the costs, so Onyx received nothing. In addition Onyx had costs of its own, so it reported net losses.
However, global Nexavar sales for Q2 were $168.5 million, more than doubling Q2 2007 sales of $81.3 million. Mostly this reflects Nexavar being approved for use with liver cancer, in addition to its prior approval for kidney cancer. On a global scale most major nations now allow Nexavar for kidney cancer, but it is still being rolled out for liver cancer. All indications are that sales will continue to grow rapidly well into 2009.
Onyx received $30.2 million from Bayer, down from Q1 despite increased sales because of increased joint expenses. GAAP net income was reported as $4.5 million, because Onyx racked up $28.4 million in operating expenses outside the Bayer partnership. It also had some interest and investment income.
Today Onyx, with a stock price of $39.55, has a market capitalization of about $2.2 billion. That is a lot of market capitalization for $4.5 million net income in a quarter. If anything goes wrong (like serious, previously undetected adverse reactions), a lot of that value could disappear.
But Nexavar could also become a blockbuster. It is the first drug to show good results against HCC. It attacks cancer metabolic pathways at multiple points. Chances are good (but not certain) that it will have some effectiveness against a variety of cancers beyond liver and renal. Under FDA rules clinical tests have to be done for approval for each cancer type.
Of course Nexavar could fail with other cancers, either overall or by not doing as well as other therapies. So investing in R&D presents a risk, the possibility that profits from already-approved indications will mostly be drained away for further research.
On the other hand, a good result in a common form of cancer, say one of the common types of breast cancer, would propel the value of Nexavar through the stratosphere.
So I own some Onyx stock, but I realize it is a risky deal. All the more reason to keep a portfolio within the pharmaceutical or biotechnologies segments diversified.
It may be 2010 or later before Nexavar is approved for more cancer types. In the meantime the ramp for liver cancer should result in improved financial numbers. HCC is rare in the United States, where most liver cancer actually started as a different type of cancer. But it is one of the most common types of cancer in China and some other Asian nations. Approval to market Nexavar in China was recently granted.
Nexavar (Sorafenib) has been approved by the FDA as a therapy for liver cancer (aka HCC) and kidney cancer (aka RCC). It is marketed through a partnership with Bayer. Under this arrangement Bayer sells the drug and tracks expenses for marketing and research and development costs. The net proceeds after costs are split, with Onyx receiving 50%. Until this year the revenues from Nexavar did not cover the costs, so Onyx received nothing. In addition Onyx had costs of its own, so it reported net losses.
However, global Nexavar sales for Q2 were $168.5 million, more than doubling Q2 2007 sales of $81.3 million. Mostly this reflects Nexavar being approved for use with liver cancer, in addition to its prior approval for kidney cancer. On a global scale most major nations now allow Nexavar for kidney cancer, but it is still being rolled out for liver cancer. All indications are that sales will continue to grow rapidly well into 2009.
Onyx received $30.2 million from Bayer, down from Q1 despite increased sales because of increased joint expenses. GAAP net income was reported as $4.5 million, because Onyx racked up $28.4 million in operating expenses outside the Bayer partnership. It also had some interest and investment income.
Today Onyx, with a stock price of $39.55, has a market capitalization of about $2.2 billion. That is a lot of market capitalization for $4.5 million net income in a quarter. If anything goes wrong (like serious, previously undetected adverse reactions), a lot of that value could disappear.
But Nexavar could also become a blockbuster. It is the first drug to show good results against HCC. It attacks cancer metabolic pathways at multiple points. Chances are good (but not certain) that it will have some effectiveness against a variety of cancers beyond liver and renal. Under FDA rules clinical tests have to be done for approval for each cancer type.
Of course Nexavar could fail with other cancers, either overall or by not doing as well as other therapies. So investing in R&D presents a risk, the possibility that profits from already-approved indications will mostly be drained away for further research.
On the other hand, a good result in a common form of cancer, say one of the common types of breast cancer, would propel the value of Nexavar through the stratosphere.
So I own some Onyx stock, but I realize it is a risky deal. All the more reason to keep a portfolio within the pharmaceutical or biotechnologies segments diversified.
