TLSR: Mike, I know you follow Onyx Pharmaceuticals Inc. (ONXX), which had its product Kyprolis [carfilzomib] approved on July 20, 2012, for multiple myeloma. Could you comment on it?
MK: Onyx has done a great job in getting approval for Kyprolis. It succeeded despite significant doubt among many, not only in the Wall Street community, but also the medical community. A fair number of people thought that the FDA wasn't going to approve any drug on the basis of single-arm studies, and that it would ask for another trial. Actually, FDA said it didn't want lousy single-arm studies. Onyx undertook a very good study in a patient population that represented a significant unmet need. Kudos to it. But investors are grappling with a few issues right now.
TLSR What issues?
MK: First, there are the competitive products. The 800-pound gorilla in this new room is Celgene's pomalidomide, now in phase 3 for myeloma and for myelofibrosis. Another competitive threat representing a bit of an overhang is Millennium Pharmaceuticals' [the U.S. oncology unit of Takeda Pharmaceutical Co. Ltd. (TKPHF.PK)] proteasome inhibitor Velcade [bortezomib], which is administered as a subcutaneous therapy, and perhaps will be an orally administered product in the future. The idea of an oral proteasome inhibitor used to scare doctors, but it turned out not to be the deadly poison that many thought it might be.
Velcade has been on the market since 2003. Oncologists have become familiar with it and now manage the side effects very well, especially with the subcutaneous version. However, I'd point out that there is a large population of myeloma patients who have received intravenous Velcade and are probably intolerant to it now. That's a perfect market for Kyprolis, which, I think, is an all-around better drug.
Kyprolis dosing began with a 15-minute infusion to compete with Velcade, but in a bold move the infusion was stretched out to 30 minutes. With the new protocol oncologists could get significantly higher doses into patients over a longer period, and the product has been well tolerated. Some surveys of Kyprolis users have found that clinicians have become comfortable with using doses that are higher than what the label recommends, as well as combining Kyprolis with other agents to improve its efficacy.
According to some of the data presented for newly diagnosed myeloma patient population at the American Society of Hematology [ASH] annual meeting [held in December 2012], the therapy is getting remarkable results-100% response rates in some cases. These are relatively small studies of 70-80 patients, but not puny by any stretch of the imagination. The more use the drug gets, the better it is going to look. For that reason, it will start out by picking off the low-hanging fruit, which is the relapse/refractory-to-Velcade population.
TLSR: The patients in this study were being treated with combination therapy of Kyprolis, Revlimid [lenalidomide] and dexamethasone, and the data were absolutely stunning. Being newly diagnosed patients, I'm wondering if that implies that the hematologist/oncologist [heme/onc] would want to begin using Kyprolis as a first-line therapy?
MK: Yes. The thought leaders start there, but as word of mouth gets out, publications and journals come out and results are presented at conferences, you'll see followers come to Kyprolis pretty rapidly.
TLSR: Onyx is still just a $5.3B market-cap company. It has doubled in the past year, and it's up 77% over the past six months. How much more upside is there to this stock?
MK: I've been pretty public with my long-term thesis, where I've said Onyx could approach a $10B+ market cap. Look, Millennium was bought for $8B by Takeda. That was with Velcade, a drug that doesn't have the same product characteristics that Kyprolis has. Plus, you have to add in the kinase inhibitor franchise that Onyx possesses. It has regorafenib, which was approved and is the first breakthrough drug in colon cancer since Genentech's [a unit of Roche Holding AG (RHHBY.OB)] Avastin [bevacizumab]. I believe approval for regorafenib in relapsed/refractory gastrointestinal stromal tumor is pretty well assured. That's a pure royalty. Onyx doesn't have to spend a nickel against that revenue stream, and the market should capitalize that generously because it is pure profit. A $10B market valuation seems like a very doable number to
Nidan, this is good find! However, I've to disagree with 10B valuation. Here is the calculation: I usually assume that bio trades at 2.5-3 times annual peak sales (and about 4-5 in buyout).
So, what we have?
1. Nevaxtar: 500m (ONXX half). Maybe will grow to 1B
2. Kypro. Conservatively, I assume 600-700M
3. Rego (ONXX gets 20% royalties). Lets say adds 1B to valuation.
4. Cash on hands. 500M
The total: (1B+700M)X3+1B+500M=6.6B. Unfortunatelly, not 10B....
I agree that one should err on the conservative side. However, please explain your assumptions regarding Kyprolis and Rego--especially if the former moves up in the line of treatment and the latter is a source of pure profit.