Onyx Beats Expectations

Zacks

Onyx Pharmaceuticals Inc. (ONXX) reported a loss of 89 cents per share in the third quarter of 2012, narrower than the Zacks Consensus Estimate of a loss of $1.08 but wider than the year-ago loss of 44 cents per share. Despite higher revenues, increased operating expenses led to the wider year-over-year loss.

Quarterly revenues climbed 19.3% to $89.5 million, well above the Zacks Consensus Estimate of $81 million.

Quarterly Details

Onyx Pharma’s revenues include royalties received under its collaboration with Bayer (BAYRY) for the development and marketing of Nexavar, Kyprolis sales and royalties on Stivarga (regorafenib).

Global Nexavar sales (excluding Japan), recorded by Bayer, amounted to $208.2 million in the reported quarter, down 0.2%. US net sales were $67 million, up 7% from the year-ago period. Price increases and increased use in liver cancer helped drive sales. Ex-US sales of Nexavar (excluding Japan) were $141 million. Sales growth in Asia-Pacific and Latin America was offset by weakness in Europe.

Onyx Pharma and Bayer are looking to expand the drug’s label to boost sales. Late-stage trials with Nexavar are ongoing for breast (RESILIENCE study) and thyroid cancer (DECISION study with results due by year end).

Kyprolis, which gained FDA approval in July 2012, became available for ordering from wholesalers on July 27. Kyprolis is off to a strong start with sales coming in at $18.6 million in the launch quarter. The company has a 100-person multidisciplinary field team. Onyx Pharma said that initial feedback from healthcare practitioners is encouraging. A miscellaneous J-code will be used for Kyprolis until it receives a specific Medicare J code, potentially in January 2014. The company said that by the end of September, about 50% of the 2,000 targeted accounts have already placed orders for Kyprolis.

Stivarga royalty revenue came in at $0.1 million in the third quarter of 2012. The oncology product, on which Onyx Pharma receives a 20% royalty from Bayer, gained FDA approval on September 27, 2012 for use in treatment-experienced metastatic colorectal cancer patients.

Quarterly research and development (R&D) expenses went up 46.4% to $85.7 million, primarily due to increased investment on the development, manufacturing and launch of Kyprolis. Kyprolis is currently in three phase III studies with a fourth study scheduled to commence in 2013.

Selling, general and administrative (SG&A) expenses climbed 44.8% to $61.7 million due to investment in commercial infrastructure and launch activities for Kyprolis.

Guidance Maintained

Onyx Pharma maintained its guidance for 2012. It expects R&D expenses (excluding stock-based compensation expense) in the range of $305 million to $320 million. SG&A expenses (excluding stock-based compensation expense) are expected in the range of $210 million - $220 million.

Our View

Onyx Pharma’s third quarter results were better-than-expected mainly due to higher contribution from Kyprolis, which is off to a strong start. Onyx Pharma has successfully transformed itself from a one-product company to a three-product company. Kyprolis represents significant commercial potential and its approval should remove concerns regarding Onyx Pharma’s dependence on a single product for growth. We expect investor focus to remain on Kyprolis and Stivarga’s commercialization and pipeline updates.

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