John McCamant, Medical Technology Stock Letter
John McCamant joined the Medical Technology Stock Letter as associate editor in 1987 and was named editor of this leading investment newsletter in August 2000. Mr. McCamant has spent fourteen years on the frontlines of biotechnology investing. As an equities analyst for the American Healthcare Fund, he uncovered investment opportunities and guided investment strategy. At Burrill & Company, a San Francisco-based private merchant bank, he was a lead in raising a $75 million ag-bio venture capital fund. Mr. McCamant is founder of Ten Peaks Capital, a financing company in the life sciences industry focused on business development and capital formation. He and Mr. Matthew Berry recently founded the Double Play Biotech Fund, a hedge fund focused on long and short investment plays in the biotechnology sector.
Onyx (NASDAQ: ONXX)
Onyx (ONXX) is one of the premier investment opportunities not only in the area of cancer drug development, but in the entire biotech sector. The number one reason for owning the company, and also the main value driver, is their exciting anti-cancer pill, Nexavar which is well on its way to achieving blockbuster status of $1 billion in annual sales.
Nexavar is already approved to treat two types of cancer, kidney and liver. For multiple reasons, we believe it is well positioned for further success in treating other cancer types, including breast cancer, and most notably, nonsmall cell lung cancer (NSCLC). To this end, the primary driver of the company’s share price in 2008 should be the results from the first of their ongoing Phase 3 NSCLC trials. We also believe that ONXX represents a compelling investment during tough economic times as cancer drugs will sell well during a recession.
The company and its partner, Bayer, have a broad clinical program in NSCLC, and the first Phase 3 results are expected in the first half of this year in the form of a pre-planned interim look at the ESCAPE trial. This 900- patient trial is fully enrolled and the primary endpoint is overall survival (OS)—the gold standard of cancer drug efficacy—with progression-free survival (PFS) representing a secondary endpoint. If the trial is stopped early due to efficacy, it would likely have a dramatic impact on ONXX’s share price. Given the size of the NSCLC treatment space, ONXX’s stock could even double from current levels.
While the ESCAPE trial moves forward, ONXX will also complete patient enrolment this year in NExUS, their Phase 3 NSCLC trial in Europe. This trial is comparing the chemo regimen of gemcitabine and cisplatin—the more commonly used chemo regimen in Europe—with or without Nexavar in front-line NSCLC patients. The coprimary endpoints are OS and PFS.
The other key cancer development program for Nexavar to watch for in 2008 is breast cancer. In this area, ONXX has four Phase 2 trials underway and a fifth planned for this year. All of these trials will enrol over 200 patients and have the potential to lead to expanded FDA approvals if the data are strong enough.
Another big event we are eagerly anticipating in 2008 is the release of the results from a Phase 3 Asia-Pacific liver cancer trial, as a very large portion of liver cancer patients live in this part of the world. We believe that the company has positioned itself for clinical success in 2008.
The premise behind investing in ONXX is that Nexavar will work for other cancer types in addition to kidney and liver cancer. One compelling aspect of the drug is its ability to block VEGF, which is the same mechanism of action as Genentech’s Avastin. Thus, we expect Nexavar to work in most of the same cancers as Avastin. And, given Avastin’s success in NSCLC and breast cancer, we think this ultimately increases the odds of success for Nexavar in treating both of these cancer types, as well.
During 2008, we expect to see strong growth in Nexavar’s sales, most notably in the liver cancer treatment market, as Nexavar is not only far and away the best, but the only systemic therapy approved to treat liver cancer. The strong sales of Nexavar which will continue to grow, regardless of a weak economy, should also help attract more investors to ONXX. In addition, the slew of ongoing clinical trials, which have lower risk than trials for nonapproved drugs, have us believing that the company will deliver more than its share of positive data for Nexavar in 2008 and years beyond. It is also important to remember that Nexavar is a pill which allows for much easier dosing and will make it the drug of choice when compared to a drug that requires an injection.
Finally, we would note that their partner, Bayer, undoubtedly sees the same upside as we are seeing and has to be crunching the numbers to gauge whether it would be prudent or not to own full rights to Nexavar (right now they have 50% of the profits). We would not be surprised to see an outright acquisition of ONXX at a significant premium to ONXX’s current share price. ONXX is a buy under $56 with an 18–24 month target of $85.