Editor's note: Adam Feuerstein will pinpoint the biotech stocks with potential to take off in '09 at TheStreet.com Investment Conference on Saturday, Oct. 25.Times are tough but not tough enough to keep a lid on the Biotech Mailbag. Kent P. asks: "Is there any hope for Onyx Pharmaceuticals ( ONXX)? It has dropped to about $29 from $44 in August. Will there be any good news or quarterly reports coming down our way to erase this loss?" Onyx started the year at $55, so the performance of the stock is even worse than Kent describes. Remember 2007? Onyx was the best-performing biotech stock of the year. Here's what's happening: Nexavar is a very good cancer drug, but most of the sales growth in liver cancer (and to a much lesser extent, kidney cancer) is coming from Europe and Asia. That's a problem because Onyx doesn't seem to have very good visibility into those markets, especially Asia. Investors get nervous when companies can't tell them with reasonable detail how their key products are performing. In this market, a case of nerves equals sell. The consensus third-quarter sales estimate for Nexavar is about $175 million, which represents about 4% sequential growth. First-half 2008 Nexavar sales totaled $321 million and the company has guided to total 2008 sales in the range of $600 million to $650 million. Clearly, if Onyx hits the $175 million Nexavar benchmark for the quarter, sales guidance has to be raised.
Andre K. asks, "What is your take on Exelixis ( EXEL - Get Report)? I've read a lot of positive things about the company. Is it a long-term buy and hold? Should I buy the dips?" I answered my first reader email about Exelixis in a Feb. 10, 2007 Biotech Mailbag. At that time, Exelixis was a $10 stock. Here's what I had to say back then:
I like Exelixis for all the reasons F.M. states. The company's pipeline of targeted cancer drugs is deep -- 11 compounds in or near clinical development, including four drugs in phase II trials. Another three drugs should be entering clinical development in 2007. All the drugs are designed to interrupt multiple signaling pathways that cause tumors to grow. Many of these drug targets have been validated by drugs currently on the market. And then there are partnerships with Genentech ( DNA), GlaxoSmithKline ( GSK - Get Report) and Bristol-Myers Squibb ( BMY - Get Report). Some of these Exelixis drugs are going to fail. Blowups in biotech drug development are inevitable, and cancer is especially tough. But Exelixis' deep pipeline provides some cushion from failure. I see the company as a way to diversify risk with a single investment. There are some things I worry about with Exelixis. The stock sports a market cap just under $1 billion already, so it isn't cheap. Developing all those drugs costs a lot of dough, too, which could mean significant dilutive financings ahead. (To its credit, Exelixis has used some creativity to raise money while sparing shareholders a ton of dilution.) Finally, I worry that while the pipeline provides diversification, all the drugs are still emanating from a single lab and technology platform. If that's flawed, it could mean trouble. For all these reasons, a conservative way to invest in Exelixis is to take advantage of drug-development stumbles or dips in the stock price to buy shares. Last November, for instance, Exelixis temporarily suspended patient enrollment in one of its phase II studies because of an unexpected adverse event. The stock dipped from $9-plus to around $8 per share. If you had bought the stock on the day the bad news hit the tape, you'd be up more than 25% today.Exelixis closed trading Thursday at $3.62. That $1 billion market cap has been whittled down to under $400 million.