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Onyx Settlement With Bayer is a Win for the Biotech


Onyx won't have to pay for development costs but would get cut of sales if a new cancer drug is approved.

Onyx Pharmaceuticals (ONXX) settled a nasty dispute with big German drug maker Bayer over development and possible marketing of a late-stage cancer drug. The terms look like a favorable outcome for the smaller biotech.

Bayer will develop the drug regorafenib (closely related to the already approved cancer treatment Nexavar) and pay Onyx a 20% royalty on future sales of the product for cancer treatment. Onyx can co-market the drug in the US. The drug isn't approved for sale anywhere. As part of the settlement, Bayer also agreed to make a one-time payment to Onyx of $160 million for the rights to sell Nexavar in Japan.

Nexavar is a drug co-developed and marketed by Onyx and Bayer for liver and kidney cancers. With $934 million in sales last year, Nexavar is a rising blockbuster. Given the drug's success, Bayer has been testing the experimental drug regorafenib for a rare stomach cancer, colon cancer, and other diseases. The problem, according to Onyx, is the company was developing the new drug -- nearly identical to Nexavar -- without giving Onyx a heads up.

In a suit filed May 2009 in California federal court, Onyx said the regorafenib was jointly discovered with Bayer and terms of the Nexavar agreement should apply to development and future sales of the new drug. Onyx agreed to drop its lawsuit after reaching a settlement with Bayer.

"These new agreements strengthen the collaboration and provide Onyx the opportunity to participate significantly in the market potential of regorafenib," Onyx CEO N. Anthony Coles says in a statement. "Together, we are taking our collaboration to the next level by more effectively structuring our future working relationship. Onynx and Bayer are committed to benefitting patients worldwide and ensuring that the potential of both Nexavar and regorafenib is fully realized."

Investors should be happy with the outcome. Onyx is off the hook for development costs related to regorafenib but will get a cut of future sales. The lump-sum payment for Japanese sales rights actually could result in $15 million in additional money based on Bayer's ability to price the product. The settlement removes an overhang worry from the stock.

Shares of Onyx rose 4% to $33.20 in morning trading Wednesday. The stock is down 8% this year. The near-term catalyst for Onyx stock is a potential fast review of its multiple myeloma drug carfilzomib. (See Onyx, Chelsea Therapeutics, Horizon Pharma, Transcept Pharmaceuticals File for Drug Approvals in US)

Twitter: @brettchase

No positions in stocks mentioned.
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