NEXAVAR CURRENTLY BAYERS 4TH LARGEST DRUG PROJECTED TO GROW TO ITS 2ND IN 3 YEARS

Bayer will be reporting earnings tomorrow morning, Oct 28th.  Topline Nexavar consensus sales estimates is 186mm  Euros or ~ US $250mm.  At a 65% margin split 50-50 amounts to  ~$80mm for ONXX. From the table below, Nexavar will only continue to grow in importance to Bayer, rising from its #4 largest drug to #2 in 3 years, and potentially #1 by 2014 - and that include assuming Xarelto is a huge success.  This underscores our premise that it makes financial sense for Bayer to acquire ONXX, regardless of the patent dispute, pipeline or other usual considerations.  The issue for Bayer is purely the financial cost of replicating a therapeutic that has similar sales level, growth, margins and probability of success compared to the enterprise value of ONXX.

Over the next 5 years, Bayer will pay out ~US$2 billion or 1.45 billion Euros, in Net Profit to ONXX as part of their agreement.  That works out to 1.75 Euros per share (1.45 bill / 827 mm shares O/S) or Euro 0.35 per year.  Multiplied by 13X P/E and that is worth over 4.5 billion Euros in additional market cap or 10%.   A 50% premium to ONXX enterprise value of 0.94 Billion Euros is 1.4 Billion Euros or 1/3 of the market cap boost.  These rough numbers excludes additional redundancy costs that are stripped from ONXX, perhaps making Nexavar even more profitable to Bayer.  And this values Carfilzomib, ONXX's promising phase 3 multiple myeloma candidate, at zero; its JAK inhibitor, at zero; its Cell cycle kinase inhibitor, at zero - even knowing all these programs could be monetized or spun off.  Adding to the list of acquired biotechs over the past 3 years, we can add BMY's recent buy of ZGEN.  Based purely on financial considerations, I think ONXX is close to the front of the line.