By Randall Osborne

West Coast Editor

Onyx Pharmaceuticals Inc.¿s stock took a 21 percent nosedive Wednesday after the company got back some of the rights to its lead product for cancer, ONYX-15, from development partner Pfizer Inc.

But the whole thing was Onyx¿s idea, said Vijai Mohan, manager of corporate finance for Richmond, Calif.-based Onyx. The new terms put the company in better position than before, he said.

¿This was completely precipitated by us,¿ Mohan said. ¿This is not [a situation] where Pfizer gave back the rights. We specifically carved them out.¿

Pfizer, of New York, is returning the rights to ONYX-15, a modified adenovirus, only for those cancers treated by way of direct injections (and other local and regional administration routes). Pfizer is keeping development rights for cancers in which the drug is given intravenously.

Onyx will pay all costs associated with the injection efforts and will retain all profits from worldwide sales of ONYX-015 in these applications. Pfizer retains an option to pursue ONYX-015 for IV administration, paying the costs if it does.

Under the new terms, if Onyx gets the drug approved by the FDA for IV use, the firms will resume the deal as originally formed in the fall of 1999 with Warner-Lambert Co., which has since become a Pfizer subsidiary.

Meanwhile, Onyx and Pfizer are going ahead with development of two other two other adenovirus products farther back in the pipeline: a prodrug armed virus and a cytokine armed virus.

Onyx¿s stock (NASDAQ:ONXX) ended Wednesday at $6.98, down $1.85, or 20.95 percent.

¿The market¿s reaction had to do with two reasons,¿ Mohan told BioWorld Today. ¿First, there was a lot of misinformation going around this morning,¿ including an analyst¿s report that ¿all¿ rights had come back to Onyx from its partner.

¿Pfizer¿s still in the game,¿ Mohan said.

¿Second, there are concerns that, in this environment, it may be difficult for us to raise money,¿ he said. But Onyx is offering ¿tremendous upside to our shareholders, if they¿re willing to help see us through.¿

Changing the agreement means Onyx takes over ONYX-015¿s development in head and neck cancer, which is the subject of an ongoing Phase III study.

¿We¿re going to be spending a lot more money,¿ Mohan said, with targeted expenses in the second half of this year doubling, to an estimated $25 million to $30 million over the first half, and rising ¿25 [percent] to 30 percent, going into next year.¿

Onyx also released its second-quarter numbers showing a net loss of $5.9 million, and $11.1 million for the first half of the year. As of June 30, it had $73.2 million in cash and equivalents.

Mohan said Onyx was ¿aware of exactly what the financial ramifications were,¿ but found those worthwhile, if the company could retake control of the lead drug in its most advanced indication.

¿The priorities have changed significantly from when we signed the deal [with Warner-Lambert],¿ he said. ¿Before, the interest was in all sorts of indications, with stress on what was going to get the product to market as quickly as possible.¿

Now, though, Pfizer¿s ¿primary interest is in the larger target market opportunities, such as non-small-cell lung cancer,¿ which have larger patient bases, and include treatment of distant metastases.

About 40,000 people per year are diagnosed with head and neck cancer, Mohan said, and about 130,000 with colorectal cancer.

¿Those kinds of markets might be chump change for Pfizer, but they mean quite a lot for a company like Onyx,¿ he said.

ONYX-015 replicates in and kills cancer cells that have the abnormal p53 pathway, leaving unaffected the normal cells that have functioning p53 protein, known to protect the cell from developing into a tumor cell.

Small-scale manufacturing has caused a limited supply of the drug, and only about 5 percent of the planned Phase III accrual has been achieved so far. Onyx, though, has revised the protocol, expanding the number of sites from 10 to 40. Large-scale processes are in the works by Berkeley, Calif.-based XOMA LLC, Onyx¿s partner. First supplies from the scale-up are expected in the first quarter of next year.

For the time being, the IV trials that are of interest to Pfizer have stopped, but a Phase II/III study in refractory head and neck cancer is planned, plus follow-on trials in liver metastases from colorectal cancer, and in oral leukoplakia (a precancerous lesion of the mouth).

Onyx¿s second-quarter report showed revenue of $5.3 million from the Warner-Lambert deal, compared to $9 million for the same quarter in 2000. The difference, Onyx said, is due to a $3.7 million milestone payment related to the collaboration for the armed anticancer virus collaboration.

But Onyx ¿is not an earnings-driven story,¿ Mohan said. ¿It all has to do with our burn rate.¿