Onyx Pharmaceuticals ( ONXX) 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. 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.
The stock closed Tuesday at $72.84. Ende's analysis sounds about right to me, although I give much better odds for approval than his 20%. I see it more like 50-50, at least. My bullishness here hinges on the assumption that the FDA considers progression-free survival -- rather than overall survival -- an approvable endpoint with real clinical benefit for these breast cancer patients. This assumption was a matter of debate at the December advisory committee meeting that voted 5-4 to recommend against Avastin's approval. Despite that negative vote, there was plenty of support voiced by oncologists that in these breast cancer patients, a doubling of progression-free survival is a real benefit. An improvement in overall survival might be the gold standard measure of efficacy, but it's also something very difficult to achieve and demonstrate in these patients. The Cancer Letter devoted a portion of this week's issue to the Avastin debate, quoting Indiana University's Dr. George Sledge, a professor of pathology and laboratory medicine and chairman of the breast committee of the Eastern Oncology Cooperative Group, which ran the Avastin study that forms the basis of the application in front of the FDA right now. "This is biological reality that bevacizumab prolongs progression free survival in breast cancer when you combine it with a taxane in the front-line setting," Sledge said, according to the newsletter. "If you believe in your heart of hearts that only drugs that improve overall survival should be approved in metastatic breast cancer, then the power of these trials for overall survival probably would require two to three times as many patients as were enrolled in these trials," he continued. "That's a very high bar. If drug companies are required to pass that bar to get a drug approved in front-line metastatic breast cancer, they will probably stop doing studies in front-line metastatic breast cancer." One scenario I hope doesn't play out is something that my colleague Justin Ferayorni outlined in his Genentech-Avastin
column on RealMoney.com last week. He highlighted the possibility that the Centers for Medicare and Medicaid Services, the government's health care reimbursement agency, may attempt to persuade the FDA to reject the breast cancer indication because Avastin's benefits in this setting (progression-free survival but no overall survival) may not outweigh the drug's high cost. That scenario is scary, because until now, the price of a drug or a cost-benefit analysis is not something that the FDA considers when making an approval decision. I think Justin is right that these sorts of analyses may one day play into drug approvals, but I disagree with him that the trend will start with Avastin, or with cancer drugs in general. long wait for an FDA decision on its hearth rhythm drug Kynapid: I did hear back from Cardiome President Doug Janzen last week. Unfortunately, he had little to say to advance the story. As far as Janzen understands the situation, there have been no new requests from the FDA for new clinical data, nor have there been requests for new analyses of old data. At this point, the Kynapid review seems to be stuck in an FDA procedural logjam, he says. While we wait, Cardiome shares continue still trade under $6, less than half of where they were three months ago.