We recently downgraded Onyx Pharmaceuticals (ONXX) from Neutral to Underperform. Although third quarter EPS of 76 cents was well above expectations, we note that the better-than-expected result was mainly due to a license payment received from Ono Pharma. The payment boosted revenues by $59.2 million, thereby driving the bottom-line.
Excluding the impact of the license revenue, revenues declined 7.9% to $63.7 million. The decline was primarily due to lower Nexavar sales.
Nexavar global sales declined 1% to $226.2 million during the third quarter of 2010. Sales lagged expectations mainly due to unfavorable foreign exchange (Fx) movement, increased competition, lower sales growth in Japan, pricing pressure in the EU and the impact of the US health care reform.
We believe all these factors forced management to lower 2010 Nexavar sales guidance for the second time this year. Onyx Pharma now expects Nexavar sales in the range of $905 – $925 million, down from its earlier guidance of $925 million – $975 million.
The delay in lead pipeline candidate, carfilzomib’s filing date, is also a disappointment. In early October 2010, Onyx Pharma announced that the filing, which was originally expected to occur by year-end 2010, has been pushed out to mid-2011. This is a setback as the timely filing of the application could have resulted in carfilzomib’s approval by mid-2011. Now, the product approval/launch is likely to be delayed to late 2011/early 2012.
Loss estimates for Onyx Pharma have increased based on concerns regarding the intense competition being faced by Nexavar from products like Pfizer’s (PFE) Sutent, its disappointing performance in Japan, EU pricing pressure, the impact of US health care reform, reimbursement issues in the Asia Pacific and other regions and the delay in carfilzomib’s filing.
For fiscal 2010, we expect a loss of 44 cents, wider than our earlier estimate of a loss of 2 cents. Our loss estimate for fiscal 2011 has also gone up – we now expect Onyx Pharma to post a loss of 5 cents versus our earlier expectation of a profit of 16 cents.