Onyx News Slaps Adherents

Onyx Pharmaceuticals(ONXX Quote) is down 28% Monday, only partly because investors are disappointed that the biotech firm will delay the U.S. filing of its kidney cancer drug BAY 43-9006, which it is developing with German drugmaker Bayer(BAY Quote). In addition to the delay, Onyx is taking a hit today because confidence in the fundamental bull story around BAY 43-9006 has been undermined.

Onyx has been a great biotech story: a relatively unknown, single-digit stock in late 2002 that soared to a high of $60 per share in mid-2004 because investors believed that BAY 43-9006 would be the next big thing in cancer drugs. Its cult following grew over the years, but reality slapped a lot of people in the face on Monday.

Onyx and Bayer are putting a positive spin on the data from a phase II study of BAY 43-9006, and with some justification. But at the same time, there are aspects of this data that suggest this drug may not be as potent as previously believed. Add these concerns to the fact that BAY 43-9006 may get beat to market by Pfizer's(PFE Quote) rival kidney cancer drug SU-11248 and you've got a recipe for some nervous investors.

Tracing the Timeline

First, let me address the timeline for a BAY 43-9006 filing with the Food and Drug Administration. Onyx and Bayer say they expect U.S. approval in 2006, but the companies won't be any more specific, citing competitive reasons. If you assume, very optimistically, that BAY 43-9006 receives approval in January 2006, this implies that the drug would need to be filed to the FDA by the middle of 2005 so that the agency has six months to review.

Hard-core Onyx bulls were hoping for an early 2005 FDA filing with an approval in mid- or late-2005. The filing delay disclosed Monday is obviously a disappointment, but given the fact that several analysts and knowledgeable Onyx investors already were anticipating a later filing, the stock's steep slide this morning doesn't make sense.

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