Explaining Onyx Pharmaceuticals' Sell-Off

In perhaps the most anticipated FDA approval ever, Onyx Pharmaceuticals (Nasdaq: ONXX) and Bayer's Nexavar was given the nod for marketing as a liver cancer treatment yesterday. Investors were so overjoyed that they guessed that the approval would occur, they sold off Onyx's stock, causing the price to drop 5%.

After all, not one, but two clinical trials were stopped because it was deemed unethical to deny the drug to patients in the control arm of the studies, so the chance of the marketing application being denied was somewhere between slim and none. Yesterday's sell-off, taken with Genzyme's (Nasdaq: GENZ) 3% increase last week when it received an approvable letter from the Food and Drug Administration, just proves that predicting how investors will react to news is difficult at best.

The big question is, how much will the approval help sales of the wonder drug? Because the trials were such a success, it's likely that many oncologists have already begun prescribing the drug off label for liver cancer. In fact, in the most recent quarter, sales of Nexavar were up 130% over the year-ago quarter, so it's clear that at least some of the sales for treating liver cancer patients are already occurring. That's especially obvious given that sales had started to level off at the beginning of the year as the drug ran into competition from Pfizer's (NYSE: PFE) Sutent.

Until we see a few more quarters of sales numbers, we won't know the true potential for Nexavar sales in liver cancer treatment, although it probably won't matter how big the market is. Nexavar's best chance for gaining blockbuster status is in the treatment of breast cancer, and phase 3 data is still a ways away.