Onyx Data Deliver the Goods

Additional Sutent liver cancer data is being presented at ASCO later Monday, but at this point, the drug will need to reverse its fortunes if it's to compete with Nexavar in liver cancer.

Where To From Here?

With Onyx shares at $30.88, is the stock fully valuing Nexavar's commercial prospects in kidney and liver cancer? I think a case can be made for the stock moving higher, despite the nice move it's already had this year.

Working off the assumption of peak worldwide Nexavar sales of $1 billion, it's not unreasonable to value Onyx at between $1.6 billion and $2 billion in market cap. At its current price, Onyx sports a market cap of just over $1.5 billon.

Another way of looking at Onyx's valuation -- admittedly one more bullish and less certain -- is to consider what Bayer would pay to acquire Onyx in order to gain 100% of Nexavar. Again, assuming peak Nexavar sales of $1 billion, Bayer might pay 2 to 3 times for the half of the drug it doesn't own. That values Onyx at $2 billion to 3 billion.

And that calculation ignores giving Onyx any credit for the possibility that Nexavar might work in other cancers in the future. A phase III lung cancer trial is now fully enrolled, and while Nexavar suffered a setback in melanoma earlier this year, the company and Bayer are not giving up hope that a different combination of Nexavar and chemotherapy will prove effective.

A significant phase II program testing Nexaavar in breast cancer will also begin later this year.

And while I count myself an Onyx bull, there is the bear case to consider, which goes something like this: The run in the stock this year already fully values Nexavar's opportunity in liver cancer, and the liver cancer market isn't as big as Onyx bulls think it is. Sutent and Avastin will also be formidable competitors.

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