Biotech Notebook: Onyx, Genentech, Cardiome

Onyx PharmaceuticalsONXX CEO Hollings Renton was a hero to biotech investors in 2007. As much as it pains me to say it, this year he's been a zero.

I love the guy, but perhaps it's time for Renton to take that previously announced stroll into retirement. I'm disappointed, but not upset, about the failure of the Nexavar lung cancer study. Stuff happens, especially in biotech. That's not Renton's fault.

But I do hold him responsible for Onyx's terrible quarterly conference call Tuesday, in which the company told investors that spending -- already high -- is being ratcheted up even further. As a result, the company is unable to forecast a full year of profitability in 2008.

Uh, that's a problem, because analyst targets had Onyx earning 91 cents a share for the year. It was supposed to be the company's first full year in the black.

Onyx shares were slammed Tuesday on the negative lung cancer study news, and were hit even harder after Renton and his team disclosed the awful expense forecast for the year. The stock ended up plummeting 26% to $33.09.

What makes Onyx's outlook even more frustrating is that Nexavar -- currently sold for the treatment of kidney and liver cancer -- has had solid sales, especially outside the U.S.

For the fourth quarter, total sales of $125 million were better than expected, and international sales of $82 million (a 30% sequential increase) were very strong. Clearly, Nexavar's recent launch into the liver cancer market is going well.

Wouldn't it be nice, given the setback in lung cancer, to see some of those Nexavar sales dollars start dropping to the bottom line?

I was hoping to hear Renton give investors on Tuesday's conference call a bullish assessment of the company's top and bottom lines for 2008. That would have helped rally the stock, perhaps back into the mid- to high $40s. It also would have made it easier for analysts to defend their buy ratings.

Instead, Onyx is going to spend more money.

The company doesn't get to make that decision on its own; it shares budgetary discretion with its partner, German drug giant Bayer AG. But Renton says the investment is necessary to ensure a successful global sales effort for Nexavar in liver cancer. Plus, he said, the company still sees Nexavar as a "pipeline in a drug," so it will pour money into new clinical trials. (Including more lung cancer trials -- huh?)

So, give me a good reason to own this stock this year. What gets it out of the mid-$30s rut it finds itself in?

You'd think another quarter or two of stellar Nexavar sales would do the trick, but without profits, or even the promise of profits, it's hard to get excited.

It doesn't have to be this way, which makes Onyx a very frustrating stock to like right now.

Avastin Update

This is the week GenentechDNA (and the rest of us) hear whether the FDA will approve Avastin as a treatment for first-line metastatic breast cancer. The decision should come down on Friday.

I'm sticking with my bullish stance. I think the FDA has the clinical data it needs to approve the drug for this additional purpose, especially given last week's announcement of a second successful study.

On Tuesday, Merrill Lynch biotech analyst Eric Ende published a research note saying there is $10 of upside in Genentech's stock if Avastin is approved for metastatic breast cancer this week. Likewise, there is about $2 in downside if the decision is postponed, and $5 downside if the FDA flat out rejects Avastin's expanded use.