People are fickle, and as a result we see trends come and go all the time. Tight-rolled jeans, mullets, and Swatches were all fads that were hot one moment and passe the next. Well, mullets are an exception -- they are still considered the height of fashion in certain locales. But most trends do fade away.

This ebb and flow also plays out in the drug industry. One year the hot area is biodefense, the next it's stem-cell research. Or gene therapy. Or antisense. Whatever. It doesn't matter, because each new year brings The Next Big Thing. All it takes is a spark of technological promise, leveraged to whip the markets into a frenzy to get investor capital flowing (often right down the drain, but that's a topic for another day).

While many technologies go in and out of fashion, there are, like the mullet, a few constants in the drug sector. One of the most prominent is the research of new drugs for cancer. No matter what technology is in play, cancer drugs are always hot on the biotech investment scene.

The reason for that is pretty simple: Good cancer drugs are extremely valuable and can take small biotechs on a shoestring budget all the way to the promised land. A company like Genentech (NYSE:DNA) has built its empire around a series of cancer drugs. Other biotechs, such as ImClone Systems (NASDAQ:IMCL) and OSI Pharmaceuticals (NASDAQ:OSIP), have done quite well for investors -- ImClone on the strength of just a single cancer drug.

The medical need for new and improved cancer drugs is obvious. It doesn't take a medical degree to see that there is a market here for new products. And along with the need, it's been proven that once these drugs get approved, they can sell quite well -- making investors very happy and driving the lasting interest in these companies.

An exciting prospect
One company in the cancer field that appears to be on the verge of reaching commercial success is Onyx Pharmaceuticals (NASDAQ:ONXX). In collaboration with Bayer (NYSE:BAY), Onyx is developing a small-molecule cancer drug called sorafenib (formerly BAY 43-9006).

Yesterday the companies announced positive data from a phase 3 trial in patients with advanced kidney cancer. Though the trial is still ongoing, an interim analysis showed a statistically significant increase in progression-free survival in patients using sorafenib versus patients taking a placebo. Based on this data, the companies are going to file an NDA with the FDA to get the drug onto the U.S. market. The goal is a launch date sometime in 2006, which is realistic if the filing is in by the end of this year.

While this announcement reveals an important top-line clinical result, it is unfortunately all that was disclosed at this time. We'll have to wait until the American Society of Clinical Oncology meeting in May for additional details. This is really only the first batch of data out of the trial and so is not the entire package that the companies will rely on for approval. The trial will continue until the primary endpoint of the study is reached, so that investigators can determine whether or not sorafenib improves patient survival. This is noteworthy because the impact of a cancer drug on patient survival is generally considered the strongest type of evidence a company can present to demonstrate the benefits of its drug. The release of that data will be highly anticipated. It is worth pointing out that progression-free survival -- the endpoint reported yesterday -- is not a measure of survival. It is the absence of any biochemical or physical evidence that the disease has advanced, and is thus a surrogate endpoint.

Success in kidney cancer would be a significant event for Onyx because it would begin to turn around the company's financials. Its net loss for 2005 will be in the range of $75 million to $85 million; it is operating deep in the red, a situation that's not at all uncommon for small biotechs.

Right now, all eyes are on how the drug is doing in the clinic. Despite its successes, I say let the buyer beware. As sorafenib transitions into a commercial product, the state of the company's financials will become the market's focus. Once approved, quarterly sales numbers and Onyx's earnings will drive the movements in the stock price, not the hype around a new drug.

So while sorafenib looks like a promising therapy for kidney cancer, I'm not sure there is much upside remaining for investors looking to buy into a good drug program on the basis of this market alone. With approximately 35,000 new cases per year in the United States, this is a small market. Because profits are split with Bayer, those profits retained by Onyx may not be sufficient to increase the value of the company to a degree that warrants the risk inherent in biotechs at this stage.

The wild cards here are that sorafenib is also in late-stage trials for liver cancer and melanoma. If those trials come out positive, then Onyx is very likely going to be a long-term winner. Cancer drugs often don't work in all cancer types, so despite the encouraging results in kidney cancer, success in these other indications is far from a sure thing.

But don't miss the boat
I've been following Onyx for quite a while, and I certainly remember when the stock was in the low single digits a few years back. Since that time, it has been a 10-bagger, and watching that happen has shaped my view of investing in companies developing cancer drugs.

In my view, investing in a cancer drug at the point where Onyx has brought sorafenib is coming late to the party. While there is some additional clarity on the drug's prospects, reducing the R&D risk, there is also greatly increased investment risk. Remember, Onyx has shot up in value 10-fold well in advance of having a drug approved. This has become a common trend for small biotechs that have drugs approaching approval; it is why they crash and burn when things go wrong with phase 3 trial results or the FDA turns down the drug.

Instead of trying to catch a train that has already zipped by, I like to invest in these cancer drug programs well in advance of phase 3 trials. I look for drugs that are in phase 1 or 2 from companies that have market caps of a few hundred million dollars instead of over a billion. With this approach, there is a bigger chance that the drug won't pan out. However, the upside from getting in early and being right far outweighs the downside, which is actually reduced because at this stage the stock is not yet inflated by the hopes that the drug is a winner.

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Motley Fool Rule Breakers biotech analyst Charly Travers does not own shares of any company mentioned in this article. The Motley Fool has a disclosure policy.