ONYX Pharmaceuticals Inc. (ONXX) filed Quarterly Report for the period ended 2009-09-30.
Onyx Pharmaceuticals Inc is developing innovative products for the treatment of cancer. Onyx Pharmaceuticals Inc. has a market cap of $1.62 billion; its shares were traded at around $26.45 with and P/S ratio of 8.3. Onyx Pharmaceuticals Inc. had an annual average earning growth of 1.3% over the past 5 years.
Highlight of Business Operations:
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. As such, for the three and nine months ended September 30, 2009 and 2008, we reported no product revenue. For the three and nine months ended September 30, 2009, Nexavar net sales recorded by Bayer were $229.2 million and $608.3 million, primarily in the United States and the European Union. This represents an increase of $48.3 million, or 27%, and $107.0 million, or 21%, over Nexavar net sales of $180.9 million and $501.3 million recorded by Bayer for the three and nine months ended September 30, 2008.
Research and development expenses were $35.6 million for the three months ended September 30, 2009, a net increase of $13.8 million, or 64%, from $21.8 million in the same period in 2008. For the nine months ended September 30, 2009 research and development expenses were $92.5 million, a net increase of $28.6 million, or 45%, from $63.8 million in the same period in 2008. The increase is primarily due to planned increases in the development program for Nexavar across additional tumor types, such as thyroid, colorectal and adjuvant liver cancer, and Onyx’s costs to further develop ONX 0801, including a milestone payment of $7.0 million to BTG, partially offset by decreased spending for lung cancer trials. A significant portion of our research and development expenses, approximately 61% and 67% for the three and nine months ended September 30, 2009, respectively, and approximately 73% and 77% for the three and nine months ended September 30, 2008, respectively, relate to our cost sharing arrangement with Bayer and represent our share of the research and development costs incurred by Bayer for Nexavar. As a result of the cost sharing arrangement between us and Bayer for research and development costs, there was a net reimbursable amount of $17.7 million and $47.8 million due to Bayer for the three and nine months ended September 30, 2009, respectively. For the three and nine months ended September 30, 2008 there was net reimbursable amount of $10.8 million and $36.8 million, respectively, due to Bayer as a result of the cost sharing arrangement. 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. 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.
Selling, general and administrative expenses were $23.4 million for the three months ended September 30, 2009, a net increase of $4.1 million, or 21%, from $19.3 million in the same period in 2008. For the nine months ended September 30, 2009 selling, general and administrative expenses were $68.9 million, a net increase of $9.9 million, or 17%, from $59.0 million in the same period in 2008. This increase is primarily due to increased headcount and increased employee-related expenses to support Nexavar’s commercial growth, as well as increased headcount and legal and employee-related expenses to support our growth. The nine months ended September 30, 2008 included non-recurring employee related expenses consisting of $2.0 million for modifications of previously granted stock-based awards for two employees and $2.0 million for compensation, search fees and other expenses related to the transition of the chief executive officer. Selling, general and administrative expenses consist primarily of salaries, employee benefits, consulting, advertising and promotion expenses, other third party costs, corporate functional expenses and allocations for overhead and occupancy costs. We expect our selling, general and administrative expenses to increase due to increases in marketing expenses related to Nexavar, increases in personnel and increases in transaction related costs.
Investment income consists of interest income and realized gains or losses from the sale of marketable equity investments. We had investment income of $1.0 million for the three months ended September 30, 2009, a decrease of $1.7 million, or 63%, from $2.8 million in the same period in 2008. For the nine months ended September 30, 2009, we recorded investment income of $3.1 million, a decrease of $7.6 million, or 71%, from $10.7 million in the same period in 2008. These decreases were primarily due to lower effective interest rates in the market as well as a change in the asset allocation of our investment portfolio.
Our investment portfolio includes $39.6 million of AAA rated securities with an auction reset feature (“auction rate securities”) that are collateralized by student loans. In October 2009, $0.1 million in securities were redeemed at par and, accordingly, we classified them as current marketable securities in the accompanying unaudited balance sheet at September 30, 2009. Therefore, a remaining balance of $39.5 million of par value 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 auction rate securities with a par value of $39.5 million as non-current marketable securities on the accompanying unaudited condensed balance sheet. We have determined the fair value to be $38.4 million for these securities, based on a discounted cash flow model, and have reduced the carrying value of these marketable securities by $1.0 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
Our investment portfolio includes $39.6 million of AAA rated auction rate securities collateralized by student loans. In October 2009, $0.1 million in securities were redeemed at par and, accordingly, we classified them as current marketable securities in the accompanying unaudited balance sheet at September 30, 2009. Therefore, a remaining balance of $39.5 million of par value auction rate securities is currently outstanding in our investment portfolio. Since February 2008, securities of this type 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 $39.5 million as non-current marketable securities on the accompanying unaudited condensed balance sheet. We have determined the fair value to be $38.4 million for these securities, based on a discounted cash flow model, and have reduced the carrying value of these marketable securities by $1.0 million through accumulated other comprehensive income (loss) instead of earnings because we have deemed the impairment of these securities to be temporary.
ONXX is in the portfolios of Edward Owens of Vanguard Health Care Fund, Edward Owens of Vanguard Health Care Fund.
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