Investors Take a Shine to Onyx

Investors in search of the next hot cancer drug prospect are once again taking notice of Onyx Pharmaceuticals (ONXX Quote).

Shares of the tiny Richmond, Calif.-based biotech firm have shot up 32% in the past two days on a new dose of encouraging, though early, clinical data for its novel cancer-fighting compound, which is known as BAY 43-9006. Onyx shares were up 12% to $6.06 Thursday.

Onyx presented positive updated results from a phase I trial of BAY 43-9006 given to patients with several types of advanced solid tumors. Normally, such early data wouldn't elicit much of a response, but the company said last week that along with partner Bayer (BAY Quote) it plans to start final, phase III studies next year.

"I don't think Bayer would let Onyx move this drug quickly into phase III testing unless their confidence was high," says John McCamant, editor of the Medical Technology Stock Letter. At these prices, Onyx is a recommended stock in McCamant's model biotech portfolio.

Deja Vu

In many ways, this week's run-up in Onyx shares mimics a similar, though short-lived, move last spring. At that time, the stock doubled to more than $8 after positive preliminary phase I data on BAY 43-9006 was presented at the closely watched American Society of Clinical Oncology annual meeting. But Onyx shares slipped back into the low single digits in the summer as the market slid to its lows.

In a recent research note, A.G. Edwards biotech analysts Craig West and Alex Hittle said the decision by Onyx to move BAY 43-9006 quickly into phase III testing was a positive, although surprising, move given that most drug companies hold back until early and midstage studies are completed. But again, the analysts say Onyx's low valuation provides counterbalance to the added risk. They have a buy rating and a 12-month to 18-month price target of $10 on Onyx. Their firm doesn't have a banking relationship with the company.