Company Spotlight - Onyx Pharmaceuticals, Inc. (ONXX-NASDAQ)

  Cancer Cure?

January 24, 2008 - Onyx Pharmaceuticals, Inc. (ONXX-NASDAQ) has a cancer drug that may turn out to be a real gem. Working with health care giant Bayer, the biotechnology company gained FDA approval in late 2005 for Nexavar as a treatment for advanced kidney cancer.

This stock launched in the middle of last year, starting at $10.40 a share and recently hit an all-time high of $61.20. It's taking a breather, off about 25% from that peak. It's worth looking at if you want a biotech company that is about to break into the black.

Unlike most biotechs, Onyx has revenues. Earnings are expected to be 85 cents this year, up from a deficit of 50 cents in 2007. In 2005 and 2006 losses per share were $2.64 and $2.20 respectively. Onyx has plenty of cash, about $451 million out of its $483 million in current assets. That's against current liabilities of $13.4 million. (Data from September 30 quarterly statement.) That means it has plenty of funding available internally and won't have to tap debt or equity markets to continue its clinical trials and testing.

The latest FDA approval came in November of 2007 when Nexavar was approved for treatment of unresectable liver cancer. It was previously approved for advanced kidney cancer. Once approval comes from Europe and Asia (expected by mid-2008), Bayer and Onyx are in position to market the drug aggressively.

More testing for the efficacy of Nexavar continues for treatment of liver and kidney cancers alone and in combinations with chemotherapeutic agents. Other testing is for treatment of melanoma, nonsmall cell lung cancer, and breast cancer. All of these tests and clinical trials cost quite a bit so expenses will continue to rise. But Nexavar is already selling and revenues are expected to hit $125 million this year, based on approvals already granted.

Other numbers: If earnings are as expected in 2008, net profit margin will be 40%. Return on equity will hit 9.5%. There is no dividend. Market cap is $3 billion on 55.1 million shares. Debt is 8% of capital.

Investors love this stock. When a company that did $43 million in sales last year has a market cap of $3 billion, that's true love. Earnings should be positive this year. More approvals look imminent. Nexavar seems to be one answer for several cancers. It all looks so promising. Just remember that sometimes promises are empty. If you want to own this stock, make it a small amount and part of a portfolio with plenty of other strong earning stocks.

- Company Web site: www.onyx-pharm.com

Ted Allrich