Onyx Pharma: An Underdog Worth Buying

SOUTH SAN FRANCISCO, Calif. ( TheStreet) -- Few investors expect Onyx Pharmaceuticals' ( ONXX) carfilzomib -- a proteasome inhibitor, like Takeda's Velcade -- to receive FDA approval in July for the treatment of late-stage multiple myeloma.

After all, Onyx management disclosed late last year that FDA had concerns about whether the company's single-arm Phase IIb trial, upon which the carfilzomib approval filing was based, would be adequate for approval. Onyx asked FDA for a priority (six month) review, which the agency typically gives for drugs designed to satisfy urgent unmet medical needs. FDA instead assigned carfilzomib a standard ten-month regulatory clock.

Investors also question Onyx's decision to seek accelerated, or Subpart H, approval, which would be based on response rate (a surrogate endpoint) instead of a more robust survival benefit endpoint. Carfilzomib is also likely to undergo review by the FDA's challenging Oncologic Drugs Advisory Committee, or ODAC.

Does Onyx sound like a mess? Not to me. I view Onyx as a buy.

Onyx's $2.4 billion market capitalization is low given that Nexavar -- marketed for kidney and liver cancer -- reached $1 billion in annual sales last year, enough to support the stock's current enterprise value. On top of the base business, Onyx also has an interesting R&D pipeline, including Nexavar in thyroid, breast, and late-stage lung cancer, novel molecules like carfilzomib, and roughly $500 million in net cash.

Let's take a look at carfilzomib, the multiple myeloma drug that has lost the confidence of many investors.

Onyx acquired carfilzomib when it purchased the privately held drug developer Proteolix in 2009. I have little doubt that carfilzomib is an effective multiple myeloma agent and will eventually be approved. The question is when. Most investors expect a delay, which mitigates the downside in Onyx's stock price should those fears be actualized. The FDA approval decision date is July 27th. An FDA approval on or before that date would be a major positive surprise.

The 257-patient, single-arm Phase IIb trial of carfilzomib -- Study 003-A1 -- that supports Onyx's New Drug Application showed a 24% overall response rate in late-stage multiple myeloma. Management believes this compares favorably to the 11% response rate that would be expected had patients been treated with best supportive care. Remember, Study 003-A1 treated all patients with carfilzomib so Onyx doesn't have actual comparative data.

Still, these were heavily pre-treated individuals with advanced multiple myeloma. Patients in the trial received a median of five prior lines of therapy, had progressed on Takeda's Velcade and Celgene's ( CELG) Revlimid, and were refractory (unresponsive) to their last form of treatment.

FDA has expressed a preference for randomized clinical trials even when reviewing cancer drugs aimed at late-stage patients. I'm cautiously optimistic about carfilzomib, however, because of similarities in the results seen in Study 003-A1 and those from the single-arm Phase II trial that supported accelerated approval of Velcade in 2003.

In that trial dubbed "Summit," the response rate to Velcade therapy was 28% -- similar to the 24% response rate in the carfilzomib study. The duration of Velcade response was longer than what was recorded in the carfilzomib study, however multiple myeloma patients in both studies reported a median survival of roughly 16 months. That's good for carfilzomib since many of the patients in the study were no longer responsive to Velcade.

The FDA's approval of Velcade based on a single-arm study in refractory multiple myeloma patients sets a precedent that could allow the agency to likewise approve carfilzomib. An on-time approval may not be likely but then investor expectations for Onyx are low enough that downside risk is minimal.

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