Onyx Pharmaceuticals (ONXX) reported a second quarter fiscal 2010 loss of 5 cents per share, worse than a profit of 16 cents reported in the year-ago period and the Zacks Consensus Estimate of a loss of 3 cents. However, after adjusting for non-recurring items and treating stock-based compensation as a regular expense, the company reported earnings per share of 5 cents, lower than the year-ago earnings of 27 cents.
Revenues came in at $68.8 million, up 14.2% but in-line with the Zacks Consensus Estimate. Despite the increase in revenues, Onyx Pharma posted a loss primarily due to an increase in operating expenses.
Quarter in Details
Revenues consisted of collaboration revenues under the company’s agreement with Bayer (BAYRY) for Nexavar (sorafenib). Collaboration revenues were up 14.2% to $68.8 million. The increase in collaboration revenue was primarily due to an increase in Nexavar sales which came in at $236 million, up 17.5%.
Onyx Pharma and Bayer are splitting the development cost for Nexavar and share profits equally in all territories excluding Japan. Bayer pays royalty to Onyx Pharma on sales in Japan.
Operating expenses increased 35.6% during the quarter to $69.9 million. Both research and development and selling, general and administrative expenses increased during the quarter.
R&D spend increased 54.3% to $43.3 million due to higher expenses for the development of pipeline candidate, carfilzomib. The company recently reported positive results on carfilzomib from a phase IIb study conducted in patients with relapsed and refractory multiple myeloma (the 003 trial). The company is looking to file a new drug application (NDA) for the candidate by year-end. Onyx Pharma is seeking partners for carfilzomib for certain markets like the Asia-Pacifica region and Japan and a deal could be announced later this year.
We expect R&D spend to continue increasing through the remainder of the year as the company progresses with the development of its pipeline. Onyx Pharma is looking to expand Nexavar’s label into additional indications like breast and non-small cell lung cancer.
Selling, general and administrative expenses were higher by 13.4% on increased costs associated with the marketing and promotion of Nexavar and expenses arising from the acquisition of Proteolix.
Neutral on Onyx Pharma
We recently upgraded Onyx Pharma to Neutral (Zacks #3 Rank – Hold). Nexavar, Onyx Pharma’s only marketed product, has maintained its growth momentum although we remain concerned about increased competition in the kidney cancer market, reimbursement issues in certain countries and lower sales growth in Japan. This led Onyx Pharma to reduce its 2010 guidance for Nexavar earlier this year. However, additional indications for Nexavar could boost global sales of the drug.
Moreover, Onyx Pharma received positive news recently in the form of encouraging top-line results on carfilzomib. The company intends to file for approval by year-end and accelerated approval could lead to the product hitting the lucrative multiple myeloma market as early as 2011. Onyx Pharma could also announce a lucrative partnership deal for carfilzomib in certain territories later this year.
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