How to Turn Onyx Into Gold
Someone call Bill Nye the Science Guy, because I'm about to take alchemy to a whole new level. I'm going to show you how, with a wave of the magic wand, Onyx Pharmaceuticals (NAS: ONXX) went from black onyx to pure gold.
Yesterday, Onyx Pharmaceuticals settled a long-standing lawsuit with Bayer that dated to 2009. The lawsuit involved accusations that Bayer was developing a drug very similar to Nexavar -- the cancer-fighting drug that Onyx and Bayer collaborated to develop -- and was knowingly trying to subvert making royalty payments to Onyx. Now that Onyx's dark cloud has been removed, we can examine how settling this lawsuit is important on multiple levels.
First, Onyx is going to get money, and who doesn't like money? The settlement calls for Bayer to pay Onyx $160 million for the rights to market Nexavar in Japan with the possibility of receiving another $15 million if certain milestones are met. Keep in mind that Onyx ended its most recent quarter with $523 million in cash, and you'll understand that this is becoming a very well-capitalized drug-research company.
Second, the settlement ended amicably for both parties, meaning Onyx will continue to receive royalty payments in collaboration with Bayer. More importantly, if Onyx is bought out, the settlement deems that Onyx will still continue to receive royalty payments. If you thought Onyx was attracting takeover rumors before, this salivating bit of good news should do more than enough to line up bidders at the door.
I'm just taking a poking stab for the heck of it at possible suitors, and I strongly suggest you don't read more into it than that, but I'd say that Onyx might make a good fit for either GlaxoSmithKline (NYS: GSK) , which is itself about to fall off a patent cliff, or Novartis (NYS: NVS) which already has an alternate-pathway renal-cancer-fighting agent on the market in Afinitor. One company that I can almost guarantee has no interest in Onyx is its primary competitor, Pfizer (NYS: PFE) , whose drug Sutent has taken a bite out of Nexavar's market share.
Finally, the settlement clears the path for Onyx to focus on getting its next potential blockbuster to market. Carfilzomib is targeted at treating patients with relapsed and refractory multiple myeloma. The company had positive phase 2b results from the drug and is currently awaiting word from the FDA on its possible approval following two separate phase 3 trials. Carfilzomib has a lot of potential, considering that the multiple myeloma market is a multibillion-dollar industry.
Black onyx to gold: Top that, Bill Nye!
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At the time this article was published Fool contributorSean Williamshas no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLongand on Twitter, where he goes by@TMFUltraLong.Motley Fool newsletter serviceshave recommended buying shares of Pfizer, GlaxoSmithKline, and Novartis. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool'sdisclosure policyhas a Ph.D. in alchemy.