UPDATE 3-Bayer's Nexavar fails Phase III lung cancer trial

Mon Jun 14, 2010 12:16pm EDT

* Fails to improve overall survival goal

* Study tested Nexavar as initial treatment

* Bayer confirms peak sales potential exceeding 2 bln eur

* Bayer shares down 1 pct, Onyx down 5.7 pct in Frankfurt (Adds analyst comment, Onyx shares)

By Ludwig Burger

FRANKFURT, June 14 (Reuters) - Bayer (BAYGn.DE) and Onyx Pharmaceuticals ONXX.O failed to show in a late-stage study that their Nexavar cancer drug prolongs the lives of lung-tumour patients, the largest target group in the cancer market.

The Nexavar pill, used in combination with chemotherapy, did not improve overall survival when used as an initial, or first-line, treatment to combat non-small cell lung cancer (NSCLC), which was the main goal of the Phase III trial, the two companies said in a statement on Monday.

Nexavar, already approved for kidney and liver tumours, is one of Bayer's most promising new drugs, and Bayer has said it expects the drug to generate combined annual sales of more than 2 billion euros, an assessment the company reaffirmed on Monday.

Still, Nexavar helped patients to have longer periods without tumour growth, which was a secondary goal of the drug trial, according to the statement.

Bayer's shares were little changed at 47.81 euros, while Onyx shares rose 4.1 percent to $23.77 on Nasdaq.

Onyx investors had expected the trial to fail, and some of them likely took short positions representing bearish bets against the company, Morgan Joseph analyst Shiv Kapoor said.

"People were shorting the stock into the event and now that the event is over they're taking their shorts away, so it's a short-covering rally," Kapoor said.

Nexavar together with chemotherapy was compared with chemotherapy and a placebo in the study, the companies said.

By targeting the market for first-line treatment of lung cancer, Bayer had challenged Swiss drugmaker Roche's (ROG.VX) Avastin injection, which is approved as an initial treatment for some lung cancer patients when used with chemotherapy.

Roche shares rose 0.4 percent.

UNCHANGED SALES POTENTIAL

Bayer said it would continue to explore the use of Nexavar against lung cancer, which is the most common form of cancer and among the most difficult to treat.

Bayer will continue studies with lung-cancer patients who could not be helped by other forms of treatment, which, according to DZ Bank analyst Peter Spengler, still constitute a sizable market.

"We see high market potential but also very low chances of success," Spengler said.

"It is rather unlikely that Nexavar will become approved for the treatment of lung cancer," Merck Finck & Co. analyst Carsten Kunold said.

Attempts to show Nexavar helps quell lung tumours as an initial treatment already hit a snag in 2008, when another Phase III trial was halted on lack of efficacy and also on some safety concerns.

Before that study was stopped, Bayer's estimated sales of Nexavar in non-small cell lung cancer had been 750 million euros.

Nexavar is also being tested on breast cancer patients. ($1=.8203 Euro) (Reporting by Ludwig Burger; additional reporting by Lewis Krauskopf in New York; editing by David Cowell and Gunna Dickson)

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