Why the Interest?
If $120 a share significantly undervalues the company, according to Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX), then what is a fair price? This question can only be answered when you understand the fundamental upside of Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX). The company is an oncology-focused drug developer with three total FDA approved drugs.
Nexavar is used to treat common forms of kidney and liver cancer. Investors anticipate Nexavar’s approval in thyroid cancer as well, after it slowed the progression of the disease compared to placebo in a Phase 3 trial. Nexavar has peak sales potential of $1.2 billion and is co-marketed with Bayer.
Bayer and Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) also market a colorectal cancer drug called Stivarga, but Onyx receives just 20% of net sales. The peak sales are estimated at only $500 million, but if the drug is successful in treating liver cancer, its sales could rise to more than $1 billion.
Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) markets its multiple myeloma drug Kyprolis alone. Canaccord estimates that peak sales of this drug could reach $2.1 billion by 2020, an outlook consistent with other analysts’ views.
Onyx could earn peak revenue of nearly $3 billion with these three drugs. Since Onyx’s pipeline is rather small, the company’s upside is tied to the upside of these three drugs. According to Deutsche Bank analyst Robyn Karnauskas, “you’ve probably missed the boat” in regards to Onyx. The analyst downgraded the stock from buy to hold with a $140 (buyout) price target — but is he right?
Who’s in the Running?
While Pfizer Inc. (NYSE:PFE) is presumed to have interest because of Nexavar, I think the deal is unlikely. The renal cancer space itself is getting congested, with six targeted drugs in the space. Pfizer Inc. (NYSE:PFE)’s drug Inlyta also competes with Onyx’s Nexvar. Therefore, I don’t see what Onyx has that Pfizer Inc. (NYSE:PFE) wants. Pfizer Inc. (NYSE:PFE) already has a presence in all of Onyx’s markets.