It may be 2010 or later before Nexavar is approved for more cancer types. In the meantime the ramp for liver cancer should result in improved financial numbers. HCC is rare in the United States, where most liver cancer actually started as a different type of cancer. But it is one of the most common types of cancer in China and some other Asian nations. Approval to market Nexavar in China was recently granted.
Tuesday, May 13, 2008
I Buy Onyx Pharmaceuticals (ONXX)
Friday, May 9, 2008, I bought my first shares of Onyx Pharmaceuticals. Since I have been writing about Onyx for a while, and intend to continue to write about the company, this is just a disclosure to my readers.
I consider Onyx to be promising but risky. My initial position is a small fraction of my small portfolio.
To see all my writing on Onyx, including my summaries of past analyst conferences, go to my main Onyx page.
Keep diversified!
I consider Onyx to be promising but risky. My initial position is a small fraction of my small portfolio.
To see all my writing on Onyx, including my summaries of past analyst conferences, go to my main Onyx page.
Keep diversified!
Wednesday, May 7, 2008
Onyx In The Black
Onyx Pharmaceutical reported GAAP net income yesterday for Q1 2008, a first. It has been a long road for Onyx, which was set up in 1992. Nexavar (sorafenib) for advanced kidney cancer (also referred to as RCC, renal cell carcinoma), was approved by the FDA in December 2005. It was developed with Bayer, which also does the sales and marketing.
Onyx reported no revenues for Q1. How, then, can it make a profit? All Nexavar sales are by Bayer. Onyx has always reported their joint venture as an expense item. Their joint expenses are deducted from sales. Half of the remaining profit or loss in the joint venture is transferred onto Onyx's statements. Until Q4 2007, this had been a loss. The joint venture loss was added to Onyx's own operating expenses to get their net loss.
In Q4, the joint venture netted Onyx $4.4 million from Bayer, but that was swamped by Onyx's own expenses. This latest quarter the joint venture was $37.7 million, quite a leap, and allowing Onyx to show an overall profit of $15.4 million, or $0.24 per share.
You might think the stock price would have jumped today, but it opened down. Maybe some traders just sold on the news. But probably this was a result of the guidance Onyx gave and its responses to analysts' questions about the guidance (See my Onyx Analyst Conference Summary for Q1 2008 for details). The low end of guidance for revenue for all 2008 was basically flat against Q1 revenue.
A couple of things might be going on here. This is the first time ever management has given forward guidance. They probably just wanted to give a number they are sure to beat. On the other hand growth in revenues has been heavily dependent on introducing Nexavar to new countries internationally. If for some reason introductions are delayed, it is conceivable that revenue growth could flatten out.
Right now Onyx is a one drug company, so growth depends on three things. Of course they will try to sell more Nexavar for liver and kidney cancer, for which they have received approval. They also have a number of trials underway for other types of cancers. Third, they may license other drug candidates for development.
Downside risks are the usual for a pharmaceutical development company. Some downside to Nexavar that did not show up in clinical trials could appear -- that is what happened to Amgen. And it might turn out that Nexavar is not good for anything besides renal and liver cancer. There has already been one disappointment, the failure of a study last year of Nexavar for non-small cell lung cancer.
Probably the future is bright for Onyx. I have it on my short list of potential buys.
Keep diversified.
More data:
Onyx Pharmaceuticals corporate web site
My main Onyx page
Onyx reported no revenues for Q1. How, then, can it make a profit? All Nexavar sales are by Bayer. Onyx has always reported their joint venture as an expense item. Their joint expenses are deducted from sales. Half of the remaining profit or loss in the joint venture is transferred onto Onyx's statements. Until Q4 2007, this had been a loss. The joint venture loss was added to Onyx's own operating expenses to get their net loss.
In Q4, the joint venture netted Onyx $4.4 million from Bayer, but that was swamped by Onyx's own expenses. This latest quarter the joint venture was $37.7 million, quite a leap, and allowing Onyx to show an overall profit of $15.4 million, or $0.24 per share.
You might think the stock price would have jumped today, but it opened down. Maybe some traders just sold on the news. But probably this was a result of the guidance Onyx gave and its responses to analysts' questions about the guidance (See my Onyx Analyst Conference Summary for Q1 2008 for details). The low end of guidance for revenue for all 2008 was basically flat against Q1 revenue.
