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Very Bullish about Onyx Pharmaceuticals
Current Status:
ONXX has a small molecule drug that has been approved for kidney cancer, with a ~120million/yr sales currently. Kidney cancer is a relatively rare disease. Its US cases is about ~52K/yr, with death rate ~25%.
ONXX has Phase 3 clinical trials of the same drug for the following cancers: liver, lung, and melanoma. For liver cancer, the drug is waiting for final approval in US and in EU. It is also under clinical testing in Hong Kong and in Taiwan, with accelerated trial schedule.
The drug is co-developed with Baylor, with a 49-51 split deal. Baylor is responsible for all the sales, and realize all the revenues. It then splits the revenue, and the sales costs between the two companies.
The current market valuation of ~$2.5billion (Nov. 1) is a good valuation for the kidney indication. However, its biggest is potential is in the liver cancer market. The approval of this drug for liver cancer appears a certain thing. It is just a matter of time (within next year). Below I provide a liver cancer market analysis, and provide some estimates on the market valuation based on that. The US analysts' valuation on ONXX is too low because they have not accounted for this huge market in Asia countries.
Liver Cancer Market
US: 19,000 a year in the US. US gives hepatitis B vaccine to all the new born babies. The liver cancer rate is much lower in the US than in Asia.
Japan:
• 44.5 men per 100,000 population with liver cancer in Japan 1993-97 (Surveillance and Risk Assessment Division, CCDP, Health Canada) • 11.9 women per 100,000 population with liver cancer in Japan 1993-97 (Surveillance and Risk Assessment Division, CCDP, Health Canada)
Total, in Japan: 56 /200,000 * 100,000,000 = 28,000.
China:
• 35 men per 100,000 population with liver cancer in China 1993-97 (Surveillance and Risk Assessment Division, CCDP, Health Canada) • 9.7 women per 100,000 population with liver cancer in China 1993-97 (Surveillance and Risk Assessment Division, CCDP, Health Canada)
Total, in China: 45/200,000 * 1,300,000,000 = 292,500.
Total, in the rest of the world: ~600,000.
Another statistics from World Health Organization: every year, there are about 1 million people dying from liver cancer. Given that some people with liver cancer survives, the annual occurrence of liver cancer is probably in the range of 1.15million/yr.
Let's do some estimates:
Average treating cost per patient: $10,000/yr. Total number of patients: 1,000,000/world
Total estimated sales: $10 billion/yr-world.
which means for ONXX: $5 billion/yr-world market. Given that the drug is the only treatment available for liver cancer, a 50% penetration on the market is possible, ie. a market size of of $2.5billion/yr-world for ONXX. Using a *5 ratio for company value (as it is a small molecule drug, and with little production cost), $12.5 billion.
This is the valuation for liver cancer alone. Plus the possible effectiveness for other cancers (lung cancer, breast cancer, and for the approved kidney cancer). A factor of 2 seems reasonable. So ONXX will worth $25 billion when the market is 50% penetrated reached.
Risk Factors
The FDA approval of the drug, and the approvals from EU, China, Japan appear a certain thing. It is just a matter of time.
The biggest uncertainty is whether there is another drug that will be more effective than this drug. Currently there is no competitive drugs in the late stage of clinical trials. So for 2-3 years, this risk factor is small.
The second uncertainty is how fast ONXX can penetrate the market. Given that every patient wants to survive as long as they can, and Nexavar is the only hope, the sales should be with little resistance. It may take 5-10 years to get there.
Prediction
I give a very bullish ranking! Current ONXX valuation: $45/share, $2.5Billion total value. From here, to a $25 billion valuation within 5 years is likely. So $450/share, $25 Billion market value by year 2012.
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