e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER
31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
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Commission File
No. 0-28298
Onyx Pharmaceuticals,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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94-3154463
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(State or other jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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2100
Powell Street
Emeryville, California 94608
(510) 597-6500
(Address,
including zip code, and telephone number,
including area code, of registrants principal executive
offices)
Securities
Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock $0.001 par value
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NASDAQ Global Market
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Securities Registered Pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act): Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the Registrant based upon the last trade price
of the common stock reported on the NASDAQ Global Market on
June 30, 2010 was approximately $967,573,899, this excludes
17,813,933 shares of Common Stock held by directors,
officers and stockholders whose beneficial ownership exceeds 5%
of the Registrants Common Stock outstanding. The number of
shares owned by stockholders whose beneficial ownership exceeds
5% was determined based upon information supplied by such
persons and upon Schedules 13D and 13G, if any, filed with the
SEC. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of the
management or policies of the Registrant, that such person is
controlled by or under common control with the Registrant, or
that such persons are affiliates for any other purpose.
The number of shares of common stock outstanding as of
February 17, 2011 was 63,033,264.
TABLE OF CONTENTS
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Definitive Proxy Statement for
its 2011 Annual Meeting of Stockholders, which will be filed
with the Commission within 120 days of December 31,
2010, are incorporated herein by reference into Part III
items 10-14
of this Annual Report on
Form 10-K.
2
PART I.
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our
industrys results, levels of activity, or achievements to
differ significantly and materially from that expressed or
implied by such forward-looking statements. These factors
include, among others, those set forth in Item 1A
Risk Factors and elsewhere in this Annual Report on
Form 10-K.
In some cases, you can identify forward-looking statements by
terminology such as may, will,
should, intend, expect,
plan, anticipate, believe,
estimate, predict,
potential, or continue, or the negative
of such terms or other comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, events, levels of activity, performance or
achievements. We do not assume responsibility for the accuracy
and completeness of the forward-looking statements. We do not
intend to update any of the forward-looking statements after the
date of this Annual Report on
Form 10-K
to conform these statements to actual results, unless required
by law.
All references to the Company, Onyx,
we, our, and us in this
Annual Report on
Form 10-K
refer collectively to Onyx Pharmaceuticals, Inc. and its
wholly-owned subsidiaries.
Overview
We are a biopharmaceutical company dedicated to developing
innovative therapies that target the molecular mechanisms that
cause cancer. Through our internal research programs and in
conjunction with our collaborators, we are applying our
expertise to develop and commercialize therapies designed to
exploit the genetic and molecular differences between cancer
cells and normal cells. We are continuing to maximize current
commercialization opportunities for
Nexavar®
(sorafenib) tablets, along with our collaborator, Bayer
HealthCare Pharmaceuticals Inc., or Bayer, and we seek to enter
the hematologic cancer market through the development of
carfilzomib, a selective proteasome inhibitor, for the potential
treatment of patients with multiple myeloma and solid tumors.
Carfilzomib is a mid-to late-stage compound with the potential
for accelerated marketing approval in the United States based on
our current clinical trial data and assuming favorable
regulatory outcomes. In addition, we continue to expand our
development pipeline, with multiple clinical and preclinical
stage product candidates.
We were incorporated in California in February 1992 and
reincorporated in Delaware in May 1996. Our corporate
headquarters are located at 2100 Powell Street, Emeryville,
California 94608, and our telephone number is
(510) 597-6500.
Our
Strategy
We plan to achieve our business strategy of transforming Onyx
into a leading biopharmaceutical company in the oncology market
by:
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establishing carfilzomib as a treatment for multiple
myeloma;
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maximizing current opportunities worldwide for Nexavar in
approved indications;
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preparing for future commercialization opportunities of
Nexavar and carfilzomib;
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investing in a broad development program for Nexavar by
pursuing other types of cancer that Nexavar may help in
treating, including lung, breast, thyroid, ovarian and
colorectal cancers;
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advancing the development of our pipeline, including
carfilzomib, the ONX 0912, ONX 0914 and ONX 0801 programs,
and assessing in-licensing opportunities, such as our option to
in-license ONX 0803 and ONX 0805 (both Janus Kinase, or JAK,
inhibitors); and
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continuing to expand our pipeline by pursuing other
investments and opportunities with disciplined financial goals.
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Marketed
Product Nexavar
Our first commercially available product, Nexavar, is approved
by the United States Food and Drug Administration, or FDA, for
the treatment of patients with unresectable liver cancer and
advanced kidney cancer. Nexavar is a novel, orally available
multiple kinase inhibitor that acts through dual mechanisms of
action by inhibiting angiogenesis and the proliferation of
cancer cells. A common feature of cancer cells is the excessive
activation of signaling pathways that cause abnormal cell
proliferation. In addition, tumors require oxygen and nutrients
from newly formed blood vessels to support their growth. The
formation of these new blood vessels is called angiogenesis.
Nexavar inhibits the signaling of VEGFR-1, VEGFR-2, VEGFR-3 and
PDGFR-ß, key receptors of Vascular Endothelial Growth
Factor, or VEGF, and Platelet-Derived Growth Factor, or PDGF.
Both receptors play a role in angiogenesis. Nexavar also
inhibits RAF kinase, an enzyme in the RAS signaling pathway that
has been shown in preclinical models to be important in cell
proliferation. In normal cell proliferation, when the RAS
signaling pathway is activated, or turned on, it
sends a signal telling the cell to grow and divide. When a gene
in the RAS signaling pathway is mutated, the signal may not turn
off as it should, causing the cell to continuously
reproduce. The RAS signaling pathway plays an integral role in
the growth of some tumor types such as colorectal cancer, liver
cancer and lung cancer, and we believe that inhibiting this
pathway could have an effect on tumor growth. Nexavar also
inhibits other kinases involved in cancer, such as KIT, FLT-3
and RET.
Commercialization
Status
We and Bayer are commercializing Nexavar for the treatment of
patients with unresectable liver cancer and advanced kidney
cancer. Nexavar has been approved and is marketed for these
indications in the United States, European Union and in other
territories worldwide. Nexavar was approved for the treatment of
patients with advanced kidney cancer by the FDA in December
2005. It was approved by the European Union in July 2006 for the
treatment of patients with advanced kidney cancer who have
failed prior therapy or are considered unsuitable for other
therapies. In the fourth quarter of 2007, Nexavar was approved
in the European Union and United States for the treatment of
patients with unresectable liver cancer. Nexavar is now approved
in more than 90 countries worldwide for the treatment of
advanced kidney cancer and unresectable liver cancer. In the
United States, we co-promote Nexavar with Bayer. Outside of the
United States, Bayer manages all commercialization activities.
In 2010, worldwide net sales of Nexavar, as recorded by Bayer,
totaled $934.0 million.
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Product
Candidates in Clinical Trials
The following is a partial listing of the development status of
Nexavar, carfilzomib and our other product candidates in
clinical trials and the status for select indications.
