We have upgraded our rating on Onyx Pharmaceuticals, Inc. (ONXX) to Neutral from Underperform following the release of fourth quarter and fiscal year 2010 financial results. We were pleased to see an improvement in Nexavar sales.
Global Nexavar sales, recorded by Bayer Healthcare (OTC:BYERF), amounted to $934.0 million and $257.4 million for the full year and fourth quarter 2010, respectively, reflecting an increase of 11% and 9%. Nexavar sales for 2010 were above the company’s guidance of $905-925 million. During the reported quarter, Onyx Pharma saw an improvement in Nexavar (marketed for kidney and liver cancer) sales in the Asia-Pacific region, led primarily by Japan and China.
Additionally, the company was granted reimbursement for Nexavar for the treatment of liver cancer in South Korea. Moreover, Onyx Pharma expects to receive reimbursement for Nexavar in Taiwan by year-end. This should lead to double-digit growth in sales of the drug in this region. The improvement in Nexavar’s performance is encouraging as the drug had performed below expectations in the first nine months of 2010.
We note that 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" and "Escape" trials for lung cancer, "Decision" trial for thyroid cancer and "Resilience" trial for breast cancer.
The drug is presently in early- and mid-stage trials for ovarian and colorectal cancers. We believe that the approval of Nexavar for any of these indications will boost its sales further.
Meanwhile, we expect the acquisition of Proteolix to add significant value to Onyx Pharma in due course. We are encouraged by the company’s progress with carfilzomib, which became a part of its portfolio following the Proteolix acquisition. Onyx Pharma signed a licensing deal for carfilzomib for Japan in September 2010.
The signing of lucrative partnership deals for other markets like the Asia-Pacific region would have a favorable impact on the stock. Moreover, Onyx Pharma is currently in the process of submitting a rolling New Drug Application (NDA) for the candidate for relapsed and refractory multiple myeloma. The submission is expected to complete by mid-2011. Accelerated approval would be a major boost for the stock.
However, the filing of the NDA for carfilzomib, which was originally expected to occur by year-end 2010, was delayed and finally initiated in February 2011. Onyx Pharma expects to complete the submission by mid-2011. The timely filing of the application could have resulted in carfilzomib’s approval by mid-2011. We currently do not expect the product approval/launch before late 2011/early 2012.
Additionally, the kidney cancer market is highly competitive. Shortly after the approval of Nexavar in 2005, Pfizer Inc. (PFE) received approval for Sutent in both advanced kidney cancer and gastrointestinal stromal tumors (GIST). Pfizer also markets Torisel (temsirolimus) for the treatment of kidney cancer.
Other drugs in this area include Roche Holdings Ltd.’s (OTCQX:RHHBY) Avastin, Novartis AG’s (NVS) Afinitor and GlaxoSmithKline plc’s (GSK) Votrient. Going forward, Nexavar could face additional competition from products that are currently under development, including Bristol-Myers Squibb Co.’s (BMY) brivanib.
As Nexavar is being developed under a collaboration agreement with Bayer, we believe that any conflict leading to a termination of the agreement will influence the stock adversely. We remain concerned about the partnership since a suit has already been filed by Onyx Pharma against Bayer. Bayer has been developing fluoro-sorafenib (or regorafenib) for kidney cancer. However, the ownership of this compound is under dispute, with Onyx Pharma filing a lawsuit in May 2009.