Onyx Pharmaceuticals: Is Nexavar the Next Avastin?

Includes: BYERF, ONXX
by: Raymond Chung, CFA

Nexavar, approved for kidney and liver cancer, is already a success by most measures. It should reach blockbuster status, surpassing $1 billion in worldwide annual sales by 2010. Most companies would be quite pleased to have a drug deliver such results, and Nexavar’s owners, Onyx Pharmaceuticals (NASDAQ:ONXX) and Bayer AG (OTC:BYERF), probably feel the same. However, at this stage in the drug’s life the important question for Onyx and Bayer is, “is Nexavar’s current progress is just the tip of the iceberg?”

One needs only to look at the success of fellow anti-angiogenesis drug, Avastin, with $6 billion in worldwide sales and growing, to recognize Nexavar’s future possibilities. As more clinical data continues to emerge, the effectiveness and similarities of the two drugs are becoming more apparent. Some examples:

  • Last year Avastin received accelerated FDA approval to treat patients who have not received chemotherapy for their metastatic HER2-negative breast cancer. Most recently Onyx is glowing about its positive Phase 2 breast cancer results in HER-2 negative patients and plans to move to Phase 3 if necessary. On the 2Q 2009 earnings call CEO Tony Coles states, “…we're very confident and very comfortable with the statistical significance of the finding and believe that when the full data set are shared with everyone, that you'll be as thrilled and as pleased as we are around these particular findings.” Additionally, this past Sunday, the Phase 2 abstract for the Joint 15th European CanCer Organisation (ECCO) and 34th European Society for Medical Oncology (ESMO) Multidisciplinary Congress was released and highlighted Nexavar’s impressive 74 percent progression-free survival. More details of this Phase 2 study will follow during the presentation on Wednesday.
  • Avastin is used for colorectal and advanced, non-small cell lung cancer. Nexavar is in Phase 3 studies for advanced, non-small cell lung cancer and in Phase 2 for colorectal.
  • Nexavar is already approved to treat kidney cancer, and last month Avastin was approved for kidney cancer.

Of course, Nexavar and Avastin are not exactly alike. It is just that the increasingly like qualities should be noted and could serve as further evidence of Nexavar’s great potential. This potential is further reinforced when exploring the major differences between the two drug therapies. This analysis does suggest that Nexavar’s future could indeed be brighter than the very successful Avastin. Here’s why:

  • Nexavar is more than just an anti-angiogenesis drug. It also inhibits cell proliferation. As a multi-kinase inhibitor, it does more than just inhibit one protein, pathway or receptor. Nexavar targets RAF kinases, VEGFR (Vascular Endothelial Growth Factor Receptor) and PDGFR (Platelet Derived Growth Factor Receptor), whereas Avastin only targets VEGF (Vascular Endothelial Growth Factor). I am no scientist, but assuming that the major mechanisms are similarly effective, logical reasoning suggests that a drug that can act in multiple ways probably has a higher likelihood of being more effective than a drug with one method. Would you rather go to war with two friends or by yourself?
  • Nexavar has little competition on the horizon for liver cancer treatment. There are no other legitimate, non-experimental type alternatives besides surgery and transplant. Surgery and transplant are primarily effective in the early stages when the tumor is small in size. Unfortunately for liver cancer patients, most are diagnosed in the latter stages of the disease when the cancer has already metastasized and is inoperable. Furthermore, transplants themselves are also inherently risky. A less invasive therapy like Nexavar could be what liver cancer patients need the most.
  • Anecdotally, Nexavar appears more tolerable and less likely to cause a life-threatening event. And while Nexavar’s actual use for breast cancer could be premature, Coles also commented on the Q2 2009 earnings call that Nexavar showed no surprising side effects in the Phase 2 breast cancer study. The same cannot be said for Avastin, which already carries a Black Box label for potentially fatal gastrointestinal perforation. Before Avastin received accelerated approval, the FDA Panel actually recommended against approval. The panel’s opinion was that Avastin’s efficacy did not outweigh its serious side effects, which also include cardiovascular events. If Nexavar does ultimately get approved for breast cancer, it might have a substantial advantage to current treatments (like Avastin) if physicians and patients are more comfortable with its side effects. The just released abstract mentioned that 45 percent of patients experienced a common Nexavar side effect, Grade 3-4 hand-foot syndrome (moderate to severe sores and blisters on the hand and foot). Sores and blisters that can be mitigated with home remedies or the help of your physician, or holes in your digestive system and/or a cardiac event…hmm.
  • Nexavar has more convenient dosing, as it is delivered orally rather than via an IV.

Big Picture: With each additional clinical release, Nexavar is becoming better recognized and respected. This should lead to a stronger comfort level among physicians and increased usage in relevant indications. In short, Nexavar is on a crash course with Avastin, with the added plus of a profile capable of being more successful in the long-term. As none of the Avastin-like potential is priced into Onyx’s stock, investors seeking growth in the healthcare sector should pay attention and consider Onyx Pharmaceuticals as a core holding.

Disclosures: Long Onyx stock. The Onyx stock is a core position, and calls have and will be used to opportunistically trade around the long-term position.