ONCOLOGY: STRONG SURVIVORS

Cancer drugs is one of the most competitive markets. At the American Society of Clinical Oncology (ASCO) this past June, Onyx unveiled the results of the Phase III data for Nexavar, an oral RAF kinase inhibitor that was the product of a 15-year-old drug-discovery deal with Bayer. The study found that Nexavar was so effective in treating liver cancer that the trial was terminated early so the placebo group could also receive the drug.

While Nexavar was the darling of the 2007 ASCO meeting, less discussed is the bubble in the pipeline of oral targeted treatments like Nexavar—and how they are set to change the face of cancer. "They give big companies an opportunity to extend their franchises by combining targeted therapies with some of the older and well-established injectible chemotherapy agents," says George Zavoico, an analyst with Cantor Fitzgerald. "You will see more of this type of combination therapy coming."

Several smaller companies have robust pipelines full of oral oncologics. Of those, Exelixis has 13 cancer compounds in development, the highest in the industry. The company is earning a reputation as an efficient drug developer and some analysts even refer to it as the "baby Genentech."

"If I had to pick a stock in my universe that had a chance of becoming the next big thing, I'd pick Exelixis, because it has so many shots on goal and in part because it is doing great science," says Eric Schmidt, a senior analyst for Cowen. "If the compounds work, it could be the next $10 to $20 billion biotech company." Exelixis has research alliances with many companies, but its most far-reaching deal is with GSK. The partnership includes 12 programs in clinical development, and GSK also retains exclusivity rights to 32 specified targets.

Sunesis offers other promising oncologics. Its platform is based on "tethering"—a process whereby a target protein is engineered to facilitate the binding of small drug fragments, offering a new mechanism to tackle cancer. The company has deals with Johnson & Johnson, Biogen Idec, and Merck, but it is still seeking a partner for SNS-595, a novel drug in Phase II for small-cell lung and ovarian cancer. The drug is undergoing Phase I/II trials for leukemia, which results show reduces bone marrow blasts by more than 95 percent and even demonstrates complete remission of the disease.

Other investors are excited by the new pathways that cancer drugs in development are targeting. "It's not just picking products against the target, or improvement in products that have already been established," says Campbell Alliance's Ben Bonifant. "It's about figuring out which pathway and where in the pathway the real efficacy is going to be found."