Onyx Misses, but Outlook Positive

Nexavar sales continued to grow in 1Q09 despite turbulent economic conditions; financial position is strong

On May 6, 2009, Onyx Pharmaceuticals (ONXX - Analyst Report) reported 1Q09 earnings.

Despite the turbulent economic conditions, worldwide Nexavar sales still increased by 17% to $178.1 million in 1Q09, compared to $151.9 million in 1Q08. Much of the growth was driven by its ex-US sales increase, which reached $130 million, up 29% year over year. US Nexavar sales were $48 million, down 6% year over year.

Both the US sales and ex-US sales fell short of our expectations. International sales continued to outgrow the US sales. We believe the trend will continue in the coming quarters.

According to the management from the conference call, growth was mainly due to the label expansion into its liver cancer indication. In spite of heavy competition in the kidney cancer market, Nexavar's market share in the market has stabilized. We believe liver cancer is the key driver for sales growth in 2009 and beyond. China may play a key role in contributing to Nexavar sales growth in 2009 due to its large liver cancer market.

Due to strong Nexavar sales in the first quarter of 2009, Onyx booked net revenue from a collaborative agreement of $53.7 million, compared to $48.9 million for the first quarter of 2008, representing a 10% increase.

Onyx reported non-GAAP net income, excluding employee stock-based compensation expense, of $8.1 million, or $0.14 per diluted share, for the first quarter 2009. This is compared to non-GAAP net income of $20.6 million, or $0.36 per diluted share for the same period in 2008.

Net income for the first quarter of 2009 was primarily driven by higher Nexavar sales offset by the company's expanded clinical development efforts, increased commercial costs to support the brand and lower investment income due to current macroeconomic conditions. On a GAAP basis, Onyx reported net income of $4.1 million, or $0.07 per diluted share, for the first quarter 2009 compared to net income of $15.4 million, or $0.27 per diluted share, in the same period in 2008.

At March 31, 2009, cash, cash equivalents, and current and non-current marketable securities were $467.1 million, compared to $458.0 million at December 31, 2008. This increase was primarily due to cash provided by operations. The company had no long-term debt at the end of first quarter. Cash burn is not a concern at this point. A strong balance sheet will allow Onyx to concentrate on its long-term growth strategy.

With strong Nexavar sales, Onyx achieved profitability in 2008 with EPS of $0.70. We estimate worldwide Nexavar sales will reach roughly $1.1 billion in 2010, and Onyx will book revenue of $316.7 million from strong Nexavar sales.

We maintain our Buy rating on Onyx shares with a price target of $37.