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ONYX Pharmaceuticals Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 10, 2011 11:17AM
ONYX Pharmaceuticals Inc. (ONXX) filed Quarterly Report for the period ended 2011-03-31. Onyx Pharmaceuticals Inc. has a market cap of $2.57 billion; its shares were traded at around $40.82 with and P/S ratio of 7.9.
Highlight of Business Operations:
Total operating expenses for the three months ended March 31, 2011 was $108.5 million, an increase of $36.8 million, or 51%, from $71.7 million for the same period in 2010. The increase in operating expenses was primarily driven by increases in research and development expenses of $18.9 million and selling, general and administrative expenses of $9.8 million. The increase in research and development expenses includes a $12.7 million expense for the three months ended March 31, 2011 to write-off the remaining balance of advance funding provided to S*BIO in May 2010 and costs incurred for the development of carfilzomib, particularly the Phase 3 ASPIRE and FOCUS trials. The increase in selling, general and administrative expenses was primarily due to planned increases in employee headcount and related costs.
A significant portion of our total research and development expenses, approximately 34% and 50% for the three months ended March 31, 2011 and 2010, respectively, relates to our cost sharing arrangement with Bayer and represents our share of the research and development costs incurred by Bayer. As a result of the cost sharing arrangement between us and Bayer for research and development costs, there was a net reimbursable amount of $19.4 million and $18.5 million due to Bayer for the three months ended March 31, 2011 and 2010, respectively. Such amounts were recorded based on invoices and estimates we receive from Bayer. When such invoices have not been received, we must estimate the amounts owed to Bayer based on discussions with Bayer. For the periods covered in the financial statements presented, there have been no significant or material differences between actual amounts and estimates. However, if we underestimate or overestimate the amounts owed to Bayer, we may need to adjust these amounts in a future period, which could have an effect on earnings in the period of adjustment. As of March 31, 2011, our share of the Nexavar development costs incurred to date under the collaboration was $619.9 million.
As a result of the acquisition of Proteolix in November 2009 under the terms of an Agreement and Plan of Merger, or the Merger Agreement, which was entered into in October 2009, we made a payment of $40.0 million in April 2010 and may be required to pay up to an additional $535.0 million payable in up to four earn-out payments upon the achievement of certain regulatory approvals for carfilzomib in the U.S. and Europe within pre-specified timeframes. Under the Merger Agreement, the first of these additional earn-out payments would be in the amount of $170.0 million if achieved by the date originally contemplated, and would be triggered by accelerated marketing approval for carfilzomib in the United States for relapsed/refractory multiple myeloma. In January 2011, we entered into Amendment No. 1 to the Merger Agreement. Amendment No. 1 modifies this first payment if the milestone is not achieved by the date originally contemplated on a sliding scale basis, as follows:
Other expense of $3.5 million for the three months ended March 31, 2011 primarily relates to a $3.0 million expense recorded for the impairment of our equity investment in S*BIO. In accordance with ASC 325-20-35, we reassessed the fair value of our equity investment in S*BIO and determined that our investment was impaired and accordingly, recorded a $3.0 million expense associated with the impairment of this investment. Other expense also includes $0.5 million related to net losses on certain foreign currency option contracts not designated as hedging instruments.
Our investment portfolio includes $29.6 million of AAA rated securities with an auction reset feature (auction rate securities) that are collateralized by student loans. In April 2011, $0.1 million in securities were redeemed at par and, accordingly, we classified these securities as current marketable securities in the accompanying unaudited Condensed Consolidated Balance Sheet at March 31, 2011. Therefore, the remaining balance of auction rate securities is currently outstanding in our investment portfolio. Since February 2008, these types of securities have experienced failures in the auction process. However, a limited number of these securities have been redeemed at par by the issuing agencies. As a result of the auction failures, interest rates on these securities reset at penalty rates linked to LIBOR or Treasury bill rates. The penalty rates are generally higher than interest rates set at auction. Based on the overall failure rate of these auctions, the frequency of the failures, the underlying maturities of the securities, a portion of which are greater than 30 years, and our belief that the market for these student loan collateralized instruments may take in excess of twelve months to fully recover, we have classified the remaining balance of auction rate securities as non-current marketable securities in the accompanying unaudited Condensed Consolidated Balance Sheet at March 31, 2011. We have determined the fair value to be $28.3 million for these securities, based on a discounted cash flow model, and have reduced the carrying value of these marketable securities by $1.2 million through accumulated other comprehensive income (loss) instead of earnings because we have deemed the impairment of these securities to be temporary. Further adverse developments in the credit market could result in an impairment charge through earnings in the future. The discounted cash flow model used to value these securities is based on a specific term and liquidity assumptions. An increase in either of these assumptions could result in a $1.2 million decrease in value. Alternatively, a decrease in either of the assumptions could result in a $1.2 million increase in value.
In April 2011, we moved to our new company headquarters at 249 East Grand Avenue, South San Francisco, California. We entered into arrangements to lease and sublease these premises in July 2010, and will continue to incur cash outlays associated with the lease and sublease of these premises. The total monthly base rent in the first year for both the lease and sublease is approximately $294,000. The total obligations under both of these operating leases will be approximately $45.9 million. We expect to cease the use of the premises we previously occupied in Emeryville, California and South San Francisco, California in the second quarter of 2011 and expect to incur estimated exit costs in the range of $13.5 million to $14.5 million relating to the remaining lease terms of these premises, which expire in 2013 and 2014, respectively.
Stocks Discussed: ONXX,