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ONYX Pharmaceuticals Inc (ONXX)
Onyx Writes $276M Check to Proteolix
The season of mergers and acquisitions is still charging forward. Companies are seeking out great deals and the time to make these purchases has arrived. Onyx Pharmaceuticals Inc. is the latest to join the growing list of companies snapping up other businesses now that the economy is showing signs of a recovery. Onyx has agreed to purchase Proteolix Inc, a privately held biotechnology company for $276 million. What elements of Proteolix made it an attractive purchase for Onyx? Will this deal become lucrative for the pharmaceutical company or will the company need a dose of its own medicine?
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Onyx Pharmaceuticals Inc. is not a well-known leader among drug development companies. As with most companies of this sort, Onyx has struggled to remain profitable. Onyx's reliance on its partnership with the German drug giant Bayer and the cancer drug Nexavar have been the primary source of income for the company. This fact has caused investors to look at the company as a risky investment due to its lack of diversity in income sources. Investors have been anxiously waiting to see the next move from the company ever since it raised $300 million in August. There are a few factors that most likely contributed to Onyx's decision to purchase Proteolix. Onyx's cancer therapy Nexavar missed its main goal in a Phase II trial in breast cancer last month. As mentioned earlier, this is one of the primary sources of income for the drug company. Despite the recent failure of Nexavar, Chief Executive Officer Tony Coles expects the drug to bring in $1 billion in revenue next year. Another factor that may have made Proteolix enticing to Onyx is the fact that it is currently testing carfilzomib as a treatment for multiple myeloma, the second most common blood cancer after leukemia. If these tests prove to be successful, this will give Onyx entry into the $16 billion market for hematologic cancer. Entry into this market will not be cheap for Onyx. The company may have to pay an additional $575 million over the course of years for development and regulatory approvals of the experimental drug. This will look like a drop in the bucket if Onyx is able to capture only a small percentage of the multibillion dollar market.
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With any acquisition, companies run the risk of being burned from the deal. At the time of purchase everything appears to be sunny and bright, but cloudy skies can appear with the blink of an eye. Onyx's acquisition may go south if the testing of carfilzomib proves to be less than effective. It's not like Onyx has a lot of excess income to toy around with on unprofitable businesses. Since Onyx is in the business of developing experimental drugs, they likely understand the outcomes that may result from this deal. Overall, its looks like Mr. Cole made a good decision with this purchase. He strongly believes that the sales force and expertise Onyx has built with Nexavar will benefit other experimental drugs they invest in. Investors will definitely be watching and hopefully these deals will pay off in the long run.
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