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Ph.D., CFA level III Candidate

Bioequity Analysis Onyx Pharmaceuticals (ONXX) Buy


Current Price: $70.15-$76.38 (as of July 20, 2012)

Target Price: $85

Rating: Outperform

Analyst: Dandan Sun, Ph.D., CFA Candidate


The price of Onyx Pharmaceuticals peaked at $79 on July 20 from $45 just a month ago, thanks to the accelerated FDA approval of its multiple myeloma drug Kyprolis, higher than expected price tag, and improved market outlook for Kyprolis. We believe that Onyx Pharmaceuticals has promising pipelines and great fundamentals. From our estimation, the target price of Onyx Pharmaceuticals is $85. Therefore, we recommend investors to buy Onyx Pharmaceuticals when it’s under $76.5, assuming a 10% margin of safety.

Onyx went through a remarkable year in 2011, as its oncology drug Nexavar topped $1 billion in global sales. 2012 is going to be another transformation year for Onyx Pharmaceuticals: Kyprolis, a protease inhibitor that can be used to treat patients with relapsed and refractory multiple myeloma (MM), obtained an accelerated approval from FDA on July 20 ahead of its PDUFA date of July 27. Given its favorable overall response rate (ORR) and less toxicity to the nervous system compared to current standard treatment Velcade, we think that the diffusion of Kyprolis among physicians and patients will be smooth and effective. Onyx has contracted with a third-party manufacturing facility to produce Kyprolis and hired 100 dedicated sales forces to promote the drug. We think that Onyx is geared up to launch and market Kyprolis. With a price tag of $9,950 per treatment cycle (estimated $120,000 per year), the peak sales revenue of Kyprolis could reach $3 billion. This supports an estimated target price for Onyx at $85 per share.

Potential additional upsides for Onyx include tapping into treatment of thyroid cancer and breast cancer by Nexavar, expanding Kyprolis to treat newly diagnosed multiple myeloma, successfully launching Regorafenib and breaking through in Oprozomib. Potential downsides include unfavorable clinical outcome of Kyprolis from ongoing phase III clinical trials, unforeseeable issues associated with manufacturing and marketing of Kyprolis, and the less likely business risks such as disrupted collaboration agreement with Bayer on Nexavar or Reforafenib and hostile acquisition by Bayer or other companies.

The current valuation ($85) of Onyx reflects 3% perpetual growth rate and an industry-average discount rate of 15%.


Onyx’s Pipelines

With its expertise in small molecule inhibitors, Onyx has a robust portfolio of innovative cancer therapies (Figure 1). Its leading products include marketed drug Nexavar, newly approved drug Kyprolis, and Regorafenib. Early stage pipelines include oprozomib (formerly ONX 0912), ONX0914 and PD 0332991.

Nexavar (Sorafenib) is an oral multiple kinase inhibitor that was developed in collaboration with Bayer.  It is approved to treat liver and kidney cancer and currently under phase 3 studies for thyroid cancer and breast cancer and an add-on treatment for liver and kidney cancer following surgery.

Kyprolis (Carfilzomib) is a protease inhibitor approved to treat relapsed and refractory multiple myeloma. It’s currently under phase 3 trials to further evaluate its clinical benefits either as a single-agent or in combination with other therapies for the treatment of multiple myeloma. Onyx is also testing Kyprolis in a phase 1/2b study for relapsed solid tumors.

Regorafenib is developed in collaboration with Bayer. A new drug application (NDA) for Regorafenib has been filed to treat colorectal cancer as a single agent. It is currently under a phase 3 trial for GIST (gastrointestinal stromal tumor) and a phase 2 study to treat colorectal cancer in combination with FOLFOX6, a blend of three chemotherapy drugs, which is frequently used to treat colorectal cancer. Onyx will market Regorafenib with Bayer together in the U.S., and receive 20% royalty of global sales.

Oprozomib (ONX 0912) is an oral protease inhibitor. It is currently being studied in a phase 1b/2 trial for hematologic malignancies including multiple myeloma and a phase 1 trial for recurrent and refractory solid tumors.

ONX 0914 is an immunoproteasome inhibitor that selectively targets immune cells. It is currently evaluated in preclinical studies for the potential treatment of autoimmune disorders, such as rheumatoid arthritis, inflammatory bowel disease and lupus.

PD 0332991 is an oral cyclin-dependent kinase 4/6 (CDK4/6) inhibitor that is developed in collaboration with Pfizer. It is currently in a phase 2 trial for hematologic malignancies and solid tumors. Onyx expects to receive milestone payments and royalty on global sales.