A couple of things might be going on here. This is the first time ever management has given forward guidance. They probably just wanted to give a number they are sure to beat. On the other hand growth in revenues has been heavily dependent on introducing Nexavar to new countries internationally. If for some reason introductions are delayed, it is conceivable that revenue growth could flatten out.
Right now Onyx is a one drug company, so growth depends on three things. Of course they will try to sell more Nexavar for liver and kidney cancer, for which they have received approval. They also have a number of trials underway for other types of cancers. Third, they may license other drug candidates for development.
Downside risks are the usual for a pharmaceutical development company. Some downside to Nexavar that did not show up in clinical trials could appear -- that is what happened to Amgen. And it might turn out that Nexavar is not good for anything besides renal and liver cancer. There has already been one disappointment, the failure of a study last year of Nexavar for non-small cell lung cancer.
Probably the future is bright for Onyx. I have it on my short list of potential buys.
Keep diversified.
More data:
Onyx Pharmaceuticals corporate web site
My main Onyx page
Wednesday, February 20, 2008
Onyx (ONXX) Nexavar Trial and Q4 results
Onyx had its analyst conference yesterday. In addition to going over results from the fourth quarter of 2007, management talked and answered questions about the stopping of the Phase 3 trial of Nexavar combined with chemotherapies for lung cancer patients. See my Onyx Pharmaceutical analyst conference summary for notes on what management said and the questions asked by analysts.
But what you really want to know is, following the plumetting of the stock price from about $46 to about $32 on following the announcement of the cancellation of the trial, is the stock now overvalued or undervalued?
At this moment's price of $31.16, market valuation is near $1.7 billion. What would you get if you bought the whole company.
Nexavar is marketed through a partnership agreement with Bayer. Total sales made by Bayer in Q4 were $125 million. After R&D and market deveopment costs, however, Onyx is only owed $4.4 million by Bayer. It seems trivial, but only recently has Bayer started owing Onyx money instead of the other way around. Onyx spent an additional $22 million on its own. It has a lot of cash, $470 million at the end of the quarter, and generated interest income of almost $6 million on that.
All told the net loss, including non-cash stock compensation for employees, was $11.7 million.
So subtracting the cash from the market valuation gives you about $1.2 billion, which is what the market says is today's value for potential future profits. But remember the market is not magic, it is made up of the trades of a bunch of fallible people.
The near term is easier to see than the long term. In 2008 many nations will begin allowing patients with liver cancer to take Nexavar. So sales will continue to ramp. Management thinks that for 2008 the company may be cash-flow positive. What that means is that non-GAAP net income may be positive, but that GAAP net income, which includes non-cash charges like stock options for employees, may not be.
So here's why the stock is hard to put a simple valuation on: you have to guess what other cancers besides renal and liver cancer will benefit from Nexavar. And it costs money to prove such matters. The FDA not only is very specific in its cancer approvals (it may approve a drug for one type of lung cancer, but not another), but it also may specify stages that a drug can be tried at. Primary drugs are used when the cancer is first discovered; secondary drugs when the primary drugs have failed.
There are over 200 clinical trials going on with Nexavar at this time. Not all of them are paid for by Onyx or Bayer. Some are being done by independent cancer researchers. They cover the gamut of Nexavar's promise: some are for primary use. Some for secondary. Some in combination with other drugs. Some alone. And it is being tried on a variety of types, notably breast cancers and lung cancers.
Given the complexity of the conditions we lump together under the word "cancer," it should not be surprising that Nexavar works better on some cancer types than others. Even for the approved types, kidney cancer and liver cancer, some patients respond better than others.
While the non-small cell lung cancer trial that had to be discontinued was one that doctors, patients, and investors all had great hope for, it is just one failure in a large array. It should not have had such a large effect on the stock price, in itself. Still, we should assign some possibility that it presages a pattern of failure.
But it does make you think about the cost of research compared to the potential profits if Onyx gets permission to market Nexavar for more than its current applications.