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Current
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Product Candidate
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Indication
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Status
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Nexavar
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Liver Cancer
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Adjuvant therapy
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Phase 3
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First line, erlotinib +/-
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Phase 3
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Locoregional therapies, e.g. TACE
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Phase 2
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Kidney Cancer
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Adjuvant therapy
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Phase 3
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Non-Small Cell Lung Cancer
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Third/fourth line, monotherapy
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Phase 3
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Thyroid Cancer
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Monotherapy
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Phase 3
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Breast Cancer
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First/second line, capecitabine +/-
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Phase 3
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First/second line, gemcitabine or
capecitabine +/- following treatment with bevacizumab
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Phase 2
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First line, docetaxel and/or letrozole
+/-
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Phase 2
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Ovarian Cancer
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Maintenance therapy
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Phase 2
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Colorectal Cancer
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First line, combination with mFOLFOX6
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Phase 2
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Carfilzomib
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Multiple Myeloma
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Monotherapy
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Phase 2b
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Lenalidomide, dexamethasone +/-
Comparison to Best Supportive Care
(Corticosteroid)
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Phase 3
Phase 3
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Solid Tumor
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Monotherapy
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Phase 2
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Cell Cycle Kinase Inhibitor*
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Phase 2
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ONX 0801
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Phase 1
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ONX 0912
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Phase 1; Phase 1b/2 planned
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ONX 0803**; ONX 0805**
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Phase 2; Phase 1
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ONX 0914
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Preclinical
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Outlicensed to Pfizer Inc. |
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Subject to exercise of our option to in-license. |
5
Nexavar
Development Strategy
We and Bayer are executing the Nexavar development strategy with
three primary areas of focus. First, we have several ongoing
clinical trials that are designed to expand Nexavars
position in the two previously approved indications,
unresectable liver cancer and advanced kidney cancer. These
include studies in adjuvant therapy (or treatment given in
addition to the primary treatment such as surgery) and in
combination with other anti-cancer therapies. Secondly, we have
ongoing and planned Phase 3 registration studies in cancer types
and settings for which we believe Nexavars unique features
and evidence of activity support development.
Finally, we are conducting multiple studies, including large
randomized Phase 2 studies, which will serve as screening
studies that may provide information for the future design of
Phase 3 trials in a variety of cancer types, lines of therapy
and in combination with other anti-cancer agents. We believe
Nexavars unique features, including its efficacy, oral
availability and tolerability, may be important attributes that
could differentiate it from other anti-cancer agents and enable
it to be used broadly in the treatment of cancer. In addition to
conducting company-sponsored clinical trials, we collaborate on
clinical trials with government agencies, cooperative groups,
and individual investigators. Our goal is to maximize
Nexavars commercial and clinical potential by
simultaneously running multiple studies to produce the clinical
evidence necessary to determine whether Nexavar can benefit
patients with other types of cancers. Additionally, because it
is difficult to predict the success of any individual clinical
trial, running multiple trials may mitigate the risk of failure
of any single clinical trial.
Under our collaboration agreement, we and Bayer are jointly
developing Nexavar internationally, with the exception of Japan.
In Japan, Bayer funds all product development, and we receive a
royalty on sales. The following is a summary of our current key
clinical trials with Bayer.
Liver
Cancer Program
Phase 3 Trial. In August 2008, we and Bayer
initiated an international, randomized, placebo-controlled Phase
3 clinical trial evaluating Nexavar as an adjuvant therapy for
patients with liver cancer who have undergone resection or
loco-regional treatment with curative intent. This study, known
as the Sorafenib as Adjuvant Treatment in the Prevention of
Recurrence of Hepatocellular Carcinoma (STORM) trial, completed
enrollment in 2010. The primary endpoint of the study is
recurrence free survival.
Phase 3 Trial. In May 2009, we and Bayer
initiated an international trial examining Nexavar tablets in
combination with
Tarceva®
(erlotinib) tablets as a potential new treatment option for
patients with advanced HCC. The randomized, double-blind,
placebo-controlled Phase 3 study, known as Sorafenib and
Erlotinib, a Randomized Trial Protocol for the Treatment of
Patients with HCC (SEARCH), completed enrollment in early 2011.
SEARCH will examine whether Nexavar in combination with Tarceva
prolongs survival as compared to Nexavar alone. The primary
endpoint of the study is overall survival.
Phase 2 Trial. In March 2009, we and Bayer
initiated an international, randomized, double-blind,
placebo-controlled clinical trial evaluating Nexavar or placebo
in combination with transarterial chemoembolization (TACE)
performed with drug eluting beads and doxorubicin for patients
with intermediate stage HCC. The study, known as the Sorafenib
or Placebo in Combination with TACE for Intermediate
Hepatocellular Carcinoma (SPACE) trial, completed enrollment in
2010. The primary endpoint of the study is time to progression.
Kidney
Cancer Program
Phase 3 Trial. In May 2006, the Eastern
Cooperative Oncology Group, or ECOG, initiated an international,
randomized, placebo-controlled Phase 3 clinical study, known as
the Adjuvant Sorafenib or Sunitinib for Unfavorable Renal
Carcinoma (ASSURE) trial, evaluating Nexavar versus sunitinib as
an adjuvant therapy for patients with advanced kidney cancer
that has been removed by surgery with no evidence of residual
disease. The primary endpoint of the study is disease-free
survival.
Phase 3 Trial. In June 2007, an international,
randomized, double-blind clinical trial comparing Nexavar with
placebo in patients with resected primary renal cell carcinoma
was initiated. This Phase 3 clinical study is
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known as the Sorafenib with Placebo in Patients with Resected
Primary Renal Cell Carcinoma at High or Intermediate Risk of
Relapse (SORCE). The primary endpoint of the study is
disease-free survival.
Non-Small
Cell Lung Cancer (NSCLC) Program
Phase 3 Trial. In December 2010, enrollment
completed in an international randomized, double-blind
placebo-controlled Phase 3 trial to evaluate Nexavar tablets in
patients with relapsed or refractory advanced predominantly
non-squamous NSCLC who have failed two or three previous
treatments. This
3rd/4th
line study is known as the Monotherapy Administration of
Sorafenib in Patients with NSCLC (MISSION) trial. The primary
endpoint of the study is overall survival.
Phase 3 Trial. In June 2009, enrollment
completed in a pivotal randomized, double-blind
placebo-controlled trial in select locations outside the United
States of patients with Stage IIIb-IV NSCLC, who had not
received prior systemic anti-cancer treatment. In this trial,
known as the NSCLC Research Experience Utilizing Sorafenib
(NExUS) trial, patients received gemcitabine and cisplatin in
combination with Nexavar or a placebo. The primary endpoint of
the study was overall survival. In June 2010, we announced that
the study did not meet its primary endpoint.
Phase 3 Trial. In February 2006, we and Bayer
initiated a randomized, double-blind, placebo-controlled pivotal
clinical trial, called Evaluation of Sorafenib, Carboplatin And
Paclitaxel Efficacy (ESCAPE), studying Nexavar administered in
combination with the chemotherapeutic agents carboplatin and
paclitaxel in patients with NSCLC. This multicenter study
compared Nexavar administered in combination with these two
agents to treatment with just the two agents alone. In February
2008, this clinical trial was stopped early following a planned
interim analysis when an independent DMC concluded that the
study would not meet its primary endpoint of improved overall
survival.
