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Onyx and Bayer Bury the Hatchet

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Onyx Pharmaceuticals, Inc. recently settled its dispute and modified its deal with partner Bayer (BAYRY - Free Report) regarding their cancer drug Nexavar and Bayer’s cancer candidate regorafenib. The companies' agreement for Nexavar dates back to 1994. Nexavar is approved for treating  cancer of the kidney and liver.

We remind investors that the dispute started in 2009 when Onyx dragged Germany’s Bayer to court accusing the latter of developing regorafenib (almost similar to Nexavar) without Onyx’s knowledge to avoid royalty payments to Onyx.

Consequent to the settlement of the dispute, Onyx becomes eligible to receive royalty payments to the tune of 20% on global sales of regorafenib on approval (even if Onyx is taken over). Moreover, Bayer will have to incur the entire costs pertaining to the development and subsequent commercialization of the candidate.

Bayer will however, have the final say regarding regorafenib’s development. The two companies can co-promote regorafenib in the US on approval. However, the German company has the right to end Onyx’s right to co-promote regorafenib in the event of any management change or acquisition of the latter.

Regarding Nexavar, Bayer will have to shell out $160 million to Onyx as a one-time payment for marketing Nexavar in Japan. There will be no royalty payments for Nexavar after 2011. Bayer is liable to make additional payments upto $15 million over the next two years depending on Nexavar’s price in Japan.

The new agreement does not make any changes to the aspects covering profit sharing, co-development and co-promotion of Nexavar even if Onyx is taken over or undergoes a management change. The settlement of the dispute had a positive impact on Onyx’s shares.

Our Recommendation

Currently, we have a Neutral stance on Bayer in the long run. The company carries a Zacks #3 Rank (Hold rating) in the short run.




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