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Black Tuesday for Onyx

Almost exactly one year since Onyx Pharmaceuticals announced positive results of its drug Nexavar for liver cancer and the stock doubled in one day, the biopharmaceutical company is providing an example of the ups and downs of drug development and biotech investing.

On President's Day, Onyx issued this press release, saying it had stopped a clinical trial of Nexavar for lung cancer because it didn't look like it would meet its main goal of extending patients' lives.

In fact, Onyx and its partner Bayer say there were more deaths in a specific subset of patients who got Nexavar. The late-stage study had enrolled more than 900 previously untreated patients with non-small cell lung cancer at more than 140 clinical trial sites worldwide. The patients got chemo and Nexavar or chemo plus placebo.

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The trial was stopped after a planned interim analysis and on the recommendation of a data safety monitoring committee. Officials say they just got the news over the holiday weekend.

In brief prepared remarks on a conference call this morning, Onyx CEO Hollings Renton said, "Clearly we are disappointed by the lung cancer results. (But) these results don't change our long-term outlook that Nexavar can become a standard of care across a number of tumor types."

Onyx and Bayer are testing Nexavar on skin cancer, pancreatic cancer, breast cancer and leukemia. Renton said Nexavar will become "a cornerstone of cancer care." Nonetheless, the stock fell even more during the conference call.

Officials said because of "the dynamics of the marketplace," they can't give sales guidance for this year and don't feel comfortable projecting profitability for the full year 2008, although there could be profitable quarters.

In a research note to clients this morning, Leerink Swann analyst Howard Liang writes, "...the early termination (of the clinical trial) for lack of efficacy was not expected. Removal of (lung cancer sales) projections would significantly reduce the earnings leverage that would have translated into large upside in valuation."

But Wachovia Capital Markets analyst George Farmer says, "We would be buyers (of ONXX shares) on this potential weakness." He's telling clients, "Upside potential remains. We believe that Nexavar remains stable in approved indications (kidney and liver cancers)...."

And Rodman & Renshaw's Mike King says it's a buying opportunity for investors in ImClone Systems . He writes, "We believe this news is positive for IMCL as it potentially removes the competitive threat from Nexavar...." ImClone is testing Erbitux on lung cancer.

R&R makes a market in IMCL. Wachovia and Leerink Swann make a market in ONXX.

Onyx's longtime CEO Hollings Renton is supposed to retire this year. The company hasn't announced his replacement yet.

When I interviewed him early last month at the JPMorgan Healthcare Conference, I asked Renton if recurring speculation about ONXX being a takeout target might be making it diffficult to hire his successor. He replied that the company is well into the process and that a lot of people are "raising their hands" because Onyx has "a great drug and it works."

Questions? Comments? Pharma@cnbc.com