Why Did This Drugmaker's Earnings Displease Investors?

Despite a double dose of good news for oncology specialist Onyx Pharmaceuticals (Nasdaq: ONXX  ) , which beat earnings estimates and touted its two approvals from the Food and Drug Administration for new cancer treatments, shares have fallen since its earnings release on Thursday. This aberration in price movement could be a signal that this up-and-coming stock is misunderstood -- and make smarter investors pay attention.

What's the news, doc?
The drop comes as a bit of a surprise after Onyx soundly beat both top- and bottom-line estimates. Revenue for the company beat Wall Street estimates by $9 million to come in at a total of $89 million. It also totally surprised analysts with income of $0.26 per share, more than a dollar more than the estimate of a loss of $0.90. The case could be made that the earnings were propped up by large income tax carry-overs, but non-GAAP adjusted earnings still beat by 13%. 

On Thursday's conference call, Onyx CEO Tony Coles gave insight into both the success and potential of Kyprolis and Stivarga, two cancer treatment drugs that gained approval this past quarter. Since its release back in late July, Kyprolis' sales totaled $19 million for the quarter. This was a pleasant surprise considering that Wall Street estimates for the drugs were about $7 million. Kyprolis is currently marketed as a third-line treatment for multiple myeloma. Since July, it has captured a healthy 10% market share in myeloma treatment.  Stivarga, a joint project with Bayer, received approval last month. This new treatment for colorectal cancer will be co-promoted with its other kinase inhibitor, Nexavar, which has been the primary product for Onyx since 2005.  

Onyx is just one of many companies benefiting from recent FDA catalysts. NPS Pharmeceuticals  (Nasdaq: NPSP  )  received a unanimous vote in favor of its short bowel syndrome drug, Gattex, from an FDA advisory panel last month. Aegerion Pharmeceuticals  (Nasdaq: AEGR  )  and ISIS Pharmaceuticals  (Nasdaq: ISIS  ) also received advisory committee recommendations for their treatments of HoHF -- a high LDL cholesterol condition -- though for ISIS, it wasn't a convincingly positive vote. 

What a Fool believes
Investors who look at Onyx will look at the potential of Kyprolis and Stivarga rather than its earnings sheet. Since it is a third-line treatment, Kyprolis is only used after the failure of other myeloma treatments: Velcade, a joint project by Millenium Pharmaceuticals and Johnson & Johnson  (NYSE: JNJ  ) , and Revlimid and Thalomid, both products of Celgene (Nasdaq: CELG  ) . Onyx is in the process of testing Kyprolis in conjunction with Revlimid to treat relapsed and refractory myeloma patients. Kyprolis will be the first drug where Onyx is the exclusive manufacturer and will not need to divvy up the economics from drug sales. For both Nexavar and Stivarga, Onyx is partnered with Bayer.

It appears that years of development are starting to pay off for Onyx, and in my opinion this week's news should only be viewed as an encouraging step forward for investors.

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