Onyx – A “must own” biotech for 2013

After a great 2012, Onyx (ONXX) is well positioned as one of the few remaining commercial stage biotech companies with a diverse oncology pipeline. The company has 4 assets: Nexavar (co marketing agreement with Bayer), Kyprolis (wholly owned in US +EU), Stivarga (20% royalties from Bayer), PD-0332991 (~7.5% royalties from Pfizer).

Market attention is gradually shifting from Nexavar to recently approved Kyprolis and to PD-0332991, two high profile programs with a multi-billion dollar potential. This makes Onyx an ideal growth story as well as an obvious acquisition target given the accretive nature of the deal to a company with hematology/oncology sales force.

Below is a sum of parts analysis for Onyx.

Nexavar ($2B)

Onyx has a profit share deal with Bayer for Nexavar, which is approved for liver and kidney cancer. This asset is expected to generate annual revenues of $300M-$350M for Onyx based on current indications. Earlier this month, Onyx announced a phase III trial in thyroid cancer met its primary endpoint. This could add at least $50M to Onyx’s revenue stream, if the drug is approved for this indication.

As the majority of Nexavar sales are in liver cancer, where there is practically no competition in the foreseeable future, Onyx is looking at a relatively safe revenue stream for the next ~9 years (patent protection at least until 2020-2022). Discounting the company’s stake in Nexavar using a 10% discount rate values it at $2B. This excludes additional label expansions in adjuvant liver cancer or breast cancer, which should be viewed as free call options.

Kyprolis ($3.5B)

Onyx’s 2nd marketed drug is Kyprolis, approved for multiple myeloma since July 2012. Onyx owns commercial rights to this drug in the US and EU, making it the company’s most important asset.

The multiple myeloma market is dominated by 2 classes of drugs: IMiDs (Celgene’s Revlimid) and proteasome inhibitors (Takeda/J&J’s Velcade). Together with stem cell transplant, these treatment classes are the cornerstone of myeloma treatment. Kyprolis is a next—generation proteasome inhibitor currently indicated for patients who failed both Revlimid and Velcade (third line).

Oynx estimates there are 10-15 thousand patients in the US who are eligible for third line treatment. This translates to a $400-$600M opportunity.  Earlier this month Onyx disclosed that Kyprolis generated $43.4M in the fourth quarter of 2012, the first full quarter of sales, which is a testament to the unmet need in patients who exhausted all other treatment options and validates the company’s assessment. Kyprolis’ market potential is over $3B in multiple myeloma alone, as exemplified by Velcade’s commercial performance (see figure below from Takeda’s recent R&D event).



Source: Takeda’s R&D day Jan 2013

Kyprolis can be positioned either as a 2nd line proteasome inhibitor (for patients who failed Velcade) or a best in class proteasome inhibitor that will replace Velcade. As Kyprolis was approved based on a single arm phase II trial, there is still no concrete evidence neither for Kyprolis’ ability to extend survival in Velcade failures nor for its superiority over Velcade.

Onyx is addressing these questions with 3 pivotal trials in relapsed/refractory myeloma patients. The FOCUS trial is evaluating Kyprolis vs. best supportive care and will have overall survival readout in the second half of 2013. Another trial (ASPIRE) is evaluating the addition of Kyprolis to Revlimid and should have PFS data in the fourth quarter of 2013. The ENDEAVOR trial, which started last year, is comparing Kyprolis and Velcade. Interestingly, this trial is using a modified dosing regimen for Kyprolis which appears more potent than the approved Kyprolis regimen but may also be more toxic in some patients.

When compared to Velcade, Kyprolis has several distinguishing properties, including a different spectrum of activity and irreversible binding to the target. Based on this and available clinical data in Velcade pre-treated patients, Kyprolis has a high likelihood of showing clinical superiority over Velcade. Even if Kyprolis does not beat Velcade in a head to head trial, it can still be a >$1B drug as a 2nd line proteasome inhibitor (Providing positive data in FOCUS or ASPIRE).

Competitive landscape in the proteasome inhibitor segment is surprisingly favorable. The only proteasome inhibitor in advanced clinical testing is MLN9078 an oral version of Velcade, developed by Takeda. It is expected to reach the market in 2015-2016 according to Takeda. Despite the obvious convenience of oral dosing, this drug does not seem to have robust activity. In addition, it is probably not interchangeable with Kyprolis given the different activity spectrums. Onyx is developing an oral derivative of Kyprolis (oprozomib), currently in phase I.

Based on Q4 sales and Velcade’s sales trajectory, Kyprolis can reach $1B in sales in 2016. Applying a sales multiple of 6 and a 15% discount rate yields a ~$3.5B net present value. This excludes broader utilization in 1st line multiple myeloma or other indications.

