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Biotech Stock Mailbag: Onyx, Savient

This week, readers weigh in on Onyx Pharma's fund-raising, Savient's gout treatment and Spectrum's Fusilev.

BOSTON, Mass. (


) --This week's Biotech Stock Mailbag kicks off with two questions from David B. I'll take them one at a time.

"Why is

Onyx Pharmaceuticals


doing a secondary stock offering? They have nearly $500 million in cash and almost no debt. They have recurring revenue... from


, which is more than sufficient to cover their costs. And that revenue is growing quarter over quarter. Why sell four million shares to raise $140 million? What's the point?"

Some of Onyx's institutional shareholders are ticked off at management for raising money now. That's why the stock fell 15% Wednesday to $31.18, the day after Onyx announced the equity offering of 4 million shares plus another $200 million in convertible debt.

The financing news just killed the stock. Killed it. Second-quarter earnings, also announced Tuesday night, came in better than expected. The company guided to the low end of its previously stated 2009 Nexavar sales forecast, but most everyone on the Street was there already, so I don't count that as a major blemish. Onyx is profitable, and like David pointed out, has almost $500 million in the bank already.

Plus, don't forget the news from two weeks ago about the positive results from a phase II study of Nexavar in breast cancer patients.

So with all that and some nice momentum in the stock, Onyx management throws a giant buzzkill into the party. Huh?

The worry on the Street is that Onyx management will use the money to buy something expensive and stupid -- some late-stage drug or an entire company that will never earn a meaningful return. To protect their own interests, some shareholders want the company to put any large purchase, if one is proposed, to a shareholder vote.

The timing of the financing -- before Onyx presents details of the Nexavar breast cancer study at a medical meeting -- is also a concern. If the data are really good, won't the stock move higher, enabling Onyx to raise even more money with less dilution?

Defenders of Onyx's decision to raise money now say competition is intense for good late-stage drugs. While $500 million in the bank seems like a lot, companies really need more like $800 million to compete for the best licensing deals. So, Onyx, while its timing may be off, is doing what's right for the company in the long run.

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David's second question:

"What's up with

Savient Pharmaceuticals


and their gout treatment? Is Krystexxa going down the path followed by

AMAG Pharmaceuticals'

(AMAG) - Get AMAG Pharmaceuticals, Inc. Report

Feraheme or the path followed by

Discovery Labs'




refused to approve

Savient's gout drug Krystexxa this week, citing problems with the way the drug is manufactured. AMAG also had manufacturing issues with Feraheme, but they were resolved and the FDA approved the drug. Discovery, as I've pointed out recently, can't seem to solve its manufacturing snafus, which keeps Surfaxin in the FDA penalty box.

So where does Savient stand? Oh boy. This is a tough call. If I were a betting man, I'd say Savient's manufacturing woes are more in the AMAG camp than Discovery. But please, let me hedge by saying that Savient is still a bit of black box.

Why did the company change the way it makes Krystexxa? Savient says it intends to revert back to the old manufacturing method. Okay, why was a change made in the first place? And how confident should we be that the FDA will be okay with the old Krystexxa manufacturing process?

On top of all that, the Israel-based manufacturing plant where Krystexxa is produced has also run afoul with FDA inspectors. Those issues, which weren't disclosed in detail, also need to be straightened out.

I don't sound super confident, but I guess I'm willing to give Savient the benefit of the doubt, especially since question of the drug's efficacy and safety don't seem to be a hang-up for approval.

Timing is tricky here. Savient says it can respond to the FDA's manufacturing concerns in early 2010. But the timing of any re-inspection of the Israeli plant is not clear, and all this sounds like a six-month review for the FDA anyway. Add it all up and Krystexxa may not be approved until deep into 2010.

Another wrinkle to consider is cash. Will Savient have to raise money again before approval?