Thyroid
Cancer Program
Phase 3 Trial. In October 2009, we and Bayer
began enrolling patients in an international Phase 3 trial to
evaluate Nexavar tablets for the treatment of patients with
radioactive iodine-refractory, locally advanced or metastatic
differentiated thyroid cancer. The trial design called the Study
of Sorafenib in Locally Advanced or Metastatic Patients with
Radioactive Iodine Refractory Thyroid Cancer (DECISION), is
planned to enroll patients with locally advanced or metastatic,
radioactive iodine-refractory, differentiated thyroid cancer
(papillary, follicular and Hurthle cell) who have received no
prior systemic therapy. The primary endpoint of the study is
progression-free survival.
Breast
Cancer Program
Phase 3 Trial. We and Bayer are actively
screening patients for an international Phase 3 trial to
evaluate Nexavar tablets in combination with capecitabine for
the treatment of patients with locally advanced or metastatic
HER2-negative breast cancer who are resistant to or have failed
prior taxane and an anthracycline or for whom further
anthracycline therapy is not indicated, which is known as the
RESILIENCE trial. The primary endpoint of the study
is progression-free survival.
Phase 2 Trials. In 2007, we and Bayer launched
a broad, multinational Phase 2 clinical trial program in
advanced breast cancer known as Trials to Investigate the
Effects of Sorafenib in Breast Cancer (TIES). The four clinical
trials in the TIES program are screening studies intended to
provide information that may be used to design a Phase 3
program. The TIES program involves a number of different drug
combinations with Nexavar and encompasses various treatment
settings.
In September 2009, we presented the results from the first of
the collaborative group-sponsored randomized, double-blind,
placebo-controlled Phase 2 trials. This first study evaluated
Nexavar in combination with the oral chemotherapeutic agent
capecitabine. These patients had locally advanced or metastatic
HER-2 negative breast cancer and had received no more than one
prior chemotherapy in this setting. The trial met its primary
endpoint of progression free survival, demonstrating that median
progression-free survival was extended in patients treated with
Nexavar and capecitabine compared to patients receiving
capecitabine and placebo. The
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second study evaluated Nexavar in combination with the
chemotherapeutic agent paclitaxel. These patients had locally
recurrent or metastatic HER-2 negative breast cancer and had not
received prior chemotherapy in this setting. While this trial
did not meet its primary endpoint of progression free survival,
the results demonstrated a positive trend towards improvement of
progression-free survival in the Nexavar treatment group with no
new toxicities observed and adverse events were clinically
manageable. In 2010, the results from the analysis of overall
survival from these two trials were presented. A trend toward an
improvement in overall survival was observed in the first trial
of Nexavar in combination with capecitabine.
The TIES program includes two additional randomized,
placebo-controlled Phase 2 trials, and enrollment was completed
for both studies in 2010. One of the trials is evaluating
Nexavar plus gemcitabine or capecitabine in the first- or
second-line setting following progression on bevacizumab, and
the second trial is evaluating Nexavar plus docetaxel
and/or
letrozole in the first-line setting. The primary endpoint of
both of these studies is progression-free survival.
Early/Mid
Stage Clinical Development
We have additional ongoing and planned studies with Bayer
evaluating Nexavar as a single agent and in combination with
other anti-cancer agents in tumors such as ovarian, advanced
colorectal and other cancers. Based on the results of these
ongoing trials, we plan to identify additional potential
registration paths for Nexavar.
Carfilzomib
We are developing carfilzomib, a next-generation, selective
proteasome inhibitor, as a potential cancer treatment. The
proteasome is a protein complex that exists in all cells,
whether healthy or cancerous. The proteasome controls the
turnover of proteins in cells in a regulated manner, but cancer
cells are more susceptible to cell death when the proteasome is
inhibited. Carfilzomib is a novel small molecule, belonging to a
class known as peptide ketoepoxides, and is designed to inhibit
the proteasome and enable sustained suppression of protein
degradation in tumor cells. Carfilzomib is currently in multiple
clinical trials as summarized below.
Multiple
Myeloma Program
We are conducting multiple clinical trials evaluating
carfilzomib as a monotherapy in relapsed
and/or
refractory multiple myeloma patients and in combination with
other anti-cancer agents and chemotherapies. Multiple myeloma is
the second most common hematologic cancer and results from an
abnormality of plasma cells, usually in the bone marrow.
Phase 2b Trial. In December 2010, we presented
data results from an ongoing pivotal Phase 2b trial, known as
the
003-A1
trial. The primary endpoint of the study was overall response
rate. Results demonstrated carfilzomib was well-tolerated in
heavily pre-treated relapsed and refractory multiple myeloma
patients and could be administered at a full dose over prolonged
periods of time, even in a very sick patient population for whom
all available treatment options have been exhausted and who have
multiple comorbidities. Enrollment consisted of patients who had
received prior treatment with bortezomib and either thalidomide
or lenalidomide and were unresponsive to their last treatment.
The full results of the study will be used to support submission
of a New Drug Application (NDA) with the FDA by as early as
mid-year 2011. In January 2011, the FDA approved Fast Track
review status for the carfilzomib NDA, and in January 2011 we
began a rolling submission of the NDA.
Phase 2 Trial. In December 2010, we also
presented data from an ongoing study, known as the
004 trial. The primary endpoint is overall response
rate and secondary endpoints include time to progression,
duration of response, overall survival and safety. Results of
123 evaluable patients demonstrate that single-agent carfilzomib
achieves high overall response rates of up to 53% in
bortezomib-naïve patients with relapsed myeloma, with
minimal neuropathy, even in the setting of high-risk disease.
These responses were durable with a median duration of response
of greater than 13 months.
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Phase 1b/2 Trial. In June 2010, we presented
data from a Phase 1b/2 combination study, known as the
006 trial, of carfilzomib with lenalidomide and
dexamethasone in patients with relapsed multiple myeloma. The
primary endpoint of the study was to evaluate safety and maximum
tolerated dose. Results demonstrated the achievement of the safe
combination of full dose carfilzomib with full dose lenalidomide
and low dose once weekly dexamethasone.
Phase 1/2 Trial. In December 2010, initial
results of a Phase 1/2 trial were presented at the American
Society of Hematology demonstrating a 100% overall response rate
and minimal toxicity. The study, sponsored by University of
Michigan Cancer Center, is designed to evaluate the safety and
to determine the maximum tolerated dose of carfilzomib plus
lenalidomide in combination with dexamethasone in newly
diagnosed multiple myeloma patients with no prior treatment.
Phase 3 Trial. In September 2010, we began
enrollment in a pivotal Phase 3, international, randomized,
open-label trial designed to evaluate the efficacy of
carfilzomib in combination with lenalidomide and low dose
dexamethasone, versus lenalidomide and low dose dexamethasone
alone. The trial, referred to as ASPIRE or the 009
trial, is expected to enroll approximately 700 patients
with relapsed multiple myeloma following treatment with one to
three prior regimens. The primary endpoint of the study is
progression-free survival. The trial is being conducted under a
Special Protocol Assessment (SPA) from the FDA. An SPA is an
agreement with the FDA on the design and planned analysis for a
clinical trial which is intended to form the basis for a
marketing application and which may only be changed through a
written agreement between the sponsor and the FDA, or if the FDA
becomes aware of new public health concerns. We also sought
Scientific Advice from the European Medicines Agency (EMA) on
the design and planned analysis of the ASPIRE trial. The ASPIRE
trial may either serve as the confirmatory trial for full
approval, if accelerated approval is granted on the basis of the
003-A1 data,
or would allow for initial approval of the NDA if the trial
successfully meets the requirements of the SPA.