In the short run Onyx and Bayer would be more profitable to just stop doing research and instead sell into the improved markets. But a rational investor should favor ongoing research if it is strategic. Nexavar probably has a long run ahead of it. It is running through fog, but it has already proven itself for two cancer types.
So I think Onyx stock is undervalued. 2008 Nexavar sales should cover R&D costs. With so many trials underway, in 2009 or so we should be seeing some data that lets us know how extensible Nexavar's benefits will be.
I don't own Onyx Pharmaceuticals at this time. I do have a small portfolio of other biotechnology companies.
Keep diversified!
More data:
Onyx web site
My Onyx main page
My biotechnology research guide page
But what you really want to know is, following the plumetting of the stock price from about $46 to about $32 on following the announcement of the cancellation of the trial, is the stock now overvalued or undervalued?
At this moment's price of $31.16, market valuation is near $1.7 billion. What would you get if you bought the whole company.
Nexavar is marketed through a partnership agreement with Bayer. Total sales made by Bayer in Q4 were $125 million. After R&D and market deveopment costs, however, Onyx is only owed $4.4 million by Bayer. It seems trivial, but only recently has Bayer started owing Onyx money instead of the other way around. Onyx spent an additional $22 million on its own. It has a lot of cash, $470 million at the end of the quarter, and generated interest income of almost $6 million on that.
All told the net loss, including non-cash stock compensation for employees, was $11.7 million.
So subtracting the cash from the market valuation gives you about $1.2 billion, which is what the market says is today's value for potential future profits. But remember the market is not magic, it is made up of the trades of a bunch of fallible people.
The near term is easier to see than the long term. In 2008 many nations will begin allowing patients with liver cancer to take Nexavar. So sales will continue to ramp. Management thinks that for 2008 the company may be cash-flow positive. What that means is that non-GAAP net income may be positive, but that GAAP net income, which includes non-cash charges like stock options for employees, may not be.
So here's why the stock is hard to put a simple valuation on: you have to guess what other cancers besides renal and liver cancer will benefit from Nexavar. And it costs money to prove such matters. The FDA not only is very specific in its cancer approvals (it may approve a drug for one type of lung cancer, but not another), but it also may specify stages that a drug can be tried at. Primary drugs are used when the cancer is first discovered; secondary drugs when the primary drugs have failed.
There are over 200 clinical trials going on with Nexavar at this time. Not all of them are paid for by Onyx or Bayer. Some are being done by independent cancer researchers. They cover the gamut of Nexavar's promise: some are for primary use. Some for secondary. Some in combination with other drugs. Some alone. And it is being tried on a variety of types, notably breast cancers and lung cancers.
Given the complexity of the conditions we lump together under the word "cancer," it should not be surprising that Nexavar works better on some cancer types than others. Even for the approved types, kidney cancer and liver cancer, some patients respond better than others.
While the non-small cell lung cancer trial that had to be discontinued was one that doctors, patients, and investors all had great hope for, it is just one failure in a large array. It should not have had such a large effect on the stock price, in itself. Still, we should assign some possibility that it presages a pattern of failure.
But it does make you think about the cost of research compared to the potential profits if Onyx gets permission to market Nexavar for more than its current applications.
In the short run Onyx and Bayer would be more profitable to just stop doing research and instead sell into the improved markets. But a rational investor should favor ongoing research if it is strategic. Nexavar probably has a long run ahead of it. It is running through fog, but it has already proven itself for two cancer types.
So I think Onyx stock is undervalued. 2008 Nexavar sales should cover R&D costs. With so many trials underway, in 2009 or so we should be seeing some data that lets us know how extensible Nexavar's benefits will be.
I don't own Onyx Pharmaceuticals at this time. I do have a small portfolio of other biotechnology companies.
Keep diversified!
More data:
Onyx web site
My Onyx main page
My biotechnology research guide page
Thursday, May 10, 2007
Can Onyx Deliver?
Some biotechnology investors have done very well, as early owners of Genentech (DNA) and Amgen (AMGN) can verify. Other technology investors have done very poorly with companies that had promising drug candidates that failed to go all the way to FDA approval, or that were not able to successfully market drugs even when approved. Buying a basket of biotech stocks cuts your risk, but it also lessens your upside potential.
