We continue to have a Neutral recommendation on Onyx Pharmaceuticals Inc. (ONXX), which posted earnings of $1.44 per share in the fourth quarter 2011, in contrast to the Zacks Consensus Estimate of a loss of 56 cents and the year-ago loss of 37 cents per share. Higher revenues led to the rise in earnings.
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 the lawsuit removed a major overhang from Onyx Pharma’s shares.
Moreover, Onyx Pharma reported an improvement in Nexavar sales in the fourth quarter 2011. Global drug sales, recorded by Bayer, amounted to $276.8 million (up 8%) in the reported quarter. Continued worldwide uptake of the drug for liver cancer helped boost sales. Nexavar continued to experience robust sales in the Asia-Pacific region and Latin America. The company expects to continue booking impressive Nexavar sales from this region. For 2012, Onyx Pharma expects global Nexavar sales to cross $1.0 billion, with higher drug sales in the second half of the year.
Additionally, Nexavar is being studied for various other indications including lung, thyroid and breast cancers. Onyx Pharma currently has late-stage trials ongoing for all the aforesaid indications, including the MISSION trial for lung cancer, the DECISION trial for thyroid cancer and the RESILIENCE trial for breast cancer. The approval of Nexavar for any of these indications will boost the company’s sales.
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 to the company’s plans for driving future growth of Nexavar.
We note that Onyx Pharma’s lead pipeline candidate, carfilzomib, is currently under review with the US Food and Drug Administration (FDA) for the treatment of patients with relapsed and refractory multiple myeloma. We were disappointed to see the candidate failing to gain accelerated review in December 2011. The FDA, in its letter to Onyx Pharma, said that the application and the study supporting it are insufficient to review the new drug application (NDA) on a priority basis. The FDA also said that since the NDA was based on a single-arm study, it is concerned whether the benefits and risks of the candidate are appropriately balanced.
It was also mentioned in the letter that the FDA’s advisory committee prefers late-stage study results for granting accelerated approval designation to a candidate’s NDA, whereas, carfilzomib’s NDA was based on mid-stage trial (003-A1) results. Based on these observations, we are concerned that carfilzomib’s approval could get delayed especially if the company is asked to conduct an additional study.
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