Phase 3 Trial. In May 2009, we sought Protocol
Assistance/Scientific Advice from the EMA on the development of
carfilzomib in the European Union. The Committee for Medicinal
Products for Human Use of the EMA advised that, in addition to
003-A1, we
conduct a controlled study of carfilzomib monotherapy in
refractory multiple myeloma patients, using best supportive care
as the comparator. In September 2010, we began enrollment in the
trial, referred to as FOCUS or the 011 trial, which
is designed to evaluate patients with refractory multiple
myeloma relapsed after at least three prior regimens who are
randomized to receive either carfilzomib or best standard of
care. The primary endpoint of the study is progression-free
survival. Studies
003-A1 and
011 will be used to support the initial market authorization in
the EU for relapsed and refractory multiple myeloma.
ONX
0912
ONX 0912 is an oral proteasome inhibitor in Phase 1 clinical
development that is based on similar novel chemistry as
carfilzomib. ONX 0912 has demonstrated preclinical anti-tumor
activity and a broad therapeutic window in preclinical models.
In May 2010, we initiated a Phase 1 study of ONX 0912 in
advanced refractory and recurrent solid tumors. This
non-randomized, open-label, dose-escalation study will evaluate
the safety and tolerability of ONX 0912 and determine its dose
limiting toxicity and maximum tolerated dose.
ONX
0801
ONX 0801 is a novel targeted oncology compound in Phase 1
clinical development that is designed to combine two proven
approaches to improve outcomes for cancer patients by
selectively targeting tumor cells through the alpha-folate
receptor, which is overexpressed in a number of tumor types, and
inhibiting thymidylate synthase (TS), a key enzyme responsible
for cell growth and division. ONX 0801 targets malignant cells
that overexpress the alpha-folate receptor, which is located on
the cells surface. ONX 0801 differs from currently
marketed TS inhibitors due to its selective tumor cell-specific
uptake by the alpha-folate receptor. The alpha-folate receptor
is overexpressed in a number of tumor types, including ovarian
cancer, lung cancer, breast cancer and colorectal cancer. In
September 2009, we initiated a Phase 1 study of ONX 0801 in
advanced solid tumors. This open-label, dose-finding study is
evaluating the safety and pharmacokinetics of ONX 0801 in
patients with advanced solid tumors. We obtained
9
worldwide product development and commercialization rights to
ONX 0801 through a development and license agreement with BTG
International Limited, or BTG.
Product
Candidate Earlier Stage Pipeline
ONX
0914
We are developing ONX 0914 to be an inhibitor of the
immunoproteasome, with minimal cross-reactivity for the
constitutive proteasome. Recent evidence suggests that the
immunoproteasome regulates the production of several
inflammatory cytokines, including Tumor Necrosis
Factor-alpha(TNF-alpha), Interleukin-6 (IL-6), IL-17, and IL-23.
In preclinical models of rheumatoid arthritis and lupus, ONX
0914 blocked progression of these diseases at well tolerated
doses. We are conducting preclinical studies to evaluate the
potential clinical applications of ONX 0914 in the treatment of
autoimmune disorders, such as rheumatoid arthritis, inflammatory
bowel disease and lupus.
Collaboration,
Licensing, Option Agreements
Collaboration
Agreement with Bayer
Effective February 1994, we executed a collaboration agreement
with Bayer to discover, develop and market compounds that
inhibit the function, or modulate the activity, of the RAS
signaling pathway to treat cancer and other diseases. We
concluded collaborative research under this agreement in 1999,
and based on this research, a product development candidate,
Nexavar, was identified. Bayer paid all the costs of research
and preclinical development of Nexavar until the Investigational
New Drug (IND) application was filed in May 2000. Under our
collaboration agreement, we are currently funding 50% of
mutually agreed development costs worldwide, excluding Japan. In
all foreign countries, except Japan, Bayer first receives a
portion of product revenues to repay Bayer for its foreign
commercialization infrastructure, after which we receive 50% of
net profits on sales of Nexavar. Bayer is funding 100% of
development costs in Japan and pays us a single-digit royalty on
Nexavar sales in Japan. At any time during product development,
either company may terminate its participation in development
costs, in which case the terminating party would retain rights
to the product on a royalty-bearing basis. If we do not continue
to bear 50% of product development costs, Bayer would retain
exclusive, worldwide rights to Nexavar and would pay royalties
to us based on net sales.
In March 2006, we and Bayer entered into a co-promotion
agreement to co-promote Nexavar in the United States. The
co-promotion agreement amends and generally supersedes those
provisions of the 1994 collaboration agreement that relate to
the co-promotion of Nexavar in the United States. Outside of the
United States, the terms of the collaboration agreement continue
to govern. Under the terms of the co-promotion agreement and
consistent with the collaboration agreement, we and Bayer share
equally in the profits or losses of Nexavar in the United
States. If for any reason we do not continue to co-promote in
the United States, but continue to co-fund development worldwide
(excluding Japan), Bayer would first receive a portion of the
product revenues to repay Bayer for its commercialization
infrastructure, before determining our share of profits and
losses in the United States.
Our collaboration agreement with Bayer will terminate when
patents expire that were issued in connection with product
candidates discovered under the agreement, or at the time when
neither we nor Bayer are entitled to profit sharing under the
agreement, whichever is latest. Our co-promotion agreement with
Bayer will terminate upon the earlier of the termination of our
collaboration agreement with Bayer or the date products subject
to the co-promotion agreement are no longer sold by either party
in the United States due to a permanent product withdrawal or
recall or a voluntary decision by the parties to abandon the
co-promotion of such products in the United States. Either party
may also terminate the co-promotion agreement upon failure to
cure a material breach of the agreement within a specified cure
period.
In addition, our collaboration agreement with Bayer provides
that if we are acquired by another entity by reason of merger,
consolidation or sale of all or substantially all of our assets,
or if a single entity other than Bayer or its affiliate acquires
ownership of a majority of the our outstanding voting stock, and
Bayer does not consent to the transaction, then for 60 days
following the transaction, Bayer may elect to terminate our
co-development and co-promotion rights under the collaboration
agreement and convert our profit sharing interest under that
agreement into
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a royalty based on any sales of Nexavar and other collaboration
products. The applicable royalty rate would be a function of
expected profitability of Nexavar for the remaining patent life
of Nexavar. As of December 20, 2010, the fifth anniversary
of the initial regulatory approval of Nexavar, in the event of
an acquisition transaction, we believe the economic value of a
royalty amount should be substantially equivalent to the
economic value of the profit share interest for Nexavar during
the remaining patent life absent such an acquisition
transaction. Bayer has informed us they do not agree with this
conclusion. The application of the royalty formula to any
transaction that closed prior to the fifth anniversary of the
initial regulatory approval of Nexavar would have been
different, however, and could have substantially reduced the
economic value derived from the sales of Nexavar to us or our
successor, compared to the economic value we would have received
absent such an acquisition transaction. Also, either party may
terminate the agreement upon 30 days notice within
60 days of specified events relating to insolvency of the
other party.
