Thursday, February 26, 2009

Onyx Pharmaceuticals Sees Strong 2009

Onyx Pharmaceuticals (ONXX) reported strong sales of Nexavar for the fourth quarter of 2008, at the February 23, 2009 analyst conference. The liver and kidney cancer therapy, sold though a joint venture with Bayer, resulted in $49.6 million in revenues for Onyx. This is up 24% from Q3 2008 and up 90% from the year earlier.

Onyx management sees global 2009 Nexavar sales by Bayer in the range of $850 to $875 million. Operating expenses are expected to rise about 5% for the year. After costs, Onyx splits the profits with Bayer. In Q4 profit ran at about 50% of revenues.

In the fourth quarter GAAP net income was negative $30.2 million. However, this included a one-time charge for acquired research expenses of $34 million.

Onyx just became profitable this year. Prior to 2008 it had been selling Nexavar for kidney cancer. Sales for liver cancer ramped up in 2008. A number of large national markets are in the process or approving Nexavar for liver cancer, or of approving reimbursements for it. As these mostly European and Asian markets come on line in 2009 and 2010 they will drive revenue growth.

The company is also hoping that Nexavar will prove to be effective in other kinds of cancer, including lung cancer, breast cancer, thyroid cancer, and melanoma. Clinical tests have given positive indications, but they won't know for sure until Phase III tests are completed and the FDA makes its rulings.

For a more detailed report on Q4, see my Onyx analyst conference summary for February 23, 2009.

The main risks for all drug companies are competition from new products and the discover of previously-unknown adverse effects.

Onyx certainly seems poised to turn into a cash cow, but the risks should not be discounted.

Keep diversified!

Onyx Pharmaceuticals
My main Onyx page

Sunday, February 15, 2009

TTM Technologies (TTMI) Holds Up

TTM Technologies (TTMI) released its fourth quarter results and held its analyst conference on February 10th. Somewhat to my surprise, revenues are holding up pretty well in the face of what has been a disaster for many technology companies. NVIDIA, for instance, reporting at the same time as TTMI, had revenues for its quarter ending January 25, 2009 down 46% sequentially and down 60% from year earlier [see my Nvidia Q4 fiscal 2009 analyst conference summary for details].

TTM had revenues for its fourth quarter ending December 31, 2008 of $164.9 million, down 2.5% sequentially from $169.0 million and down 1.5% from $167.5 million year-earlier.

TTM's stock price is way down despite its ability to maintain revenue and profit, so it had to write off a bunch of goodwill. This $117 million non-cash charge resulted contributed to a GAAP net loss of $68.5 million.

Normally I like to use GAAP numbers, which are more conservative and realistic than non-GAAP numbers. However, lately a lot of companies have been taking big charges (mostly goodwill impairments) based solely on changes in their stock prices. I think these charges obscure the real picture.

So for TTM it is important to note that excluding the charge and tax benefits from it, non-GAAP net income was $14.5 million. Cash balances at the end of December were $17.1 million higher than at the end of Q3.

Why is TTM doing so much better than NVIDIA and many other technology companies? Both companies have excellent management teams. The main difference is the markets they serve.

TTM makes printed circuit boards, and they are not your grandfather's PCBs. The boards that hold the chips now are technological marvels in themselves, with multiple layers, tiny connecting lines, and holes that are drilled by lasers. You might think that with consumer electronics goods selling poorly, which hurt NVIDIA, a maker high-end graphics chips, PCB manufacturing would be down sharply too. And it is in Asia, where most volume production is done.

TTMs customers tend to need smaller quantitites of PCBs, they often want engineering assistance, and their PCB's are among the hardest to make. They also are constantly engaged in research, which requires prototype PCBs in small numbers with quick turnaround. Cisco is an example of a company that is a top 5 customer for TTM. Cisco is continuing its pace for new product production despite a slump in demand for end products.

TTM also serves military contractors like Northrup and Raytheon. Barack Obama's administration has shown no inclination to back off the military spend that was beefed up for the "war on terror." Military end market revenue is actually growing for TTM and has been for a couple of years.

Could a worsening of this depression hurt TTM? Sure. There is always risk from the economy in any investment.

Might I buy more TTM stock? It is on the short list. It appears to be a reliable source of cash profits. The main risk, it appears, is stock price fluctuation based on fear. With today's market capitalization of $245 million (at $5.73 per share), and $14 million in earnings in a soft quarter, the return on investment is about 23%. You are not going to get that in a corporate bond or treasury. Earnings may go down in the first half of 2009, but they should recover nicely when the economy recovers.

See also my summary of the TTM Technologies analyst conference for Q4 2008.

It is an amazing time to be an investor. TTM is not the only stock that is underpriced. So...

Keep diversifying!

TTM Technologies web site
NVIDIA web site
stock list, analyst conference summaries

Thursday, February 5, 2009

Akamai Accelerates Delivery

Akamai (AKAK) investors were presently surprised by 4th quarter results released Wednesday. Starting after hours and continuing into Thursday new money poured into the stock, thrusting the price up. I own Akamai stock, but I looked at it for years before purchasing it. If you want some deep background on Akamai, go to my Akamai analyst conferences summaries page, which includes links to my articles on what Akamai does, how they do it, and how the profits are generated.

Fourth quarter 2008 results were not even spectacular by Akamai standards. Revenue was $212.6 million, up 8% sequentially from $197.3 million and up 16% from $183.2 million year-earlier. In past years revenues have grown faster. But this is in sharp contrast to 95% of the technology companies reports on the December quarter. During 2008 everyone said their company gave such great ROI (return on investment) that they would continue to see growth through a recession. Most did until Q2. Many did in Q3. But in Q4 almost every company saw a significant downturn. Even mighty Cisco reported falling revenues yesterday.

Akamai profits were good by any measure. Using the most conservative measure, GAAP net income was $40.5 million. But cash from operations was $92 million and the ending balance for cash and equivalents was $772 million.

Akamai has been periodically raided on rumors that competitors were going to steal its thunder. I don't want to underestimate the role of competition in technology. Akamai has a profitable model, and big companies with lagging sales will eye those profits and try to capture them, and startups will eye them. But so far Akamai has had a significant technological advantage over its competitors. Its systems work well. No competitor has introduced as capable of a system, so they have to compete on pricing. When they win an occasional deal, they often lose money or just break even. Meanwhile Akamai generates cash and uses that cash to see that its technology is the best. They have also added what Cisco likes to call "adjacent" technologies. Akamai calls them value-added technologies. When Akamai has a contract for its basic service - speeding up the delivery of Internet content - it is in a good position to offer higher margin, more specialized services as well.

Guidance is for flat to down revenues in the first quarter of 2009, but that is a typical seasonal effect from the post-holiday drop in e-commerce. The Web is still in explosive growth mode, with video downloads becoming prevalent, soaking up bandwidth. Akamai's fortunes are carried along by that explosive growth.

I think Cicso CEO John Chambers is right in believing that Internet traffic is not going to slow down; just the opposite. So ISPs and carriers are going to have no choice but to lay more wire and install higher capacity routers. They delayed doing that in the December quarter, they might delay capital expenditures in the March 2009 quarter, but they are just getting behind the curve and will have to make up for it at some point.

In the meantime Akamai is not dependent on major capital expenditures by its customers. There are a lot of customers, and Akamai services are a relatively small recurring part of their Web delivery budgets.

There have been times when, by my analysis, Akamai stock has been overpriced, but now is not one of those times, even with today's pop.

Don't forget the risk even for good companies, and

Keep diversified.

See also: