Bright Outlook for Onyx

07/02/2004 12:00 am EST

Focus:

John McCamant

Editor, Medical Technology Stock Letter

"In the long run, companies that bring needed products to market and sell them at a profit will increase in value," says John McCamant. "For that reason, we remain bullish on Onyx, which we see as a leader in kidney cancer research." Here's his review.

"For patients with kidney cancer, recent Phase II results for three different drugs and drug combos make it clear to us that before long, data demonstrating extensions in survival will be published. Our vote is for BAY 43-9006, an oral compound with mild side effects, developed by Onyx (ONXX NASDAQ). This drug is without a doubt the most promising experimental cancer drug on the horizon. It is an oral small molecule drug (a pill) with mild side effects that attacks tumors through inhibiting multiple proteins in several key cellular pathways. The company reported positive new interim results on the first 106 of 203 renal cell cancer patients in this trial, in which the drug was being tested as a single agent. Of these 106 patients, 37 patients saw their tumors shrink by at least 25% within the first 12 weeks of treatment. The drug also showed remarkable activity in melanoma when used in combination with chemotherapy.

"The stock has been under pressure of late, and did not respond well to the data. Apparently, there are some on The Street who find the company's trial structure too confusing. That study had a novel design that has attracted some criticism because it is hard to compare to more traditional studies. Some are concerned that if the trial is confusing, then the path to FDA approval may be a rugged one. There is also the question of who gets to the market first, ONXX or Pfizer, which is competing in the same area. This has contributed to pressure on ONXX’ stock. The first drug to get approval for renal cell cancer will necessarily change the landscape and raise the bar for the others. Meanwhile, the company has already started an 800-patient Phase III trial in kidney cancer, and Pfizer has yet to initiate Phase III testing. Whether Onyx decides to try for early approval or to wait, we are convinced that this drug is better than Pfizer’s competing compound, which causes more fatigue. We predict that when they are both on the market, that BAY 43 will predominate. Furthermore, in all likelihood, if both drugs end up getting approved, they might be used in combination, given their different mechanisms of action.

"The bottom line out of all of this is that there is almost no one who questions that BAY 43- 9006 is an active agent in kidney cancer. Plus, we envision Onyx using BAY 43-9006 for multiple types of solid tumors; kidney cancer is just how they are going to enter the market. As for the other indications that Onyx and partner Bayer are targeting for BAY 43-9006, positive interim results were recently presented from a Phase I/II trial in combination with carboplatin and paclitaxel to treat advanced malignant melanoma. Of the 35 patients in the trial, 14 had tumor shrinkage of at least 50%, all of which endured for at least six months. A pivotal Phase III trial in this indication will start early next year. Overall, we are quite pleased with the way things are progressing at Onyx, and our confidence in the potential of BAY 43-9006 is growing, both because of the data we have seen so far and because the drug is now going to be in two pivotal trials. To reflect our increasing confidence, we are going to raise our buy limit on the stock. We believe that BAY 43-9006 is going to be a big winner for the company and their shareholders. ONXX is now a buy under $40."

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