Let me make sure I have this straight. Bayer AG (BAYRY) and Onyx Pharmaceuticals (ONXX) jointly announce at this year’s American Society of Clinical Oncology conference that their thyroid cancer drug Nexaver at least extends the lifespan of patients — even if it doesn’t improve overall survival rates — and both stocks slide lower that day in the shadow of the news (-0.6% and -2.4%, respectively)?
Meanwhile, Sanofi SA (SNY) reports on Monday that its highly touted lung cancer drug iniparib doesn’t produce any measurable benefit at all, and the stock ticks up fractionally by the end of the session?
Yeah, sounds about right.
To be fair, it’s not like any of the moves were huge, and one day doesn’t make or break a trend. Then again, given the market’s love affair with drug-related news, one would have thought these fairly significant announcements would have spurred some obvious directional action. In each of these three cases, though, the market actually moved in what some would consider the “wrong” direction.
Amazingly, the pharma industry hasn’t introduced a new drug for treatment-resistant thyroid tumors in four decades. That doesn’t mean the need isn’t there, though. Enter Nexavar, a treatment co-developed by Bayer and Onyx. Although the treatment didn’t save more lives than current forms of therapy, it did extend lives by an average of five months (compared to a placebo).
The two companies have up to $300 million at stake in annual sales of Nexavar, which would be split between them evenly. Admittedly, it’s not a great deal of incremental revenue for Bayer, which generated $51.7 billion in sales last year. It could end up being a very big deal for Onyx Pharmaceuticals, though — the company has a trailing 12-month top line of only $435 million, about half of which stems from sales of Nexavar. The drug is already approved to treat kidney and liver cancer in several dozen international markets, which would be the obvious venues to introduce the drug as a therapy for treatment-resistant thyroid tumors.
As for Sanofi … frankly, it’s surprising anyone was even hopeful that iniparib might work.
Some might recall that iniparib was the reason Sanofi SA acquired BiPar in 2009. Some thought this new class of cancer drugs, called PARP (enzyme) inhibitors, was going to change the way the biopharma industry approached the war on cancer. But after a pretty spectacular failure in 2011 as a treatment for breast cancer, its non-efficacy as a therapy for lung cancer simply mirrored its initial non-success.
Sanofi CEO Christopher Viehbacher said of the drug’s failure: “In the case of iniparib, there may be an active drug in there somewhere, but at the moment there is no clear path for development.” It’s a softer way of saying the company has no real understanding of how or why the drug might work.
That’s not necessarily unheard of in the pharmaceutical world, but it’s certainly no way to develop a cancer treatment.
The Rest of (and Moral of) the Story
The details still don’t explain the movement we saw in these three stocks. Indeed, as was noted already, the post-news action from each equity actually conflicts with the news. What’s the deal?
For Bayer and Onyx, the lack of buying interest following the news might at least partially stem from the fact that the market already knows Nexaver is being used off-label as a therapy for thyroid tumors. In other words, it’s possible that some of the estimated $300 million in sales the pros think the new venue could produce is already being generated. Furthermore, just because a market exists doesn’t mean a particular drug will capture all of it … and it certainly doesn’t mean it will capture all of it right away.
At the other end of the winning/losing spectrum lies Sanofi, which somehow didn’t slump on disappointing results with iniparib as a lung cancer drug. As it turns out, the drug’s failure didn’t come a surprise at all, thanks to its 2011’s failure as a therapy for breast cancer. The market wasn’t expecting success, and wasn’t disappointed when the company had none.
There’s nothing for a trader to do about it now. In fact, there never was.
There is a lesson to be learned, however, and it’s this — “the market” has a funny way of knowing everything, and correctly pricing it into a stock’s price at any given time. Every now and then investors collectively make or miss the boat, but by and large, there’s little opportunity in gambling on binary outcomes … especially drug-related events.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.