Onyx Pharmaceuticals, Inc. recently announced its intention to raise funds through the issuance of 4.4 million shares. An additional 0.66 million shares can be purchased by the underwriters who have been granted a 30-day option for the same.
Onyx Pharma expects to raise gross proceeds of about $538 million from this offering, which is scheduled to close on Jan 22, 2013. The company intends to use the funds for its research & development programs, the commercialization of Kyprolis and general corporate purposes.
We believe the company, which exited the third quarter with cash and equivalents of about $573 million, will also use the funds for the repayment of its convertible senior notes due 2016.
Onyx Pharma is also liable to make three earn-out payments of up to $365 million to Proteolix shareholders on the achievement of certain milestones relating to Kyprolis.
These include a payment of $65 million that would be triggered on the EU approval of Kyprolis for relapsed/refractory multiple myeloma by Dec 31, 2013 and $150 million each on the FDA and EU approval of Kyprolis for relapsed multiple myeloma by Mar 31, 2016.
Moreover, we believe the company may use a part of the proceeds for small business development deals for the expansion of the pipeline or product development.
We currently have an Outperform recommendation on Onyx Pharma. Onyx Pharma recently provided an update on its performance in 2012 and its plans for 2013. Kyprolis, which was launched in late Jul 2012, is off to a solid start with 2012 sales expected to cross $62 million. Strong adoption trends and rapid account penetration should ensure continued strong ramp of Kyprolis sales.
Onyx Pharma, which was a one-product company until a year back, has successfully transformed into a multi-product company. With two recent product approvals (Kyprolis and Stivarga) in its bag and Nexavar continuing to perform well, Onyx Pharma looks all set for growth. We expect 2013 to be a catalyst-rich year for Onyx Pharma as the company works on expanding the labels of currently marketed products and progresses with the development of other candidates.
While Onyx Pharma currently carries a Zacks Rank #3 (Hold), companies like Salix Pharmaceuticals and Valeant Pharma (VRX - Analyst Report) currently carry a Zacks Rank #1 (Strong Buy).