Steve S. is a satisfied customer after reading my updated calendar of

FDA approval decision dates


"I must tell you how helpful the report is and the obvious research done. I wonder how many readers don't even think about the amount of work to get this type of article in our hands."

Thanks, Steve. This is useful information for biotech investors, but it's not easy to find in one place. I'm more than happy to do the work, and look for frequent updates in the future.




Spectrum Pharmaceuticals

(SPPI) - Get Spectrum Pharmaceuticals, Inc. Report

prompted Makk1123 to write, "While I agree somewhat with your conservative 'back of the envelope' numbers for Zevalin, I have to ask you where you came up with the numbers for Fusilev and ask why you didn't include Eoquin in your analysis. Fusilev does over $200 million worldwide with a first-line indication. Don't you think it has a little more potential than 80 million U.S. sales? Eoquin was recently fast tracked by fda and it has much more potential than Fusilev and Zevalin combined, if approved. Got to wonder sometimes where your motivation is. You have been wrong quite often on a number of blockbuster approvals lately."

I'm assuming $75 million in peak Fusilev sales, if approved for the expanded indication into colon cancer. That doesn't seem unreasonable to me, given the drug is on a $38 million annual run rate right now. I'm essentially assuming that Fusilev sales double.

Fusilev is a better-tolerated version of generic leucovorin -- a mainstay in the chemotherapy cocktail used to treat colon cancer patients. I'd rather stay conservative until I see sales from Spectrum showing that a branded and more expensive drug like Fusilev can unseat a cheaper generic, especially one that's used so frequently by oncologists.

Colon cancer treatment is expensive, and the price tag has only gotten higher now that targeted drugs like Avastin and Erbitux are thrown into the mix. With cost-containment pressure coming from all corners, does the benefit of Fusilev compared to generic leucovorin outweigh the increased cost?

As for Eoquin, I didn't include it in my valuation model mainly because phase III studies in bladder cancer are still enrolling, and the phase II data, from what I could find, seemed a bit light.

Obviously, Eoquin revenue would be upside to my base $9 to $10 valuation for Spectrum, if the phase III studies are a success. I haven't done a lot of tinkering with a bladder cancer revenue model, but one model I did look at had the drug capable of about $200 million in peak U.S. sales, with an equal amount in Europe. Spectrum shares commercial rights to Eoquin with Allergan and must also pay a royalty to the old owner of the drug.

I have a fan in Iraq. Joshua G. writes, "Good evening from Iraq. Not sure if you get a chance to read all messages that get sent your way, but I find it as comedy how these folks on the boards talk about you. You provide your personal opinion on stocks and either they can take it or leave it.

"I have been hurt a little bit as I am a long in

Cell Therapeutics

(CTIC) - Get CTI BioPharma Corp. Report




before it took a crash from some of your articles, but these folks don't understand that your post does not send the articles crashing, it is amateur investors who can not make a decision by themselves and instead every time someone says buy they buy or sell and then they sell.

"You have a fan way in Iraq. I can't wait to get home. Keep doing what your doing brother. We all have jobs, mine is support our country and yours is to support me with info while I am far, far away. Thanks Adam."

Thanks to you, Joshua, for your service and for your refreshing perspective. I'm honored to have you as a reader. Be safe and get home soon.

Let's end, as I often do, with some "fan" mail. This email from "Mike" has some originality to it, despite the grammatical challenges.

"It would of been watching you lose all your money on your stocks, your family, your house and your bank account. Even better if all of the above, plus seeing you getting infected with AIDS, anthrax, swine flu...oh well...just AIDS and anthrax (so that you don't die so quickly). Why? Because you're a useless

BLEEP who continious to bash good stocks (GERN at $6, DNDN at $4, now SPPI) Tell me, what is the purpose of your useless life?


BLEEP piece of useless


Mike's compassion, only hoping that I die from AIDS and anthrax but not swine flu, truly touched me.

-- Reported by Adam Feuerstein in Boston

Adam Feuerstein writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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