BOSTON -- The Tony Coles era at Onyx Pharmaceuticals ( ONXX) has not gotten off to a rip-roaring start. The Emeryville, Calif.-based biopharmaceutical company named Coles, most recently the head of NPS Pharmaceuticals ( NPSP), as its
new chief executive Tuesday. He replaces Hollings Renton, who last fall said he planned to retire. Judging by Wall Street's reaction to the change in Onyx's executive suite, Coles has some work to do convincing investors that he's the right guy for the job. Onyx shares, while up about 2% Thursday, have overall seen more declines after Coles' appointment was announced. The stock has now dropped almost 40% since Feb. 19, when the company said its cancer drug Nexavar failed a late-stage study in lung cancer patients. That negative news was then quickly followed by a disappointing earnings call in which Onyx said it was ratcheting up spending and couldn't guarantee profits for 2008, despite better-than-expected Nexavar sales. Coles doesn't start his CEO gig at Onyx until March 31, so it's not exactly fair to blame him for any of Onyx's current woes. But my conversations with some Onyx shareholders this week revealed a heavy dose of frustration with the way prior management ran the company. Onyx needed a new CEO, these investors say, but whether Coles is the answer isn't clear. "When I saw that Tony Coles was named Onyx's CEO, my first reaction was Tony who? Then I looked at the performance of NPS Pharmaceuticals during his tenure there and I got depressed," says one institutional investor who's been a long-time Onyx holder. He's not sold his stake yet, preferring to wait for a turnaround. Coles has been CEO of NPS since May 2006. He joined the company in November 2005 as chief operating officer and the designated successor to then-CEO Hunter Jackson. NPS' stock price fell from $15 to around $4 during Coles' time there, but he doesn't get the blame for the bulk of that drop. Soon after Coles joined, NPS got word from the Food and Drug Administration that it would not approve the company's osteoporosis drug Preos. That setback sent NPS' shares plummeting. As a result of the FDA's negative decision on Preos, NPS was forced to cut costs and restructure the company, something that Coles did successfully. Prior to his stint at NPS, Coles worked for Vertex Pharmaceuticals ( VRTX), where he was senior vice president of commercial operations. His tenure there wasn't entirely smooth. Coles accused Vertex of taking away some of his job responsibilities and forcing him out of the company in 2005, even though he left to take the COO job at NPS, according to a lawsuit pending in a Boston court. Coles is seeking financial damages from Vertex, which denies his allegations. Onyx says it will not make Coles available to speak with the media until he starts his job, so it's not possible to say what his plans are, or how they will differ from the course set by Renton. That's not stopping Onyx shareholders (or me, for that matter) from offering Coles some advice. Priority No. 1 would be to better control spending and promise the Street some near-term profits. If Coles has the commercial expertise touted on his resume, he'll be more aggressive in his dealing with Bayer over the Nexavar joint venture so that investors see some payback from the drug's success, especially in the liver cancer market. Given Onyx's lackluster guidance for 2008, analyst earnings estimates have fallen dramatically. In many ways, 2008 is being written off, so Onyx bulls are looking more to 2009 as the real growth year.
Onyx is expected to earn 27 cents a share in 2008 and $1.48 a share in 2009 (excluding options expense), according to Thomson Financial. Both estimates have come down considerably since the company's fourth-quarter conference call. At Wednesday's closing stock price, Onyx is trading at just under 19 times the 2009 earnings estimate, a relatively low multiple given that Nexavar has a lot of growth ahead of it. That certainly reflects investors' lack of confidence in Onyx's ability to deliver profits. Thursday brought another worry for Onyx. Novartis ( NVS) announced positive phase III results for its drug everolimus in patients with advanced kidney cancer. If and when the drug reaches the market, it could further pinch Nexavar's share of the kidney cancer market. The days of Onyx's stock price taking care of itself are over. Coles has to get out there and sell the company to investors again. If he does that, and delivers profits, Onyx shares should rebound.