Onyx Pharmaceuticals (ONXX) is a company that can appear to be a victim of its own success or a potential big winner, depending on how you look at the tea leaves. It has a drug that is a pretty big hit, Nexavar for kidney cancer, that has global sales running at around $240 million in annual revenues. Yet it has consistently shown a loss, quarter after quarter, not just when the drug was under development, but even after over a year of sales.
Onyx is in a partnership with Bayer, which actually markets Nexavar. Both companies are continuing to do research and development on the drug. Both have SG&A expense. They total up their Nexavar expenses, subtract them from Nexavar revenues, and get a profit or loss. They split that profit or loss, which means they make a transfer between the two companies, depending on who spent what. Until Q1 2007 Onyx made transfers to Bayer under this deal.
So the good news from Q1 results (See my summary of the analyst conference) was that, finally, it worked out that Bayer made a payment to Onyx of $3 million. This is counted by Onyx as credit against expense rather than as income. But not all Onyx expenses are part of the agreement with Bayer. Given the other expenses, Onyx showed a net loss of $12.2 million.
It is also notable that the $3 million payment from Bayer does not mean Nexavar collaboration was profitable. Revenues were $61 million, but collaborative expenses were $70 million. It just happened that Onyx had more expenses than Bayer, resulting in the $3 million transfer.
There has been a great deal of disappointment that Onyx has been unable to make a profit on Nexavar for kidney cancer. But much of the Nexavar expense is not for kidney cancer, but to do R&D and prepare to market Nexavar for other types of cancer. Onyx expects Nexavar to be approved for liver cancer later this year. It is in clinical trials for lung and breast cancer that are reported to be pointing in the right direction.
So the company (and you if you own the stock; I don't at present) is betting that Nexavar will be approved for multiple cancer types. That is why Onyx's market capitalization today is near $1.3 billion.
But the risk is concentrated, too. There is not much of a pipeline aside from moving Nexavar to varying cancer types. Nexavar is a big bet, and like all patented drugs, the clock is ticking.
List of companies I follow
Onyx web site
My Onyx page
My Amgen page
My Genentech page
Onyx Pharmaceuticals (ONXX) is a company that can appear to be a victim of its own success or a potential big winner, depending on how you look at the tea leaves. It has a drug that is a pretty big hit, Nexavar for kidney cancer, that has global sales running at around $240 million in annual revenues. Yet it has consistently shown a loss, quarter after quarter, not just when the drug was under development, but even after over a year of sales.
Onyx is in a partnership with Bayer, which actually markets Nexavar. Both companies are continuing to do research and development on the drug. Both have SG&A expense. They total up their Nexavar expenses, subtract them from Nexavar revenues, and get a profit or loss. They split that profit or loss, which means they make a transfer between the two companies, depending on who spent what. Until Q1 2007 Onyx made transfers to Bayer under this deal.
So the good news from Q1 results (See my summary of the analyst conference) was that, finally, it worked out that Bayer made a payment to Onyx of $3 million. This is counted by Onyx as credit against expense rather than as income. But not all Onyx expenses are part of the agreement with Bayer. Given the other expenses, Onyx showed a net loss of $12.2 million.
It is also notable that the $3 million payment from Bayer does not mean Nexavar collaboration was profitable. Revenues were $61 million, but collaborative expenses were $70 million. It just happened that Onyx had more expenses than Bayer, resulting in the $3 million transfer.
There has been a great deal of disappointment that Onyx has been unable to make a profit on Nexavar for kidney cancer. But much of the Nexavar expense is not for kidney cancer, but to do R&D and prepare to market Nexavar for other types of cancer. Onyx expects Nexavar to be approved for liver cancer later this year. It is in clinical trials for lung and breast cancer that are reported to be pointing in the right direction.
So the company (and you if you own the stock; I don't at present) is betting that Nexavar will be approved for multiple cancer types. That is why Onyx's market capitalization today is near $1.3 billion.
But the risk is concentrated, too. There is not much of a pipeline aside from moving Nexavar to varying cancer types. Nexavar is a big bet, and like all patented drugs, the clock is ticking.
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