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ONYX Pharmaceuticals Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 9, 2011 03:12PM
ONYX Pharmaceuticals Inc. (ONXX) filed Quarterly Report for the period ended 2011-06-30. Onyx Pharmaceuticals Inc. has a market cap of $1.73 billion; its shares were traded at around $27.59 with and P/S ratio of 5.3.
Highlight of Business Operations:
Total operating expenses for the three and six months ended June 30, 2011 was $117.8 million and $226.2 respectively, a decrease of $44.1 million, or 27.2% and $7.5 million or 3.2%, from $161.9 million and $233.7 million for the same period in 2010. The decrease in operating expenses was primarily due to lower contingent expenses recorded in the second quarter of 2011 compared to same period last year, offset by the increase in research and development expenses for the development of carfilzomib, particularly the Phase 3 ASPIRE and FOCUS trials in 2011 and recognition of lease termination exist costs during the second quarter of 2011.
Nexavar, our only marketed product, was approved in the United States in December 2005. In accordance with our collaboration agreement with Bayer, Bayer recognizes all revenue from the sale of Nexavar. Accordingly, for the three and six months ended June 30, 2011 and 2010, we reported no product revenue. For the three and six months ended June 30, 2011, Nexavar net sales recorded by Bayer were $245.7 million and $481.1, respectively, primarily in the United States, the European Union and other territories worldwide and includes the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act. This represents an increase of $9.6 million, or 4% and $30.6 million, or 6.8%, over Nexavar net sales of $236.1 million and $450.5 million recorded by Bayer for the three and six months ended June 30, 2010, respectively.
Our share of the research and development costs incurred for Nexavar include 93% and 92% of the costs incurred by Bayer for Nexavar for the three and six months ended June 30, 2011, respectively, and 84% and 85% of the costs incurred by Bayer for Nexavar for the three and six months ended June 30, 2010. Our share of the research and development, as a result of the cost sharing arrangement between us and Bayer for research and development costs, there was a net reimbursable amount of $21.5 million and $40.8 million due to Bayer for the three and six months ended June 30, 2011, respectively, and $16.5 million and $35.0 million due to Bayer for the three and six months ended June 30, 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 June 30, 2011, our share of the Nexavar development costs incurred to date under the collaboration was $644.4 million.
We recorded a non-current liability for this contingent consideration related to the four earn-out payments with a fair value of $270.7 million at June 30, 2011 based upon a discounted cash flow model that uses significant estimates and assumptions, including the probability of technical and regulatory success (PTRS) of the product candidate, carfilzomib. Contingent consideration expense is recorded for the change in the fair value of the recognized amount of the non-current liability for contingent consideration. During the three and six months ended June 30, 2011, the Company recorded contingent consideration expense of $5.7 million and $17.2 million, respectively, compared to $92.0 million and $95.5 million in the same period last year. The change was primarily associated with the change in the PTRS, a significant input in the discounted cash flow analysis used to calculate the fair value of the non-current liability, and also the passage of time. Any further changes to these estimates and assumptions could significantly impact the fair values recorded for this liability resulting in significant charges to our Condensed Consolidated Statements of Operations.
Interest expense was $5.0 million and $10.0 million for the three and six months ended June 30, 2011, respectively, compared to interest expense of $4.8 million and $9.5 million for the three and six months ended June 30, 2010, respectively. Interest expense primarily relates to the 4.0% convertible senior notes due 2016 issued in August 2009, and includes non-cash imputed interest expense of $2.5 million, and $4.1 million, respectively, as a result of the application of ASC 470-20.
Our investment portfolio includes $29.2 million of student-loan auction rate securities. We have determined the fair value to be $28.1 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. Currently, we believe these investments are not other-than-temporarily impaired as all o
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