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How Much Is Onyx Pharmaceuticals, Inc. (ONXX) Really Worth?

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Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is having a garage sale, but it doesn’t appear that Amgen, Inc. (NASDAQ:AMGN) has been invited.

The promising cancer developer confirmed over the weekend that Amgen had made an offer to acquire Onyx for $120 per share, a 38.2% premium above Friday’s close. Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) certainly didn’t waste any time rejecting the bid, commenting that it “significantly undervalued Onyx and its prospects, and was not in the best interest of Onyx or its shareholders.” That hasn’t, however, stopped Onyx from actively engaging in additional acquisition chatter with other interested parties outside of Amgen, Inc. (NASDAQ:AMGN).

Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX)

The interest in Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) will come down to two big questions: How much is it worth considering that it only receives a percentage of net sales on two of its three cancer drugs? And who might the buyer be?

How Onyx makes its money
The first question, as I’ve noted, is quite tricky.

Nexavar, the company’s most mature cancer drug, is currently approved by the Food and Drug Administration to treat the most common forms of kidney and liver cancer. Aside from Japan, though, it splits the profits of Nexavar with licensing partner Bayer down the middle. There’s also a strong possibility that Nexavar could be in line for an added indication in treating thyroid cancer based on the extended progression-free survival it delivered relative to the placebo in a late-stage trial.

Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX)’s piece of the pie gets even smaller if you take a closer look at Stivarga, a cancer drug approved by the FDA to treat advanced colorectal cancer and gastrointestinal stromal tumors. Since Stivarga was actually developed by Bayer and licensed to Onyx, it receives just 20% of net sales.

The third and final FDA-approved drug is Kyprolis, a multiple myeloma drug that was approved in 2012 to treat patients that has failed to respond, or stopped responding to, two previous lines of treatment. Aside from a partnership in Japan with Ono Pharmaceutical, Kyprolis is all Onyx’s!

The sum of Onyx’s parts
There aren’t many peak sales estimates on the Street with regard to Nexavar, mainly because it received its first FDA approval in 2005. In my estimate, if it were to gain the indication for thyroid cancer, it may top out, with slow but steady growth, around $1.3 billion to $1.4 billion annually.

Stivarga peak sale estimates are a lot easier to find with Bayer guiding to sales in excess of $1 billion assuming it gains all indications.

Finally, there are sales of Kyprolis, which offer the greatest potential. According to Deutsche Bank AG (USA) (NYSE:DB) analyst Robin Karnauskas, Kyprolis has the potential to deliver $3 billion in peak sales — not bad for a drug wholly owned by Onyx.

There’s also Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX)’s experimental pipeline, which needs to be taken into account. Pfizer Inc. (NYSE:PFE)‘s palbociclib, for instance, is a revolutionary breast cancer drug that recently received the breakthrough therapy designation from the FDA after positive mid-stage trial results. Onyx, should palbociclib be approved, would receive an 8% royalty on net sales.

We should also consider that Onyx ended the most recent quarter with $553 million in net cash.

What’s Onyx really worth?
The way I see, if the stars were to align properly, Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) could have a peak revenue potential on all drugs of around $4 billion to $4.2 billion annually. Understandably this is a utopian estimate based on the above peak sales figures and assumes that all drugs in its pipeline gain every indication imaginable at essentially the same time, which we know from history is very unlikely.

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