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Avastin in a pill



February 16, 2007 – Comments (0)

Avastin in a pill

Don’t sell too early when you are winning

2/13/2007 by Dr. Thomas Li

ONXX doubled its price after its cancer drug Nexavar surprisingly succeeded in liver cancer trial. Is this the time to sell? Absolutely Not. Here is the reason why.

First let me recall the story of DNA. On May 19, 2003, DNA released its positive Avastin trial result and its stock price skyrocketed from 37.9 to 54.85. The 44% rise in stock price equals to 9 billion dollar market cap change in a single day. It kept going up in the next few days. At some point around 65, I thought it is overvalued and bought a few puts. Guess what, it went up all the way to 80 and never look back. Now it is 170 before split.

I can tell you more similar up stories and even more down stories where the stocks tanks eventually after positive news and stock price shot up. So which way is ONXX heading?

To answer the question, you have to look at the beauty and significance of this important liver cancer trial. Before this trial, we know Nexavar works in advanced kidney cancer and failed in melanoma. We know Nexavar is a multiple kinase inhibitor, targeting RAF, VEGFR-2, PDGFR-⬠KIT, FLT-3, and RET. But we do not know for sure how it really works. Is it through the inhibition of tumor cell proliferation and/or through the angiogenesis? Now with the positive liver trial, we know it works in two solid tumor indications but not melanoma where RAF is over-expressed. This suggests that Nexavar is most likely working through angiogenesis. Bingo! It has the same mechanism of action as Avastin, but instead of injection, Nexavar is an oral drug. That is why I call Nexavar the Avastin-in-a-pill.

Looking forward, the picture is so bright for Onyx Pharma and its stock holders. Though Nexavar has a hard fight with Pfizer’s Sutent in kidney cancer, it still produced 63 million revenue in 4th quarter last year. Remember it launched in December 2005 and just passed its first birthday. With the positive liver trial, I expected off-label use of Nexavar will generate meaningful revenue as early as 2nd quarter this year, even before FDA approval. The roll-out in liver cancer indication will be faster than anyone can think of and I expect Nexavar can produce 180 million world-wide sale in 4th quarter this year alone.

Then there is the late stage lung cancer trial and the result will come in the second half of this year. The chance to have positive news from the trial increased significantly after the positive liver cancer trial as it is another solid tumor with angiogenesis is demonstrated as an effective way to fight the disease, like Avastin.

So and so, let’s take a look on revenue numbers as this is really count. Nexavar will bring in world-wide peak sale of 250 million in kidney, 500 million in liver, and possibly more in lung, and other solid tumor indications. Sure there will be fierce competition; but the pie is large enough to make the first-in-class drug a billion cash cow in a matter of two years.

For the stock price, I see it goes to 50s (2 billion dollar in market cap) in six months and 100 (4 billion dollar in market cap) in a year if it is not bought out by Bayer. If you do a little research on revenue and market cap of AMLN, ELN, OSIP, MOGN, and ICOS, you will agree with me that the predication is well justified.

By Dr. Thomas Li

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