Collaboration
Agreement with Pfizer
In May 1995, we entered into a research and development
collaboration agreement with Warner-Lambert Company, now a
subsidiary of Pfizer Inc., or Pfizer, to discover and
commercialize small molecule drugs that restore control of, or
otherwise intervene in, the misregulated cell cycle in tumor
cells. Under this agreement, we developed screening tests, or
assays, for jointly selected targets, and transferred these
assays to Pfizer for screening of their compound library. The
discovery research term ended in August 2001. Pfizer is
responsible for subsequent medicinal chemistry, preclinical and
clinical development, regulatory filings, manufacture and sale
of any approved collaboration compounds. We are entitled to
receive payments upon achievement of certain clinical
development milestones and registration of any resulting
products and are entitled to receive royalties on worldwide
sales. Pfizer identified a small molecule lead compound, PD
0332991, an inhibitor of cyclin-dependent kinase
4/6
(CDK 4/6), and began clinical testing in September 2004. In
December 2009, we earned a $1.0 million milestone payment
from Pfizer upon initiation of a Phase 2 trial for breast
cancer. To date, we have earned $1.5 million in milestone
payments relating to this drug candidate, which we refer to as a
cell cycle kinase inhibitor.
The May 1995 collaboration agreement with Pfizer will remain in
effect until the expiration of all licenses granted pursuant to
the agreement. Either party may terminate the agreement for the
uncured material breach of the other party. Under this
agreement, remaining additional potential milestones payable by
Pfizer to Onyx are, in aggregate, up to approximately
$15.5 million and royalty payments will be based on a
single digit percentage of net sales, if any.
Licensing
Agreement with BTG
In November 2008, we licensed a novel targeted oncology
compound, ONX 0801, from BTG. Under the terms of the agreement,
we obtained a worldwide license for ONX 0801 and its related
patents. We also received exclusive worldwide marketing rights
and are responsible for all product development and
commercialization activities. We paid BTG a $13.0 million
upfront payment in 2008 and a $7.0 million milestone
payment in 2009. We may be required to make payments of up to an
additional $65.0 million upon the attainment of certain
global development and regulatory milestones, plus additional
milestone payments upon the achievement of certain marketing
approvals and commercial milestones. We also are required to pay
royalties to BTG on any future product sales.
Our development and license agreement with BTG will expire
10 years after the first commercial sale of the licensed
product or until patent coverage expires, whichever is later. We
may terminate the agreement at any time without cause by giving
BTG prior written notice, and either party may terminate the
agreement upon failure to cure a material breach in certain
cases. BTG may terminate the agreement by written notice upon
the occurrence of certain specified events, including our
failure to pay BTG payments due under the agreement after demand
for such payments, our challenging the licensed rights under the
agreement, our failure to conduct material development activity
in relation to a licensed product for a specified period, our
decision to cease development of licensed products, or specified
events relating to our insolvency. Upon any termination of the
agreement, rights to the licensed compounds will revert to BTG.
Except in the case of termination for our breach at an early
stage of development, we will receive a portion of any
compensation received by BTG from the sale of the reverted
compounds.
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Licensing
Agreement with Ono Pharmaceuticals
In September 2010, we entered into an exclusive license
agreement with Ono Pharmaceutical Co., Ltd., or Ono, granting
Ono the right to develop and commercialize both carfilzomib and
ONX 0912 for all oncology indications in Japan. We retain
development and commercialization rights for all other
countries. We agreed to provide Ono with development and
commercial supply of carfilzomib and ONX 0912 on a cost-plus
basis. Ono agreed to pay us development and commercial milestone
payments based on the achievement of pre-specified criteria. In
addition, Ono agreed to share a percentage of costs incurred by
us for the global development of carfilzomib and ONX 0912 that
support filings for regulatory approval in Japan. The milestone
and development support payments could total approximately
$283.5 million at current exchange rates. Ono is
responsible for all development costs in support of regulatory
filings in Japan as well as commercialization costs it incurs.
If regulatory approval for carfilzomib
and/or ONX
0912 is achieved in Japan, Ono is obligated to pay us
double-digit royalties on net sales of the licensed compounds in
Japan. The agreement will terminate upon the expiration of the
royalty terms specified for each product. In addition, Ono may
terminate this agreement for certain scientific or commercial
reasons with advance written notice, and either party may
terminate this agreement for the other partys uncured
material breach or bankruptcy.
Option
Agreement with S*BIO
In December 2008, we entered into a development collaboration,
option and license agreement with S*BIO Pte Ltd, or S*BIO, a
Singapore-based company, pursuant to which we acquired options
to license rights to each of SB1518 (designated by Onyx as ONX
0803) and SB1578 (designated by Onyx as ONX 0805). Under
the terms of the agreement, we were granted options which, if we
exercise them, would give us rights to exclusively develop and
commercialize ONX 0803
and/or ONX
0805 for all potential indications in the United States, Canada
and Europe. Under this agreement, S*BIO will retain
responsibility for all development costs prior to the option
exercise. After the exercise of our option to license rights to
either compound, we are required to assume development costs for
the U.S., Canada and Europe subject to S*BIOs option to
fund a portion of the development costs in return for enhanced
royalties on any future product sales. Upon the exercise of our
option of either compound, S*BIO is entitled to receive a
one-time option fee, milestone payments upon achievement of
certain development and sales levels and royalties on any future
product sales. Under the terms of the agreement, in December
2008 we made a $25.0 million payment to S*BIO, including an
up-front payment and an equity investment. In May 2010, we
expanded our agreement with S*BIO and provided an additional
$20.0 million in funding to S*BIO to broaden and accelerate
the existing development program for both compounds. S*BIO
agreed to utilize the funding to continue to perform the
clinical development of ONX 0803 and preclinical through
clinical development of ONX 0805.
Our development collaboration, option and license agreement with
S*BIO will remain in effect until the expiration of all payment
obligations. Because we have not exercised our option in the
agreement, we may terminate the agreement at any time without
cause by giving S*BIO prior written notice. In addition, either
party may terminate the agreement for the uncured material
breach of the other party.
ONX 0803
and ONX 0805
ONX 0803 is an orally available, potent and selective inhibitor
of JAK that has been designed to suppress over-activity of
mutant JAK. S*BIO is conducting trials for ONX 0803 in multiple
Phase 1 studies. In February 2010, S*BIO initiated two Phase 2
trials using ONX 0803 in myelofibrosis. ONX 0805 is a JAK
inhibitor and is in preclinical development. Under normal
circumstances, activation of JAK stimulates blood cell
production. Genetic mutations in the JAK enzyme result in
up-regulated activity and are implicated in myeloproliferative
diseases, conditions characterized by an overproduction of blood
cells in the bone marrow. The conditions where JAK mutations are
most common include polycythemia vera, essential
thrombocytopenia and primary myelofibrosis. The JAK signaling
pathway has been shown to play a critical role in the
proliferation of certain types of cancer cells and in the
anti-inflammatory pathway, suggesting JAK inhibitors may also be
able to play a role in the treatment of solid tumors and other
diseases such as rheumatoid arthritis.
