Investors in search of the next hot cancer drug prospect are once again taking notice of

Onyx Pharmaceuticals

(ONXX)

.

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)

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.

Even with the recent upside move, Onyx still sports a market value of just $132 million. By comparison,

Telik

(TELK)

, another biotech firm with an experimental cancer drug moving into phase III testing, has a market cap of $464 million. (There are more published studies to support Telik's drug.)

Then there's

Genta

(GNTA)

, which is running multiple phase III trials for its antisense cancer drug, Genasense, despite a shortage of confidence-building, midstage testing data. Genta's market value: $828 million.

Raffish Inhibitor

BAY 43-9006 is an oral, targeted cancer drug that appears to work by blocking the enzyme raf kinase, which plays a role in a cascade of chemical signals controlling cell division. Overstimulation of this raf kinase pathway appears to allow cells to grow uncontrollably, or develop into cancers. Therefore, blocking the raf kinase pathway may halt tumor growth.

The raf kinase target that Onyx is aiming for with BAY 43-9006 is actually "downstream" from the much-publicized epidermal growth factor receptor that is the key target for

AstraZeneca's

(AZN) - Get Report

cancer drug, Iressa, and

ImClone Systems'

(IMCL)

Erbitux as well as experimental drugs from

Genentech

(DNA)

and

Abgenix

(ABGX)

.

Wednesday, Onyx said that 27 of 114 patients, given higher doses of BAY 43-9006 as a standalone treatment, have not had their cancers progress after more than six months. Seven of these patients have been treated for more than a year, again, with no advancement of their cancers.

Patients in this study suffer from variety advanced stages of solid-tumor cancer, including colon, liver, breast and ovarian. All patients had been treated previously with at least one chemotherapy drug. There were also no serious side effects reported.

Onyx presented this updated data at the 2002 cancer research meeting sponsored jointly by the European Organization for Research and Treatment of Cancer, the National Cancer Institute and the American Association for Cancer Research.

Onyx and Bayer have not finalized their phase III clinical trial program yet, but the companies are now conducting two midstage, phase II studies of BAY 43-9006, including one targeting patients with advanced liver cancer. McCamant says early data from this trial might be ready in time for next year's ASCO meeting, which takes place in May.