Onyx Pharmaceutical Shares Undervalued With Approved Blockbuster Drugs

| About: ONYX Pharmaceuticals, (ONXX)

In 2012, shares of Onyx Pharmaceuticals (NASDAQ:ONXX) shot up over 100% after several drugs became FDA approved. The company eventually settled with gains of 70% for 2012. However, shares are now trading in the mid-range of their 52-week prices and appear to be a bargain going forward.

I recommended buying shares of Onyx in my annual "Top Ten Stocks for 2013" list. Since that time, shares are down 7%. The three main reasons I gave for the recommendation were sales of Kyprolis, buyout target, and a strong pipeline.

Kyprolis, which was approved in 2012, treats multiple myeloma. Analysts at Bloomberg see the drug reaching peak sales of $683 million in 2016. Several analysts thought the drug could be even bigger than that, with targeted annual sale prices of $1 to $2 billion. In 2012, the drug had sales of $64 million in less than six months on the market.

In the third quarter of 2012, Kyprolis had sales of $18.6 million. This was significantly higher than the $10 million predicted by analysts. Kyprolis maintained close to a 10% market share with this sales figure. On Thursday, Onyx reported sales of $45 million for Kyprolis in the fourth quarter. This gave the drug a market share of 30% of its target market. The company recognized the "encouraging depth of adoption by U.S. physicians." Onyx expects sales of the new drug to continue to increase quarter-over-quarter. Sales of the drug will also soon expand to several key European markets.

Kyprolis is currently in three additional Phase III tests. The drug is being tested to treat additional types of myeloma. A fourth Phase III program is also scheduled to start soon. These additional tests will provide more revenue and a stronger relationship with doctors treating myeloma if approved.

Stivarga, another drug that was approved in 2012, has an exciting future. The drug is made in a partnership with Bayer Healthcare. The drug saw net sales of $40 million in less than three months. Onyx saw revenue of $8 million, in the form of a 20% royalty during the fourth quarter. This is another drug that could see peak sales of over $1 billion, according to the company. The drug treats a form of colorectal cancer.

Nexavar has sales of over $1 billion in 2012. Excluding Japan, where the drug is licensed, sales hit $861 million, an increase of 3%. In the United States, sales of Nexavar were $257 million. The same drug is also being tested to treat other forms of cancer, including thyroid and breast cancer. Onyx has guided 2013 sales of Nexavar (excluding Japan) to hit $890 to $920 million.

In January, the company announced that Nexavar Phase III tests had met their primary endpoint to treat a type of thyroid cancer. Shares were up to $86 on the news, but have since fallen. Investors and analysts continue to not see the long-term picture. Thyroid cancer is a type that affects 160,000 new patients every year. Over 25,000 people die from thyroid cancer every year.

PD-991, also known as Palbociclib, will likely enter Phase III trials to treat breast cancer. The drug is a collaboration with Pfizer (NYSE:PFE). The drug has already helped earn millions in milestone payments. However, Onyx has up to $11.5 million left in potential milestones. If the drug is approved, Onyx will collect a nice 8% royalty from the potential blockbuster drug.

During the conference call, Onyx promised that the "next chapter of our story begins now." I couldn't agree with management more. I followed the company in 2012 as it fought to get several drugs approved. Now with the approval of these drugs, the company is expanding additional trials to help more patients. In the meantime, Onyx collects revenue from its marketed drugs and royalties from its collaborations.

Patient investors will see strong returns from their investment in Onyx in the next five years. This is a $5 billion company that has several blockbuster drugs already approved. Once sales pick up, shares will rise or the company will be bought out. Continue to accumulate shares at these prices that are similar to the pre-approval of Kyprolis days.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ONXX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Tagged: , , , Biotechnology
Problem with this article? Please tell us. Disagree with this article? .