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Acquisition
Agreement and Plan of Merger
In November 2009, we acquired Proteolix, Inc., or Proteolix,
under the terms of an Agreement and Plan of Merger, or the
Merger Agreement, with Proteolix, Shareholder Representative
Services LLC (SRS) and Profiterole Acquisition Corp., which was
entered into in October 2009. The acquisition provided us with
an opportunity to expand into the hematological malignancies
market and expand our
mid-to-late
stage development portfolio.
Under the original Merger Agreement, the aggregate cash
consideration paid to former Proteolix stockholders at closing
was $276.0 million and an additional $40.0 million
earn-out payment was made in April 2010, 180 days after
completion of enrollment in an ongoing pivotal Phase 2b clinical
study involving relapsed and refractory multiple myeloma
patients, known as the
003-A1
trial. We may be required to pay up to an additional
$535.0 million in earn-out payments payable in up to four
installments upon the achievement of certain regulatory
approvals for carfilzomib in the U.S. and Europe within
pre-specified timeframes. In January 2011, we entered into
Amendment No. 1 to the Merger Agreement, or the Amendment,
with SRS. Under the original Merger Agreement, the first of
these additional earn-out payments would be in the amount of
$170.0 million if achieved by the date originally
contemplated, and would be triggered by accelerated marketing
approval for carfilzomib in the United States for
relapsed/refractory multiple myeloma. This obligation is
unchanged in the Amendment. The Amendment modifies this payment
if the milestone is not achieved by the date originally
contemplated on a sliding scale basis, as follows:
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if accelerated marketing approval in the United States for
relapsed/refractory multiple myeloma is achieved after the date
originally contemplated, but within six months of the original
date, subject to extension under certain circumstances, then the
amount payable will be reduced to $130.0 million; and
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if accelerated marketing approval in the United States for
relapsed/refractory multiple myeloma is achieved more than six
months after the date originally contemplated, but within
12 months of the original date, subject to extension under
certain circumstances, then the amount payable will be reduced
to $80.0 million.
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The remaining earn-out payments will continue to become payable
in up to three additional installments as follows:
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$65.0 million would be triggered by marketing approval in
the European Union for relapsed/refractory multiple myeloma.
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$150.0 million would be triggered by marketing approval in
the United States for relapsed multiple myeloma.
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$150.0 million would be triggered by marketing approval for
relapsed multiple myeloma in the European Union.
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Under certain circumstances, including if we fail to satisfy
regulatory approval-related diligence obligations under the
Merger Agreement, we may be required to make one or more earnout
payments even if the associated regulatory approvals are not
received. Subject to the terms and conditions set forth in the
Merger Agreement, Onyx may, in its sole discretion, make any of
the remaining earnout payments that become payable to former
holders of Proteolix preferred stock in the form of cash, shares
of Onyx common stock or a combination thereof.
In accordance with the Merger Agreement, 10% of each of the
total cash payments to date, or $31.6 million, was placed
in an escrow account to secure the indemnification rights of
Onyx and other indemnitees with respect to certain matters and
was to be held until December 31, 2010. However, in
December 2010, we filed a claim notice in good faith describing
circumstances that we believed entitled us to indemnification,
compensation
and/or
reimbursement under the Merger Agreement. This escrow amount was
paid to the former Proteolix stockholders in February 2011 after
the settlement of the claim through the Amendment of the
original Merger Agreement in January 2011.
Research
and Development
A significant portion of our operating expenses relates to the
development of Nexavar. We and Bayer share development expenses
for Nexavar, except in Japan where Bayer is responsible for
development costs of Nexavar. Starting in 2010, a percentage of
our costs for the global development of carfilzomib and ONX 0912
will be reimbursed by Ono. In 2010, our development staff was
primarily focused on the clinical development of Nexavar,
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carfilzomib, ONX 0801, and ONX 0912. We expect to continue to
make significant product development investments in 2011. Those
investments will be primarily for the clinical development of
Nexavar and carfilzomib, as well as for the development of our
early stage product candidates. In addition, if we exercise our
option for either ONX 0803 or ONX 0805, we are required to
assume development costs for the U.S., Canada and Europe subject
to S*BIOs option to fund a portion of the development
costs in return for enhanced royalties on any future product
sales.
For the years ended December 31, 2010, 2009 and 2008, our
research and development costs were $185.7 million,
$128.5 million and $123.7 million, respectively, and
are included in the research and development expense line item
in our Consolidated Statements of Operations for the years ended
December 31, 2010, 2009 and 2008.
Marketing
and Sales
Under our agreements with Bayer, we have co-promotion rights for
Nexavar in the United States, where we and Bayer each have
complementary sales, marketing and medical affairs capabilities
with particular expertise in commercializing oncology products.
We and Bayer each provide one-half of the field-based sales and
medical affairs staffing in the United States. Individuals hired
into this organization have significant experience relevant to
the field of pharmaceuticals in general and to the specialty of
oncology in particular. In addition, we and Bayer have added
sales and medical staff that has experience in the specialty of
hepatology, as it applies to the detection and treatment of
liver cancer. We and Bayer have also established comprehensive
patient support services to maximize patient access to Nexavar.
This includes Resources for Expert Assistance and Care Hotline,
or REACH, which provides a single
point-of-contact
for most patients. In addition, REACH helps link patients to
specialty pharmacies for direct product distribution. Bayer
currently has contracts with multiple specialty pharmacies that
ship Nexavar directly to patients. NexConnect, another support
program also established by Onyx and Bayer, provides patient
education materials on Nexavar to help patients take an active
role in their treatment. Under the collaboration agreement,
outside the United States, Bayer is responsible for all
commercial activities relating to Nexavar. Future
commercialization of carfilzomib
and/or any
of our other product candidates, if any receive marketing
approval, would require us to make significant investments to
build on our current marketing and sales capabilities.
Manufacturing
Under our collaboration agreement with Bayer, Bayer has the
responsibility to manufacture and supply Nexavar for commercial
requirements and to support clinical trials. To date, Bayer has
manufactured sufficient drug supply to support the current needs
of commercial activity and clinical trials in progress. We
believe that Bayer has the capability to meet all future drug
supply needs and meet the FDA and other regulatory agency
requirements.
Under our license agreement with BTG, we are responsible for
manufacturing ONX 0801. If we exercise our options under our
agreement with S*BIO, S*BIO is responsible for supplying
clinical and commercial quantities of drug product. If S*BIO
fails to supply us, or if other specified events occur, we will
have co-exclusive manufacturing rights (with S*BIO) to make and
have made ONX 0803 and ONX 0805 for use and sale in the United
States, Canada and Europe.
We currently manufacture carfilzomib, ONX 0801, ONX 0912 and ONX
0914 through agreements with third-party contract manufacturers.
At this time, we plan to continue with the use of third-party
manufacturers on a commercial scale. In the future, we could
consider developing in-house manufacturing capabilities.
International
Operations
Our product development pipeline expansion has led us to begin
building our presence internationally, with particular focus on
Europe. In 2010, we established Zug, Switzerland as our European
headquarters. International expansion will assist in carrying
out various functions relating to product sales, interfacing
with regulatory agencies, research and development and
management of our clinical and future commercial product supply
chain.
