Onyx Pharma Poised to Crack Asian Market

In recent weeks, some sell-side analysts covering Onyx have also raised their price targets into the $45-$50 range, including Bear Stearns, Bank of America and Wachovia Securities.

Cowen analyst Phil Nadeau says his Nexavar model takes the drug to $1 billion in sales on kidney and liver cancer sales alone and doesn't include significant Asian revenue. Based on peer group valuations, he thinks the stock can still go higher and that a Bayer buyout is still a possibility. Nadeau has an outperform rating on Onyx and his firm doesn't have a banking relationship with the company.

There is, of course, downside risk for Onyx, especially with expectations already so high for liver cancer sales. There are some skeptics out there, including Merrill Lynch analyst Eric Ende, who believes that the liver cancer market is actually quite small and that consensus sales estimates are unrealistic. Ende has a neutral rating on Onyx and his firm has a banking relationship with the company.

To this point, Nexavar sales have been holding their own in the kidney cancer market against tough competition from Pfizer's(PFE Quote) drug Sutent and Genentech's(DNA Quote) Avastin. There are other drugs entering this market, however, which could cause Nexavar sales to suffer.

It goes without saying that Onyx shares have had a great run this year, so with the calendar running out and expectations so high already, investors will be taking profits. Looking ahead, a lot of attention will paid to the third-quarter reports from both Onyx and Bayer, as investors look for solid evidence that liver cancer sales have already started.

A bit further into the future, the next big catalyst for Nexavar will be data from a large phase III study in front-line lung cancer. Results are expected in the second half of 2008.

If Nexavar succeeds in showing a survival benefit in lung cancer -- another large cancer drug market -- we'll be revisiting the Onyx valuation question again, although at much higher levels.