Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) has recently experienced a significant jump of nearly 51.3% in only one trading day from $86.82 per share to $131.30 per share. The share price jump was due to the news that the company had received a $120 a share offer from Amgen, Inc. (NASDAQ:AMGN) but rejected it as Onyx considered the offering price “significantly undervalued” the company. Let’s take a closer look to determine whether or not Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is a good buy after its significant rise of its stock price.
Growing revenue but fluctuating net income
Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is considered a biopharmaceutical company with two franchise platforms including kinase inhibition and proteasome inhibition. The kinase inhibitor franchise includes several products including Nexavar for liver and kidney cancer, Stivarga for metastatic colorectal cancer and advanced gastrointestinal stromal tumors, while the proteasome inhibitor franchise has Kyprolis for the treatment of patients with multiple myeloma.
In the past five years, Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) has managed to grow its revenue, from $194 million in 2008 to $362 million in 2012, while the net income has fluctuated in the range of -$188 million to $76 million. In 2012, it generated a loss of $188 million with the negative operating cash flow of $230 million and the negative free cash flow of $242 million. The loss in 2012 was caused by much higher R&D and SG&A expenses.
What I like about Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX) is its conservative capital structure. As of March 2013, it had nearly $1.16 billion in equity, $731 million in cash and short-term investments, and only $178 million in long-term debt. It recorded a high level of goodwill and intangibles of $618 million. Thus, the tangible book value stayed at $542 million. At $131.30 per share, Onyx is worth 9.50 billion on the market. The market values Onyxx at as high as 14.5 times its sales. This valuation could be considered extremely high, compared to the valuation of Amgen, Inc. (NASDAQ:AMGN) and Celgene Corporation (NASDAQ:CELG).
Are Amgen and Celgene better picks?
Amgen is trading at $97.50 per share, with the total market cap of $73.10 billion. The market values Amgen at only 4.24 times its sales and 10.87 times its trailing EBITDA (Earnings before interest, taxes, depreciation and amortization). The EBITDA multiple valuation of Onyx is not valid due to its negative EBITDA.
For the full year 2013, Amgen expected to deliver revenue in the range of $17.8 to $18.2 billion, with the adjusted EPS staying in the midpoint of $7.05 to $7.35 per share. In 2015, Amgen estimated that its revenue would reach at least the upper end of $16-$18 billion while its adjusted EPS could be at least $8 per share.
The company has been preparing itself to enter the Japanese market. The Japan entrance could be established through the strategic alliance to commercialize the company’s projects in Japan with the first potential commercial launch estimated to be as early as 2016.
Investors might be excited with its plan to return more than 60% of its adjusted income to shareholders. At the current trading price, Amgen offers investors dividends with a yield at 1.9%.
Celgene Corporation (NASDAQ:CELG) also has a much lower sales valuation than Onyx. Celgene is trading at $118.90 per share, with the total market cap of $49.60 billion. The market values Celgene at 8.56 times its sales and 20.55 times its trailing EBITDA. Celgene is the global biopharmaceutical company focusing on cancer and immune-inflammatory related diseases with several famous brands including REVLIMID, VIDAZA, ABRAXANE and ISTODAX. Most of its sales, $3.77 billion, or 68.5% of the total sales, were generated from REVLIMID products while VIDAZA ranked second with $823.2 million in sales in 2012.
