ONYX Pharmaceuticals Inc. Reports Operating Results (10-Q)
Onyx Pharmaceuticals Inc. has a market cap of $1.82 billion; its shares were traded at around $29.23 with a P/E ratio of 53.1 and P/S ratio of 7.3. ONXX is in the portfolios of Stanley Druckenmiller of Duquesne Capital Management, LLC, Edward Owens of Vanguard Health Care Fund, Jim Simons of Renaissance Technologies LLC, George Soros of Soros Fund Management LLC.
Highlight of Business Operations:In November 2009, we made a significant move towards achieving our goal in becoming a multi-product portfolio company by acquiring Proteolix, Inc., or Proteolix, a privately-held biopharmaceutical company located in South San Francisco, California. Proteolix focused primarily on the discovery and development of novel therapies that target the proteasome for the treatment of hematological malignancies, solid tumors and autoimmune disorders. This acquisition, which included carfilzomib, has provided us with an opportunity to expand into the hematological malignancies market. The aggregate cash consideration to former Proteolix stockholders at closing was $276.0 million with another $40.0 million paid in April 2010 upon achievement of a pre-specified milestone. In addition, we may be required to pay up to an additional $535.0 million in earnout payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones.
As a result of the cost sharing arrangement between us and Bayer for research and development costs, there was a net reimbursable amount of $18.5 million and $16.2 million due to Bayer for the three months ended March 31, 2010 and 2009, 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. 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, 2010, our share of the Nexavar development costs incurred to date under the collaboration was $518.5 million.
As a result of the acquisition of Proteolix, we made a payment of $40.0 million in April 2010 and may be required to pay up to an additional $535.0 million in four earnout payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones. We recorded a non-current liability for this contingent consideration for the four earnout payments with a fair value of $164.0 million at March 31, 2010 based upon a discounted cash flow model that uses significant estimates and assumptions. Any 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.
Investment income consists of interest income and realized gains or losses from the sale of marketable equity investments. We had investment income of $0.8 million for the three months ended March 31, 2010, a decrease of $0.3 million, or 27%, from $1.1 million in the same period in 2009. These decreases were primarily due to lower effective interest rates in the market.
At March 31, 2010, we had cash, cash equivalents and current and non-current marketable securities of $585.2 million, compared to $587.3 million at December 31, 2009. The decrease of $2.1 million was primarily attributable to net cash used in operations.
Our investment portfolio includes $39.0 million of AAA rated securities with an auction reset feature (auction rate securities) that are collateralized by student loans. In April 2010, $0.1 million in securities were redeemed at par and, accordingly, we classified them as current marketable securities in the accompanying unaudited condensed consolidated balance sheet at March 31, 2010. 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. We have determined the fair value to be $37.4 million for these securities, based on a discounted cash flow model, and have reduced the carrying value of these marketable securities by $1.6 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 $1.6 million decrease in value. Alternatively, a decrease in either of the assumptions could result in a $1.6 million increase in value.
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