Risk-Reward Balanced at Onyx Pharma - Analyst Blog

We continue to have a Neutral recommendation on Onyx Pharmaceuticals Inc. ( ONXX ), which posted a loss of 44 cents per share in the third quarter 2011. While the Zacks Consensus Estimate was pegged at a loss of 38 cents, the company had reported earnings of 76 cents per share in the year-ago quarter. Lower revenues and higher operating expenses led to the loss.

We note that Onyx Pharma had filed a lawsuit against Bayer ( BAYRY ) in May 2009, accusing the latter of developing fluoro-sorafenib (or regorafenib) for kidney cancer. According to Onyx Pharma, Bayer had developed the drug without Onyx Pharma's knowledge, as it intended to avoid royalty payments to Onyx Pharma. Regorafenib, a variant of sorafenib, has the same chemical structure as Nexavar, except that a single fluorine atom has been substituted for a hydrogen atom.

In October 2011, Onyx Pharma settled its dispute with Bayer, thereby becoming eligible to receive royalty payments to the tune of 20% on global sales of regorafenib on approval (even if Onyx Pharma is acquired). The settlement of this lawsuit removed a major overhang from Onyx Pharma's shares.

Moreover, Onyx Pharma reported an improvement in Nexavar sales in the third quarter 2011. Global drug sales, recorded by Bayer, amounted to $250.3 million (up 11%). Continued worldwide uptake of the drug for liver cancer helped boost sales. Nexavar continued to experience robust sales in the Asia-Pacific region, led primarily by Japan and China. The company expects to book impressive Nexavar sales from this region. Further, for 2011, Onyx Pharma continues to expect global Nexavar sales in the range of $975 million to $1.25 billion, with the sales figure likely to come in near the mid-point of the guidance range.

Additionally, Nexavar is being studied for various other indications including lung, thyroid, breast, ovarian and colorectal cancers. Onyx Pharma currently has late-stage trials ongoing for most of the aforesaid indications, including the MISSION trial for lung cancer, the DECISION trial for thyroid cancer and the RESILIENCE trial for breast cancer. The drug is presently in early and mid-stage trials for ovarian and colorectal cancers. The approval of Nexavar for any of these indications will boost its sales further.

However, Onyx Pharma records revenue only from Nexavar, as it's the company's only marketed drug. Any decline in Nexavar's sales would hurt the top-line. Further, as the company is currently studying the drug for several other indications, the failure of the candidate in any of these trials would be a major setback for the company's plans for driving future growth of Nexavar.

We note that Onyx Pharma completed the submission of a rolling new drug application (NDA) for gaining accelerated approval of carfilzomib for the treatment of patients with relapsed and refractory multiple myeloma, in September 2011. Any delay or failure to gain approval would be a major setback for the company.

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ONYX PHARMA INC ( ONXX ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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