Stivarga ($500M)

Onyx has a 20% royalty stake in Stivarga, which is approved for 3rd line colon cancer and is expected to receive FDA approval in GIST next month. The drug is expected to generate modest sales in colon cancer and, combined with the expected GIST approval, current estimates are ~$300M globally.

Bayer, the owner of Stivarga, is about to start phase III in 2nd line liver cancer. An ongoing randomized phase II is evaluating the drug in combination with chemotherapy in colon cancer. These indications could take sales to $1.5B, but there is still limited visibility and likelihood of success is unclear.

Excluding label expansion, Onyx is expected to receive $40M-$60M annual royalties for a long period of time (at least 10 years).The market usually gives a generous premium to biotech companies based on a royalty stake in oncology dugs. Immunogen (IMGN) and Curis (CRIS) are good examples of companies that derive most of their market cap from royalties in a similar range. Curis (peak royalties of ~$30M) has a market cap of $250M whereas Immunogen has a market cap of $1.27B (peak royalties of ~$70M). Based on this, Stivarga’s royalty stake should be conservatively valued at $500M.

PD-0332991 ($750M)

PD-0332991, developed by Pfizer (PFE), is a CDK4/6 inhibitor which is about to enter phase III in breast cancer. The drug has become one of the most interesting oncology drugs following data in breast cancer published in December. Results demonstrated a dramatic 3.5-fold increase in PFS (26.1 vs. 7.5 months), when PD-0332991 was added to hormonal therapy.



Finn R, Abstract S1-6, SABCS 2012


Although PD-0332991 is still 3 years from approval, it is expected to be a $2B drug based on the breast cancer indication alone. Onyx stated it has a single digit royalty rate on global sales of the drug and recently, analysts at Cowen and Company published a research note suggesting actual rate is 7.5% (based on discussion with management in 2003). They expect Onyx to generate $18.8M, $37.5M, and $75M in 2016, 2017 and 2018, respectively, based on annual sales of 250M, $500M and $1B in that time frame. Applying a similar multiple to the one I used for Stivarga and assuming PD-0332991 generates only $1B implies a $750M price tag for Onyx’s stake in the drug.

Portfolio updates  

We are buying Oynx based on the sum of parts analysis for Nexavar ($2B), Kyprolis ($3.5B), Stivarga ($500M) and PD-0332991 ($750M). Importantly, this analysis assumes little to no upside for existing programs, nor does it include an acquisition premium.

We are selling YM Biosciences (YMI) following the acquisition by Gilead (GILD).

Portfolio holdings – Jan 27th 2013

Biotech portfolio - 27-1-13- after changes

biotech etfs - 27-1-13


94 thoughts on “Onyx – A “must own” biotech for 2013

  1. Thanks Ohad. That makes sense. Will just keep an eye on TELK as potential competition down the road, though they are nearly bankrupt and hard to take serious given their history.


  2. Just an FYI. ABT-199 clinical testing was suspended because patient death due to tumor lysis syndrome. They plan to reformulate dosage and recommence testing. Start of PIII still planned for this year. I see this as a setback and will definitely slow things down. Im surprised at market reaction to this news (ie none).


  3. Chris, why would you expect Erivedge ex-US approval to have significant impact on CRIS stock? It addresses a small patient population and CRIS only gets single-digit royalties on top of that.


  4. Alex – p3 readouts for cabo and gdc0973 are expected only in 2014. In 2013, focus is on launch in MTC and initiation of additional p3 trials for cabo. Some p2 trials might report data as well this year.

    Chris – One way to interpret that is concerns about competition with Pomalyst. In the long run, it is not a major issue imo.
    Re CRIS – by definition it will increase the royalties from Roche but this is already built into analysts’ models.



  5. Ohad, did you catch recent Ablynx RA data? Quite impressive albeit very small sample and trial run in a few Eastern European countries. Some of the best reported RA data to date though, I think.


      • Not just ACR, but DAS28 scoring as well. Do agree it’s early days but also wouldn’t be surprised if they land a big pharma partner. How often is Actemra dosed? Ablynx RA drug may be able to be dosed once every 4 or even 8 weeks as well. Ablynx has a broad pipeline beyond too so have an eye on them but no position yet.

        P.S. Like how you changed formatting to reply within specific posts. Makes a ton of sense.


      • Hope I am wrong but I don’t see a large pharma putting the required resources behind such a program. Even if they do land a deal, it certainly won’t be a huge one.
        Actemra is given every 4 weeks but Roche is working on a subQ version.

        I changed the entire blog theme, hope it looks better.



      • Thanks Ohad. Ablynx could need to run another trial (much larger) before partner commits. Note PFE was partnered w/Ablynx on prior RA drug that they dumped; maybe interest in this one at some point. Ablynx said they are working on subQ version too. Think if data holds up anywhere close in larger trial, they will be in great shape. Seems like interesting co. for ~$500M mkt cap.


