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ONYX Pharmaceuticals Inc. Reports Operating Results (10-Q)

August 04, 2010 | About:

ONYX Pharmaceuticals Inc. (ONXX) filed Quarterly Report for the period ended 2010-06-30.

Onyx Pharmaceuticals Inc. has a market cap of $1.68 billion; its shares were traded at around $26.81 with a P/E ratio of 70.5 and P/S ratio of 6.7. ONXX is in the portfolios of Stanley Druckenmiller of Duquesne Capital Management, LLC, Columbia Wanger of Columbia Wanger Asset Management, Edward Owens of Vanguard Health Care Fund, Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.

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 six months ended June 30, 2010 and 2009, we reported no product revenue. For the three and six months ended June 30, 2010, Nexavar net sales recorded by Bayer were $236.1 million and $450.5 million, 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 $35.1 million, or 17%, and $71.4 million, or 19%, over Nexavar net sales of $201.0 million and $379.1 million recorded by Bayer for the three and six months ended June 30, 2009.

As a result of the cost sharing arrangement between us and Bayer for research and development costs, there was a net reimbursable amount of $16.5 million and $35.0 million due to Bayer for the three and six months ended June 30, 2010, respectively, and $13.9 million and $30.1 million due to Bayer for the three and six months ended June 30, 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 June 30, 2010, our share of the Nexavar development costs incurred to date under the collaboration was $541.8 million.

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 June 30, 2010, a decrease of $0.2 million, or 20%, from $1.0 million in the same period in 2009. For the six months ended June 30, 2010, we recorded investment income of $1.6 million, a decrease of $0.5 million, or 24%, from $2.1 million in the same period in 2009. These decreases were primarily due to lower effective interest rates in the market.

Interest expense of $4.8 million and $9.5 million for the three and six months ended June 30, 2010, respectively, primarily relates to the 4.0% convertible senior notes due 2016 issued in August 2009, and includes non-cash imputed interest expense of $2.2 million and $4.4 million, respectively, as a result of the application of ASC Subtopic 470-20.

At June 30, 2010, we had cash, cash equivalents and current and non-current marketable securities of $527.0 million, compared to $587.3 million at December 31, 2009. The decrease of $60.3 million was primarily attributable a $40.0 million payment to former Proteolix stockholders in April 2010 for the achievement of a development milestone and a $20.0 million payment to S*BIO in May 2010 for the expansion and acceleration of the development collaboration program for ONX 0803 and ONX 0805.

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 $31.6 million for these securities, based on a discounted cash flow model, and have reduced the carrying value of these marketable securities by $2.1 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 $1.3 million decrease in value. Alternatively, a decrease in either of the assumptions could result in a $1.4 million increase in value.

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