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Intellectual
Property
Patents and other intellectual property rights are crucial to
our success. It is our policy to protect our intellectual
property rights through available means, including filing patent
and prosecuting applications in the United States and other
countries. We also develop and protect confidential information
and know-how, for example, we include restrictions regarding use
and disclosure of our proprietary information in our contracts
with third parties. We regularly enter into agreements with our
employees, consultants, clinical investigators and scientific
advisors to protect our confidential information and know-how.
Together with our licensors, we also rely on trade secrets to
protect our combined technology especially where we do not
believe patent protection is appropriate or obtainable. It is
also our policy to operate without infringing on, or
misappropriating, the proprietary rights of others.
Intellectual
Property Related to Nexavar
Patents and patent applications covering Nexavar are owned by
Bayer. Those Nexavar patents that arose out of our collaboration
agreement with Bayer are licensed to us, including two United
States patents covering Nexavar. Both patents will expire
January 12, 2020. These two patents are listed in the
FDAs Approved Drug Products with Therapeutic Equivalence
Evaluations (Orange Book).
Bayer also has patents in several European countries covering
Nexavar, which will expire in 2020. Bayer has other patents and
patent applications pending worldwide that cover Nexavar alone
or in combination with other drugs for treating cancer. Certain
of these patents may be subject to possible patent-term
extension, the entitlement to and the term of which cannot
presently be calculated. In 2009, we became aware that a
third-party had filed an opposition proceeding with the Chinese
patent office to invalidate the patent that covers Nexavar.
Unlike other countries, China has a heightened requirement for
patentability, and specifically requires a detailed description
of medical uses of a claimed drug, such as Nexavar. Bayer also
has a patent in India the covers Nexavar. Cipla Limited, an
Indian generic drug manufacturer, applied to the Drug Controller
General of India (DCGI) for market approval for Nexavar, which
Bayer sought to block based on its patent. Bayer sued the DCGI
and Cipla Limited in the Delhi High Court requesting an
injunction to bar the DCGI from granting Cipla Limited market
authorization. The Court ruled against Bayer, stating that in
India, unlike the U.S., there is no link between regulatory
approval of a drug and its patent status. Bayer appealed with
the ruling to the Indian Supreme Court, which has rejected the
appeal. Bayer has also filed a patent infringement suit against
Cipla that is currently pending before the Delhi High Court. If
Nexavar patents are invalidated, nullified, or otherwise held
unenforceable in these other proceedings, we and Bayer could
face increased competition, including by generic companies,
prior to the normal expiration date of the Nexavar patents.
Although Bayer intends to defend the patent and we believe that
the Nexavar patents are valid, we cannot predict the final
outcomes of these proceedings.
In addition to and separate from patent protection, Nexavar
enjoys marketing exclusivity under the Orphan Drug Act of 1983,
as amended, which was enacted to provide incentives to
pharmaceutical companies who create treatments for rare
diseases. It does so by granting seven years of exclusivity
after approval of a drug in the rare disease, or
orphan indication. During the seven year period, the
FDA may not grant marketing authorization (e.g., to a
generic manufacturer) for the same drug for the orphan
indication, but FDA may grant marketing authorization for the
same drug in a common disease or other non-protected rare
disease. Nexavar has orphan drug exclusivity until
December 20, 2012 in advanced kidney cancer and until
November 16, 2014 in unresectable liver cancer.
The Hatch Waxman Act authorizes the FDA to approve Abbreviated
New Drug Applications (ANDAs) for generic versions of innovative
pharmaceuticals that were previously approved via a NDA. In an
ANDA, the generic manufacturer is not required to prove safety
and efficacy, but must demonstrate bioequivalence
between its generic version and the NDA-approved drug. An ANDA
filer may allege that one or more of the patents covering the
approved, innovative pharmaceutical and listed with the FDA (the
Orange Book patents) are invalid, unenforceable
and/or not
infringed in order to obtain FDA approval to market a generic
version of the approved drug. This patent challenge is commonly
known as a Paragraph IV certification. The owner of the
Orange Book patents may then file a lawsuit against the ANDA
filer to enforce its patents. If the lawsuit is filed in a
timely fashion, the FDA is prohibited from approving the ANDA
for thirty months after the patent owners receipt of
notice of the Paragraph IV certification if the
certification is after the five year NCE. If the certification
and patent infringement lawsuit is filed before the end of the
five year NCE, then the FDA is prohibited from approving the
ANDA until
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seven and one half years after the NDA approval unless prior to
that date the Orange Book patents are found to be invalid,
unenforceable
and/or not
infringed. This period can also be shortened or extended by a
trial court judge hearing the patent challenge if a party to the
litigation fails to cooperate reasonably in expediting the
action. The period may also be shortened if the court enters
final judgment that the patents are not infringed, invalid, or
unenforceable. The first filer of a Paragraph IV
certification may be entitled to a
180-day
period of market exclusivity over all other generic
manufacturers, which may encourage generic manufacturers to file
ANDAs. In recent years, generic manufacturers have used
Paragraph IV certifications extensively to challenge
patents on a wide array of innovative pharmaceuticals, and we
expect this trend to continue. In addition, generic companies
have shown an increasing willingness to launch at
risk, i.e., after receiving ANDA approval but
before final resolution of their patent challenge. Outside the
United States, the legal doctrines and processes by which
pharmaceutical patents can be challenged vary widely.
As of December 20, 2009, generic manufacturers were
permitted to submit ANDAs seeking FDA authorization to
manufacture and market generic versions of Nexavar that
contained Paragraph IV certifications as to one or more of
the Orange Book-listed Nexavar patents. Thus far, we are not
aware of any ANDA filing for sorafenib. It is possible, however,
that one or more such ANDAs for Nexavar may have been submitted;
however, Bayer and we may not learn about the ANDAs and any
challenge to the Nexavar patents until receipt of a notice
letter from a generic manufacturer that such an application has
been filed. Upon notification of an ANDA filing for Nexavar,
Bayer (as the owner of the Nexavar patents) may file a patent
infringement lawsuit against each ANDA filer. If there are
multiple ANDA filers, Bayer may be required to file multiple
patent infringement lawsuits in multiple jurisdictions. Under
our collaboration agreement with Bayer, we are responsible for
sharing the costs incurred for such ANDA lawsuits. If one
or more ANDAs are filed, we may need to spend significant
resources to enforce and defend the Nexavar patents. Upon each
timely filed ANDA lawsuit, the FDA will impose a stay on the
approval of the corresponding ANDA, pending resolution of the
lawsuit or the expiration of the stay period. If Bayer fails to
timely file a lawsuit against an ANDA filer, that ANDA filer may
not be subject to an FDA stay, and upon approval of the ANDA,
the ANDA filer may elect to launch a generic version of Nexavar
at the risk of a lawsuit and injunction. If Bayer timely
commences lawsuits against ANDA filers for patent infringement,
as we expect Bayer to do, the FDA cannot approve the ANDAs until
seven and one-half years have elapsed from the date of
Nexavars initial approval (i.e., until
June 20, 2013). This period of protection, referred to as
the statutory litigation stay period, may end early however, in
the event of an adverse court action, such as if Bayer were to
lose a patent infringement case against an ANDA filer before the
statutory litigation stay period expires (i.e., if the
court finds both patents invalid, unenforceable or not
infringed) or if Bayer fails to reasonably cooperate in
expediting the litigation. On the other hand, if Bayer were to
prevail in an infringement action against an ANDA filer, the
ANDA with respect to such generic company cannot be approved
until expiration of the patents held to be infringed.
