Onyx Loss up on Wider Costs

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Onyx Pharmaceuticals Inc. (ONXX) reported second quarter 2012 loss per share of 85 cents, wider than the Zacks Consensus Estimate of a loss of 81 cents and the year-ago loss of 56 cents per share. Despite higher revenues, increased operating expenses led to the wider loss.

Quarterly revenues climbed 7% to $72.7 million, just above the Zacks Consensus Estimate of $72 million.

Quarterly Details

Onyx Pharma books revenues entirely from royalties received from its collaboration with Bayer (BAYRY) for the development and marketing of Nexavar. The drug is currently marketed worldwide as a treatment for unresectable liver cancer and advanced kidney cancer.

Global Nexavar sales, recorded by Bayer, amounted to $214.5 million in the reported quarter, up 3.8%. Impressive sales in the US ($65 million), along with increased demand in emerging markets, especially Latin America and Asia Pacific, led to the upside.

Onyx Pharma and Bayer are looking to expand the drug’s label to boost sales. Late-stage trials with Nexavar are ongoing for lung and thyroid cancer.

Quarterly research and development (R&D) expenses went up 21.1% to $76.4 million, primarily due to increased investment on the development, manufacturing and launch of Kyprolis (carfilzomib).

Selling, general and administrative (SG&A) expenses climbed 28% to $48.9 million due to investment in commercial infrastructure and pre-launch expenses for Kyprolis.

Onyx Pharma was in the news recently with the US Food and Drug Administration (:FDA) approving the company’s multiple myeloma (MM) candidate, Kyprolis (carfilzomib). Kyprolis has been approved for use in treatment-experienced MM patients who have received at least two prior therapies, including Johnson & Johnson’s (JNJ) Velcade (bortezomib) and an immunomodulatory agent and whose disease has progressed on or within 60 days of completion of the last therapy. Onyx has also begun shipments of Kyprolis following the FDA approval.

Kyprolis is currently in a phase III study (:ASPIRE), which is being conducted to assess the clinical benefit of the candidate with interim data expected to be out by first half of 2013. The study is being conducted under the FDA’s Special Protocol Assessment (SPA) program. The FOCUS trial which studies Kyprolis in relapsed and refractory multiple myeloma is expected to complete enrollment of patients in the first quarter of 2013. The company also initiated  a head-to-head study (:ENDEAVOR) in multiple myeloma patients.

We note that Onyx is liable to make an $80 million milestone payment to former Proteolix Inc. shareholders following the accelerated approval of Kyprolis in the US. While $63 million will be paid in the form of Onyx’s stock, the balance will be paid in cash.

Meanwhile, Bayer and Onyx Pharma’s oncology candidate, regorafenib, recently received priority review status in the US, for the treatment of metastatic colorectal cancer (mCRC) in patients whose disease has progressed despite prior treatment. Onyx expects a regulatory decision from the FDA and EU in the fourth quarter 2012 and the first half of 2013 respectively. Bayer also plans to file submission for an additional indication of regorafenib in the US in the second half of 2012.

Onyx Pharma is entitled to receive a 20% royalty on any future worldwide net sales of regorafenib in oncology. Bayer is also seeking regulatory approval for regorafenib in the EU.

Outlook Revised

Additionally the company revised its expense guidance for 2012. It now expects R&D expenses (excluding stock-based compensation) to be in the range of $305 million to $320 million instead of $270 million to $290 million. Also the revised SG&A expenses guidance (excluding stock-based compensation) is expected to range between $210 million and $220 million instead of $170 million - $180 million.

Our Take

The speedy approval of Kyprolis is a major positive for Onyx Pharma. Kyprolis’ approval should remove concerns about the company’s dependence on Nexavar for growth. We currently have a Neutral recommendation on Onyx Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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