Onyx Pharmaceuticals Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biotechnology company Onyx Pharmaceuticals (Nasdaq: ONXX  ) soared as much as 10% today on news that it has settled a lawsuit with Bayer over its blockbuster cancer drug, Nexavar.

So what: Although it may seem like run-of-the-mill news since lawsuits are a dime a dozen in the biotech sector, this is actually quite significant for both parties. Onyx derives nearly all of its revenue from Nexavar, which it developed in collaboration with Bayer. The lawsuit derived from an accusation in 2009 that Bayer was attempting to circumvent its royalty payment obligations to Onyx on Nexavar and develop a drug very similar instead. Today's settlement clears the way for both companies to continue with their current collaboration. In addition, Bayer agreed to pay $160 million to Onyx for the rights to market Nexavar in Japan with the opportunity to earn another $15 million if certain milestones are met.

Now what: Without question, the Bayer lawsuit was a big gray cloud overhanging this stock. With the lawsuit now being settled, the attractiveness of Onyx just shot way up and so does the potential that the company will get bought out. The final, and perhaps most important, aspect of this settlement is that Onyx will retain its collaborative agreement with Bayer even if it's bought out. With a blood-cancer treatment called carfilzomib hopefully on its way to the FDA shortly and the company solidly profitable, I feel the future looks bright for Onyx shareholders.

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