Analysis: Analysts Split on Onyx’s Nexavar

By STEVE MITCHELL

Onyx rises and falls on its drug Nexavar, but analysts are split on the potential of the cancer treatment in light of promising results released this week.

Onyx said it stopped a pivotal trial in liver cancer early after an interim analysis showed an improvement in overall survival in patients receiving Nexavar. The drug was approved for treating advanced renal cell carcinoma in 2005.

Nexavar has had quite a swing in the past couple of months, with the release of disappointing phase 3 results in melanoma in December followed by the promising liver-cancer results this week.

It’s been a good week for both the drug and the stock, Brian Rye, an analyst with Janney Montgomery Scott, told United Press International.

Rye said the liver-cancer study results may have had a bigger impact than they otherwise would have because investors weren’t expecting them and they came on the heels of the negative melanoma study.

The results re-ignited investor interest in the stock, he said.

The more important question is whether the drug can sustain Onyx’s earnings over the long term. Rye believes it can.

I think so, he said. He bases his assessment on two factors, including that Onyx has a co-marketing agreement with Bayer and the lack of new therapies for liver cancer.

So they will be able to command a pretty large share of the market, assuming the drug is approved for the indication, Rye said. He expects it to win approval sometime next year.

Jim Reddoch of Friedman, Billings & Ramsey saw it differently, downgrading the stock from market perform to underperform. Although he more than doubled his sales estimates for Nexavar, he said the stock has exceeded its current valuation.

The stock has over-run this valuation and we therefore recommend selling Onyx shares and taking profits here, Reddoch stated in a research report.

Part of Reddoch’s concern stems from two potential negatives looming in the future that could send the share price down.

Competitive drug Sutent — from Pfizer — is also in testing in liver cancer (phase 2) and could spoil the Nexavar sentiment, as has happened in kidney cancer, Reddoch stated.

In addition, he thinks Onyx’s share price already reflects anticipated positive results from a lung-cancer trial. But that’s a risky prospect, he said, because it can be difficult to improve chemo-combinations.

Despite these issues, Reddoch thinks Nexavar will benefit from the liver-cancer study findings. He raised his forecast for U.S. liver-cancer sales for Nexavar from $72 million to $187 million in 2010. For all cancers, Reddoch projects worldwide sales of Nexavar will hit $290 million this year and increase up to $728 million in 2010.

He bases his sales estimates on the anticipated results of the phase 3 trial. Onyx didn’t divulge the full details but plans to unveil them in June at the American Society for Clinical Oncology meeting. Reddoch said it’s likely they are similar to the phase 2 trial that found overall survival of more than nine months.

Despite his enthusiasm, he was less bullish than other analysts who were speculating about the possibility Bayer would take out Nexavar and the drug’s potential to treat other cancers.

We think the takeout scenario is unlikely since Bayer has other clinical-stage VEGF molecules it may be grooming, it already has half the Nexavar rights, and it has Onyx paying for half the new trials, Reddoch stated.

Translation of these results to other cancers — such as lung — is possibly the most speculative since every cancer is different and that trial is asking Nexavar to add to carbo-Tax’s benefit, which Nexavar failed to do in the melanoma trial, he added.

UPI could not reach Reddoch for comment.

Prudential analyst Jason Zhang saw the Nexavar news as positive both for the drug and Onyx.

Given that Nexavar data in liver cancer is positive we think that off-label use will precede formal approval, most likely immediately following the data presentation at ASCO, Zhang stated in a research report.

He projects Nexavar will generate worldwide sales of $450 million. If the drug captures 65 percent of the market, it could generate peak-year sales of $290 million, he added.

The anticipated clinical success of the drug could in turn help Onyx’s bottom line.

The early recognition of revenue from liver cancer could also help Onyx to reach profitability earlier, Zhang stated. We now project the company to earn $1.28 on a non-GAAP basis in 2010.

However, he still rates the stock as neutral because the value of the Nexavar news is already reflected in the share price.

Zhang did not respond to UPI’s request for comment.