  6. New formatting is dope! That is all for now, just wanted to let you know it looks sick. Volume on GLPYY is quite low, would you buy that or .NV via the Brussels exchange directly? Not sure I can get that thru Fidelity.


    • That’s my dilemma on these foreign names as well. I use Scottrade and I don’t think they have the capability to trade directly on foreign exchange so I have to do these thinly-traded ADRs. Do own Medivir this way through MVRBF ADRs (much more thinly traded than GLPYY). And I like Galapagos as well. Quite a well-rounded company beyond the JAK1 for RA w/wholly-owned next gen Kalydeco in pre-clinical for CF, among many other assets.


  7. Hi Ohad, did you had a chance to read IMGN PR today, sounds like the drug will be in the market in 2w. Do you see any near term catalyst for the price (since T-DM1 approval was priced in). Tx


    • Yep, I still think cabo has a real shot at demonstrating an OS benefit in prostate cancer next year.

      There can even be a positive surprise from a new niche indication this year (will write about it in the coming weeks)



    • Care, aren’t the key EXEL data events not really until next year? What events do you expect will occur in 2013 that can move the dial for EXEL?


    • Ohad, hasn’t EXEL ever heard of cost controls? How much do they owe Deerfield? EXEL is burning about $230 million/year. What kind of revenues can we expect from MTC?


      • Their burn rate is scary , no doubt, but that’s what you need to do when you have a late stage asset – pursue multiple indications in parallel.

        Agree about 2013 being an execution year (at least 4 p3 trials).

        A new niche opportunity could emerge later this year. Will write about it soon.



  8. Mc- maybe I’m in EXEL too early, but Ph2 OS data in mcrpc at ASCO this yr is big, giving us a rough idea of what to expect for the Comet trial results. Ohad has mentioned here I believe. Also, believe we may see more info on true MoA beyond just “hitting all targets”


  9. Ohad: I think we touched on TGTX briefly in another thread but curious to get more thoughts from you on it. Two heme-onc shots on goal w/the 3rd gen Rituxan that has already shown a CR in 1 Rituxan-refractory patient in the clinic. They also have the early stage delta PI3K they in-licensed from Rhizen with initial data likely at ASCO. Potential to combine both of these drugs as well and I think they plan to start combo trials by end of the year. Kind of interesting for ~$100M market cap, no?


    • Thanks. market cap sounds attractive but I am kinda skeptic on a new CD20 program. PI3K delta is a great target but the field is getting extremely crowded, still, there is probably room for several agents in the market. Will track them going forward.



      • TGTX going strictly after Rituxan failures w/their CD20, not trying to compete directly w/Rituxan, which seems smart. Of course, there are others going after 3rd gen CD20 market and Rituxan failures too, but seems like there is an opportunity here. PI3K delta certainly getting crowded, but don’t think many other companies w/3rd gen CD20 to combine w/delta PI3K in-house. Some of the risks include TGTX will quite likely need to do a financing later this year and also they may owe up to $250M I believe to Rhizen on the PI3K if it’s ultimately successful. Not clear how much is due to them in up-front to formally license the PI3K and how much royalties, milestones, etc. once on market.


  10. Hi Ohad,
    I like the new format.
    Do you still rate AVEO’s TIVO at 75% likelihood for FDA approval in July, 2013?
    Did you see the TIVO OS poster and following pharma strategy blog?


    Would you agree with the following comment?
    “Take a look at the poster (link is in the post) – they have a subset analysis for just the US/EU patients where multiple therapies are available, unlike Eastern Europe and Russia. When you compare apples with apples, the survival curves are in AVEO’s favour.”
    I am wondering if I should add more AVEO at this level. If TIVO does get approved, what is your price target?
    By the way, great call on Onyx.



  11. Thanks, glad you like the new format.
    Yes, I think it has a high likelihood of receiving FDA approval. The data at ASCO GU were good although it provided ammunition to both bulls and bears.
    One of the issues with some of the subset analyses they presented, including the geographical breakdown is that with small numbers and retrospective analysis you could get all sort of stuff but it isn’t something you can hang your hat on imo.

    One analysis I liked is the impressive PFS and response rate in patients who crossed over to tivo following Nexavar.

    Re Onyx, I have to be honest and state that Friday’s jump brought ONXX to the same level where it was when I initiated my position 🙂 I am still very bullish on them, though.



  12. Interesting ECYT CC today. Lots of questions from analysts on the modifications to the Phase 3 PROCEED trial (ability to add an extra 100 patients for more powering towards OS endpoint if needed after an interim look). Also, seems kind of strange that MRK/ECYT apparently didn’t stratify the arms based on use of prior biologic (patients were allowed up to one prior biologic prior to study entry). Doesn’t this allow for possibility of arm imbalances?


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