A look at Onyx Pharmaceuticals' (Nasdaq: ONXX ) bottom line for the first quarter -- earnings of $0.27 per share -- would make you think the company had found a printing press and started cranking out the greenbacks. After all, this is the company that's only had one profitable quarter in the last five-plus years, earning a scant $0.01 per share in that period. But sales of Nexavar, a liver and kidney cancer treatment, sent earnings soaring this time around.
Management cautioned investors not to get all excited about this quarter's outstanding bottom line, but it's not easy. Onyx's marketing partner Bayer recorded $152 million in Nexavar sales. That's up 149% year over year and 22% sequentially. Last year, the drug was just competing against kidney cancer treatments like Pfizer's (NYSE: PFE ) Sutent. Now, thanks to recent FDA approval as a treatment for liver cancer, its market appears wide open. As a bonus, Nexavar has become available as a liver cancer treatment in more countries. Very nice!
Maybe management knows what it's talking about, though. Onyx said it's looking for 2008 sales of Nexavar in the range of $600 million to $650 million. Using this past quarter's sales level as a base, the low end of that essentially involves no sequential growth, while the upper end represents less than 5% sequential growth for each quarter through the end of the year. Some might just say that management is being conservative, but I have to wonder, "Why bother giving us a range you think you can easily top?" Onyx has never given guidance for Nexavar sales before.
With sales for kidney cancer patients essentially peaked, and sales to treat liver cancer headed in that direction, Onyx's best hope for turning a projected breakeven 2008 into very profitable years ahead lies with its other clinical trials for Nexavar.
Unfortunately, the drug recently failed to show an effect at treating lung cancer in combination with chemotherapy. However, Onyx hasn't given up hope to get it approved for use in this lucrative market.
Nexavar is currently in clinical trials designed to test the drug in combination either with Eli Lilly's (NYSE: LLY ) Alimta or with Tarceva from OSI Pharmaceuticals (Nasdaq: OSIP ) and Genentech (NYSE: DNA ) .
It's a good strategy, because even a marginal improvement in survival over the current treatments will likely garner it a place as an add-on therapy.
Ultimately, the one-drug wonder has two ways to become profitable. Cut its entire research and development program and reap the rewards of the two indications Nexavar is approved for, or get the drug approved to treat more diseases. Onyx has chosen the harder, but more lucrative, path. While that will increase expenses in the short term, prudent investors should welcome that as a way to increase returns down the road.