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ONYX Pharmaceuticals Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 4, 2012 05:25PM
ONYX Pharmaceuticals Inc. (ONXX) filed Quarterly Report for the period ended 2012-03-31.
Highlight of Business Operations:Nexavar is our only marketed product. In accordance with our collaboration agreement with Bayer, Bayer recognizes all revenue from the sale of Nexavar. As such, for the three months ended March 31, 2012 and 2011, we reported no product revenue related to Nexavar. Nexavar revenue subject to profit sharing as recorded by Bayer were $209.7 million and $193.2 million for the three months ended March 31, 2012 and 2011, respectively, primarily from sales in the United States, the European Union, Asia-Pacific and other territories worldwide. This represents an increase of $16.5 million, or 9% over Nexavar net sales recorded by Bayer for the three months ended March 31, 2011.
Revenue from collaboration agreement was $72.0 million and $67.1 million and for the three months ended March 31, 2012 and 2011, respectively. The increase in revenue from collaboration for the three months ended March 31, 2012 from the same period in 2011 is primarily as a result of sales growth in the U.S. and increased demand in emerging markets, and in China. In addition, collaboration commercial profit increased to 64% as a percentage of Nexavar revenue subject to profit sharing in 2012 from 62% in 2011 increasing the revenue from collaboration. Revenue from collaboration agreement is directly affected by the increases and decreases in Nexavar net revenue, over and above the associated cost of goods sold, distribution, selling and general administrative expenses. In addition, as our reimbursement of shared marketing expenses increases or decreases, our revenue from collaboration agreement increases or decreases accordingly. We expect Nexavar sales and Bayers and our shared cost of goods sold, distribution, selling and general administrative expense to increase as Bayer continues to expand Nexavar marketing and sales activities outside of the United States, particularly in certain Asia-Pacific countries. Moreover, prolonged or profound economic downturn may result in adverse changes to product reimbursement and pricing and sales levels, which would harm our operating results.
Our share of the research and development costs incurred for Nexavar include 96% and 91% of the costs incurred by Bayer for Nexavar for the three months ended March 31, 2012 and 2011, respectively. As a result of the cost sharing arrangement between us and Bayer for research and development costs, there were net reimbursable amounts of $24.6 million, and $19.4 million due to Bayer for the periods ended March 31, 2012 and 2011, 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, 2012, our share of the Nexavar development costs incurred to date under the collaboration was $712.7 million.
With the exception of the profitability we achieved for the years ended December 31, 2011, 2009 and 2008, we have incurred significant annual net losses since our inception and have relied primarily on public and private financing; combined with milestone payments we received from our collaborators, to fund our operations. At March 31, 2012, we had cash, cash equivalents and current and non-current marketable securities of $622.4 million compared to $668.4 million at December 31, 2011. The decrease of $46.0 million was primarily attributable to increased operating expenses related to the development of carfilzomib as well as a $4.6 million interest payment on our 2016 Notes.
At March 31, 2012, our investment portfolio includes $23.8 million AAA rated securities with an auction reset feature (auction rate securities) that are collateralized by student loans. 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 auction rate securities with a par value of $23.8 million as non-current marketable securities on the accompanying Consolidated Balance Sheet. We have determined the fair value to be $22.4 million for these securities, based on a discounted cash flow model, and have increased the carrying value of these marketable securities by $1.5 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 or decrease of 1% in the discount rate would have a $1.3 million charge in the auction rate securities valuation. An increase or decrease of 1 year in the expected holding period would have a $0.3 million charge in the auction rate securities valuation.
Stocks Discussed: ONXX,