Onyx Coexisting with Celgene, Expanding Market – And Revenues Show It

Since our original report on Onyx Pharmaceuticals (ONXX) in March, shares of the oncology drug developer have risen 14.8%, versus a 13.05% rise for the NASDAQ Biotechnology Index (IBB). After a solid first quarter, and with multiple sets of clinical data to be released in the next 12 months, as well as further proof that the company can coexist with Celgene (CELG) (which has long been a source of worry for Onyx investors), shares of Onyx remain an attractive long-term investment. Pfizer’s (PFE) palbociclib is a promising asset with positive implications for Onyx (royalties), and investors will begin to focus on the early-stage asset as it progresses through the clinic. Most importantly, Onyx continues to report growth in Kyprolis, and analysts are adjusting appropriately. The investment community is taking notice, and shares in kind.

Q1 Review: Coexisting with Celgene

For Q1 2013, Onyx posted sales of $145.492 million and a pro forma loss of 19 cents/share, with both figures beating consensus estimates that called for revenues of $134.36 million and a loss of 43 cent/share. Kyprolis sales totaled $64 million, and include a favorable gross-to-net accrual adjustment of $5.9 million, versus $45.3 million in sales during Q4 2012, and $64 million for all of 2012 (Kyprolis secured FDA approval in late July). The rest of Onyx’s revenue came from its collaboration agreements with Bayer tied to Stivarga and Nexavar. $9.177 million of revenue was derived from royalties tied to global sales of Stivarga, and the bulk of Onyx’s remaining revenue was tied to its Nexavar collaboration agreement with Bayer (more on these products later).

Naturally, the most discussed topic on Onyx’s Q1 call were the market dynamics facing Kyprolis, and how Onyx is dealing with competition from Celgene. As we noted in our original report, there are nuances within the multiple myeloma market that serve to make Pomalyst less of a competitor than many investors fear, and Onyx’s Q1 results illustrated this.

CCO Helen Torley noted on Onyx’s Q1 earnings call that the introduction of multiple “novel agents” (a likely reference to Kyprolis and Pomalyst) has served to expand the total addressable market for 3rd-line-and-above treatments. She noted that by the end of Q1 2013, novel agents accounted for 40% of the total 3rd-line-plus market, up from 30% at the end of Q4 2012. Kyprolis is continuing to displace re-treatment with earlier products, particularly Velcade and Revlimid, with 400 new accounts added during the quarter, for a total of 2,100 unique accounts that have ordered Kyprolis. Data on mean duration of therapy has yet to be established, as many patients that began utilizing Kyprolis after its approval by the FDA continue using. Analysts pressed Onyx regarding Pomalyst, and the company noted that the data it has on hand indicates that there is room for both Kyprolis and Pomalyst in the multiple myeloma market. Kyprolis is predominantly being used as a 3rd-line therapy, with Pomalyst usage primarily occurring in the 4th-line. Notably, Onyx reiterated that it is continuing to see growing interest in the potential of a Kyprolis-Pomalyst combination therapy. Onyx is also preparing for potential commercialization of Kyprolis in Europe and Latin America, and has stated that the market opportunity in Europe appears to be similar to that of the United States. Regulatory filings for Kyprolis in Europe will be based on Onyx’s Phase III FOCUS and ASPIRE trials. As a reminder, an interim analysis of data from the FOCUS trial is slated for the 2nd half of the year, and preliminary data from the ASPIRE trial may be available as early as Q4 2013. Onyx has outlined that in 12 key European markets (including the Big 5 of France, Germany, Italy, Spain, and the United Kingdom), the company will market Kyprolis directly, with local distributors to manage the remaining markets. Onyx is also making progress in other countries and regions, particularly those that allow for pre-approval based on Kyprolis’ FDA-approved label. Agreements have been signed in Argentina, Columbia, and Turkey, and regulatory filings have been submitted in Thailand and Singapore. Finally, as of this quarter, Kyprolis has begun shipping to Israel.

As we have argued before, investors should not view Pomalyst as a direct competitor to Onyx and Kyprolis. As the company’s Q1 results show, there is room for both drugs within the multiple myeloma market, and for the time being, it appears that Revlimid (from Celgene) and Velcade are the products seeing an adverse effect from “novel agents” such as Kyprolis and Pomalyst.

Other Franchises & Pipeline Programs: Incremental Progress

Although Kyprolis performed well in Q1 2013, showing that it can hold its own against Pomalyst, Onyx’s remaining 2 franchises posted somewhat muted results. Nexavar sales (as a reminder, Onyx records its share of global Nexavar profits as collaboration revenue) fell 5.33% in Q1 to $198.524 million, resulting in $70.307 million in collaboration revenue for Onyx. Nexavar’s decline was driven by weakness in Europe and the United States, with domestic weakness stemming from reductions in Nexavar inventory at Onyx’s specialty pharmacy distribution channels. Offsetting this weakness was what the company called “double-digit” growth in Asia-Pacific sales. Onyx and Bayer are also moving forward with their clinical programs to expand Nexavar’s label. Updated data from the Phase III DECISION trial of Nexavar in thyroid cancer [as noted in our original report, top-line data released in January was positive, with statistically significant improvements in progression-free survival PFS)] will be presented at ASCO’s (American Society of Clinical Oncology) 2013 meeting, which runs from May 31-June 4. Onyx and Bayer plan to file an sNDA for Nexavar in thyroid cancer in mid-2013. Nexavar is also being tested in HER-2 negative breast cancer, and the Phase III RESILIENCE trial has now completed enrollment (with PFS as the primary endpoint), and data will be released in the 1st half of 2014, with data from the STORM trial, where Nexavar is being tested in adjuvant liver cancer, possibly available in the 2nd half of 2014.

