Trader's Edge: Onxx Pharmaceuticals
29-Sep-00 00:03 ET
[BRIEFING.COM - Robert Walberg] How do you avoid owning stock in a company that issues an earnings warning? Simple. Own stock in companies without earnings. Maybe that explains why the Biotech Index has marched steadily higher in recent weeks, while the rest of the market has succumbed to earnings fears. Even when the broader market bounced back yesterday, biotechs continued to climb, with the Biotech Index closing above 800 for the first time in history. Year-to-date the index is now up a stunning 105%. One thing mutual fund and portfolio managers like to show when they close their books for the year is that they had a piece of the hottest moving sector. So even though the sector is a little overextended, Briefing.com wouldn't be surprised to see biotechs continue to outpace the market for the next few months. One stock poised to participate in the market's love affair with biotechs is Onyx Pharmaceuticals (ONXX). Here's why:
Trading Points
Company beginning Phase III Trials of CI-1042, formerly known as ONYX-015... CI-1042 is a human virus that has been genetically engineered to selectively replicate and destroy cancer cells based on a particular abnormality in those cells... Early trials have been very encouraging as more than 80% of the patients with head and neck cancer reported that their tumors decreased in size after being injected with CI-1042 and being given chemotherapy, while tumors not injected progressed... If Phase III trials prove equally as convincing, a big if, the company will have a potential blockbuster on its hands.
ONXX's CI-1042 is also in early stage trials for treatment of colon cancer and for treatment of pancreatic cancer.
Encouraging trials and managements ability to meet milestones two keys to successful biotech companies.
ONXX currently has about 1.6x its burn rate in cash, a little lighter than the 2x we prefer but not bad... Company addressing this concern with secondary offering of 3 mln shares... Dilutive effect of offering nowhere near as big an issue as having necessary funds for R&D... Even with the added shares float will remain small.
Company has collaborative deals with Pfizer and Bayer... Considering current successes don't be surprised to see additional deals down the road.
Pipeline in promising cancer treatment area makes ONXX an attractive takeover target for one of the larger more established pharmaceutical companies.
Recent consolidation of August rally being resolved to the upside as stock bouncing nicely off of its 50-day moving average... Not much resistance now until the 28 area, with penetration of this ceiling positioning stock for run at its high of 36 1/2... Solid support is in the 20 area.
Robert Walberg, Briefing.com |
