Oct. 12 (Bloomberg) -- Onyx Pharmaceuticals Inc. will pay $276 million for closely held Proteolix Inc. to gain an experimental blood-cancer drug and expand its offerings beyond its tumor fighter Nexavar, sold with Bayer AG.

Onyx may pay up to $575 million more in milestone payments for development and regulatory approvals of the experimental drug, carfilzomib, the Emeryville, California- based company said today in a statement.

Chief Executive Officer Tony Coles has said he aims to expand Onyx’s product offerings through licensing deals or acquisitions in the oncology field. Coles said in September the company was focusing on a small number of potential partners with experimental drugs in the mid-stage of human tests typically required for U.S. approval.

“The acquisition combines our clinical development and commercial expertise with Proteolix’s scientific expertise,” Coles said during a conference call today. “The combination will make us one of the leaders in hematology and oncology.”

Onyx rose $1.36, or 5.1 percent, to $28.26 at 4:01 p.m. New York time in Nasdaq Stock Market composite trading. Onyx shares declined 17 percent in 2009.

Multiple Myeloma

Proteolix, based in South San Francisco, California, is testing carfilzomib as a treatment for multiple myeloma, the second most common blood cancer after leukemia.

“This makes Onyx a more complete company because up to this point all they had was Nexavar,” said Simos Simeonidis, an analyst for Rodman & Renshaw, in a telephone interview today. “They’re diversifying into blood cancers. They’ve bought a pipeline.”

Carfilzomib is expected to enter a final round of tests next year, Onyx said in the statement. The trial will evaluate the medicine in combination with Celgene Inc.’s multiple myeloma drug Revlimid and dexamethasone as a treatment for patients with relapsed and refractory multiple myeloma, the company said.

Proteolix gives Onyx entry into the $16 billion market for hematologic cancer, Coles said. There is “a lot of unmet need” among multiple myeloma patients, he said. One of the potential milestone payments is tied to carfilzomib receiving accelerated U.S. regulatory approval by 2011, Coles said.

Coles expects Nexavar, which had sales of $678 million in 2008, will bring in $1 billion in revenue next year. In addition to its approved uses for kidney and liver tumors, the drug may have potential to treat breast cancer, a market twice as large as kidney and liver cancers, Coles said.

The company reiterated its expectation to increase operating cash flow next year. Onyx anticipates closing the deal in the fourth quarter of 2009.

To contact the reporter on this story: Meg Tirrell in New York at mtirrell@bloomberg.net.

Last Updated: October 12, 2009 17:55 EDT