Stivarga is Onyx’s 3rd approved product, on which the company receives a global royalty of 20% ($9.177 million in royalties were generated during Onyx’s most recent quarter). Since receiving approval in MCRC (metastatic colorectal cancer) in September 2012, and in GIST (gastrointestinal stromal tumors) at the end of February, 3,000 physicians have prescribed Stivarga, with 1,000 new physician prescribers in Q1 2013. Onyx views the total domestic market opportunity for Stivarga in these 2 indications as 21,000-31,500 total patients (split 20,000-30,000 for MCRC and 1,000-1,500 for GIST). In March, Stivarga also secured approval in MCRC in Canada, Japan, and Switzerland. As we noted previously, Bayer believes that total peak sales of Stivarga have the potential to reach €1 billion, or $263 million at current exchange rates. With regards to label expansion, a Phase III trial designed to test Stivarga as a 2nd-line therapy in liver cancer (after Nexavar) is now underway, and a Phase III trial of Stivarga in patients with resected metastatic liver tumors is set to begin in the 2nd half of 2013.

While much of Onyx’s pipeline is geared towards label expansion for its existing products, the company does have clinical stage assets as well, including oprozomib, and oral proteasome inhibitor designed to treat hematologic malignancies (indications are undisclosed). Preliminary Phase Ib2 trial data were released in April, and suggest that once-daily extended release tablets of oprozomib were well tolerated, with patients experiencing dose-dependent proteasome inhibition, with 80% inhibition at the maximum dose. Onyx is continuing dose-escalation studies, and plans to present new clinical data regarding oprozomib at the annual meeting of the European Hematology Association, which will be held from June 13-16.


Onyx’s most important pipeline asset is not an Onyx asset at all. Rather, it’s Pfizer’s (PFE) palbociclib, an oral and selective inhibitor of cyclin dependent kinases (CDK) 4 and 6 also known as PD-0332991. The company is currently enrolling patients in a Phase III trial for the treatment of 1st-line advanced breast cancer. Onyx will receive an 8% royalty on global net sales of palbociclib. Why is this compound Onyx’s most important clinical asset? Because of palbociclib’s market potential. On April 10, the FDA granted Breakthrough Therapy Status to palbociclib, and analyst are forecasting that if approved, peak sales for palbociclib could reach $5 billion if the drug secures approval across multiple breast cancer indications, with $1 billion in sales forecast for its initial indication. That represents up to $400 million in potential royalties for Onyx, versus forecasted 2013 revenues of $586.82 million. The study is set to be completed in March 2015, and as the calendar moves closer to that time period, investor focus will likely shift towards the potential of palbociclib.

Financials & Valuations: Commanding a Higher Multiple

Onyx ended Q1 2013 with $738.855 million in cash & investments, and $177.503 million in convertible notes due August 2016. Onyx’s cash balance includes nearly $364 million in proceeds from the company’s January capital raise, and CEO Anthony Coles reiterated that Onyx is examining potential licensing and/or acquisitions within the oncology and hematology. It is important to note that Onyx did not necessarily need to raise capital in January. The company ended 2012 with nearly $493 million in cash & investments, and even if the company’s 2012 burn rate is utilized, Onyx had more than 2 years of cash & investments on its balance sheet. The company’s decision to raise capital may be tied to potential plans to acquire new pipeline assets, something we expect to hear more about in future earnings calls. Notably, since our original report, consensus estimates for Onyx have risen for all years through 2016 (multiples are based on Onyx’s closing price on May 8, 2013).

Onyx Consensus Estimates

March 7, 2013 May 8, 2013 % Change in Estimates March 7, 2013 Forward P/E May 8, 2013 Forward P/E
2013 -$2.87 -$2.68 +6.62% N/A N/A
2014 -$0.59 -$0.41 +30.51% N/A N/A
2015 $2.83 $3.10 +9.54% 28.29x 30.92x
2016 $6.37 $6.72 +5.49% 12.57x 14.26x

While Onyx’s 2015 and 2016 multiples have increased since our original report, the increase is justified. Onyx is holding its own against Celgene and Pomalyst, and continues to make progress in expanding its commercial franchises and pipeline. With a successful first quarter, Kyprolis has been somewhat de-risked, and as Onyx continues to report growth in Kyprolis sales (CCO Helen Torley reaffirmed the company’s expectations of continued sequential growth in Kyprolis sales through the remainder of 2013), shares are likely to be de-risked further, thereby providing scope for further long-term upside.

In connection with ONXX, PropThink has taken a long position.