Issued patents may be challenged by third parties, including
competitors and generic companies, through litigation, nullity
proceedings and the like. Patents covering Nexavar may be
challenged and possibly invalidated in one or more countries,
which could expose us and Bayer to generic competition prior to
the normal expiration date of the Nexavar patents. In light of
the increasingly aggressive challenges by generic companies to
innovator intellectual property, we and Bayer are continually
assessing and seeking to strengthen our patent estate for
Nexavar around the world.
Intellectual
Property Related to Carfilzomib and Other Proteolix
Assets
We own a patent portfolio covering carfilzomib, including 4
United States patents and 3 United States patent applications,
which will begin to expire in 2025 without patent term
extension, together with their foreign counterparts. We also own
a patent portfolio covering ONX 0912 and ONX 0914, including 2
United States patents and 7 United States patent applications,
which will begin to expire in 2027, without patent term
extension together with their foreign counterparts. In addition,
carfilzomib was granted orphan drug designation by the FDA for
the treatment of multiple myeloma in 2008. Orphan drug
designation is granted to assist and encourage companies to
develop safe and effective therapies for the treatment of rare
diseases and disorders. Under the designation, the sponsor may
be eligible for grant funding towards clinical trial costs, tax
advantages, FDA user-fee benefits, and seven years of market
exclusivity in the United States following drug approval by the
FDA.
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Intellectual
Property Related to ONX 0801, 0803 and 0805
In the United States and Europe, ONX 0801 is covered by an
issued patent. The United States patent expires in 2023, and the
European patent expires in 2022. Both may be entitled to term
extensions. There are patent applications pending in the United
States and European Union that cover ONX 0803 and ONX 0805 and,
if granted, will expire in 2026. Both may be entitled to term
extensions.
Other
Intellectual Property
In addition to the patents and patent applications discussed
above, as of December 31, 2010, we owned or had licensed
rights to 71 United States patents and 31 United States patent
applications and, generally, the foreign counterparts of these
filings. Most of these patents or patent applications cover
protein targets used to identify product candidates during the
research phase of our collaborative agreements with Pfizer or
Bayer, or aspects of our discontinued therapeutic virus program.
Competition
We are engaged in a rapidly changing and highly competitive
field. We are seeking to develop and market product candidates
that will compete with other products and therapies that
currently exist or are being developed. Many other companies,
both large pharmaceutical companies and biotechnology companies,
are actively seeking to develop oncology products, including
those that have disease targets similar to those we are
pursuing. Some of these competitive product candidates are in
clinical trials and others are approved. Many of these companies
with competitive products
and/or
product candidates have greater capital resources than we do,
which provide them with potentially greater flexibility in the
development and marketing of their products. Most pharmaceutical
companies devote significant operating resources to the research
and development of new oncology drugs or additional indications
for oncology drugs that are already marketed. We expect these
trends to continue.
Nexavar for unresectable liver
cancer. Currently, there are no other systemic
therapies approved for unresectable liver cancer. However, there
are several other therapies in development, including
Bristol-Myers Squibbs brivanib and regorafenib, referred
to by us as fluoro-sorafenib, which is the subject of litigation
between ourselves and Bayer. Other trials in HCC include a Phase
2 trial of bevacizumab plus erlotinib, a Phase 3 trial of ABT
869 versus Nexavar and a Phase 2 trial of TKI 1258 versus
Nexavar. Other drugs being studied in HCC include ramucirumab
and everolimus. In addition, there are many existing approaches
used in the treatment of unresectable liver cancer including
alcohol injection, radiofrequency ablation, chemoembolization,
cryoablation and radiation therapy.
Nexavar for advanced kidney cancer. Currently,
five novel agents besides Nexavar have been approved for the
treatment of advanced kidney cancer Sutent, Torisel,
Avastin, Afinitor and Votrient. Pfizer, Inc. announced that its
drug axitinib achieved its primary endpoint of improved
progression free survival versus Nexavar in patients with renal
cell carcinoma. In addition, we anticipate that AVEO
Pharmaceuticals, Inc. will announce the results of its
randomized Phase 3 trial of AV- 951. Additional agents being
studied versus Nexavar include Novartiss Dovitinib/TKI
1258.
Carfilzomib. Currently, there are three
commonly-used agents approved in the U.S. for the treatment
of patients with multiple myeloma Velcade and two
immunomodulatory drugs (IMiDs), Revlimid and Thalomid, that
could be used in combination with or instead of carfilzomib if
it is approved for marketing. In addition, other
potentially-competitive therapies are in clinical development
for multiple myeloma. Vorinistat, being developed by
Merck & Co., and panobinostat, being developed by
Novartis AG, are being studied in combination with bortezomib
for relapsed myeloma. Pomalidomide, being developed by Celgene
Corporation, is in an ongoing randomized Phase 2 trial that
could be used for U.S. approval in the relapsed and
refractory patient population. We anticipate our first marketing
application will be in patients who have relapsed and refractory
multiple myeloma and who have already received and progressed on
or after bortezomib and at least one of the IMiDs.
Government
Regulation
Regulation by government authorities in the United States,
individual states and other countries is a significant factor in
the development, manufacturing and marketing of any products
that we currently market or may develop.
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Pharmaceutical companies must comply with comprehensive
regulation by the FDA, the Centers for Medicare and Medicaid
Services and other regulatory agencies in the United States and
comparable authorities in other countries.
FDA
Regulation
We must obtain regulatory approvals by FDA and foreign
government agencies prior to clinical testing and
commercialization of any product and for post-approval clinical
studies for additional indications in approved drugs. This is
also true internationally. We anticipate that any product
candidate will be subject to rigorous preclinical and clinical
testing and pre-market approval procedures by the FDA and
similar health authorities in foreign countries. Various federal
statutes and regulations also govern or influence the
preclinical and clinical testing, record-keeping, approval,
labeling, manufacture, quality, shipping, distribution, storage,
marketing and promotion, export and reimbursement of products
and product candidates.
The steps ordinarily required before a drug or biological
product may be marketed in the United States include:
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preclinical studies;
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the submission to the FDA of an IND that must become effective
before human clinical trials may commence;
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adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product candidate in the desired
indication for use;
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the submission of an NDA to the FDA, together with payment of a
substantial user fee; and
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FDA approval of the NDA, including inspection and approval of
the product manufacturing facility and select sites at which
human clinical trials were conducted.
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Preclinical trials involve laboratory evaluation of product
candidate chemistry, formulation and stability, as well as
animal studies to assess the potential safety and efficacy of
each product candidate. The results of preclinical trials are
submitted to the FDA as part of an IND and are reviewed by the
FDA before the commencement of clinical trials. Unless the FDA
objects to an IND, the IND will become effective 30 days
following its receipt by the FDA. Submission of an IND may not
result in FDA clearance to commence clinical trials, and the
FDAs failure to object to an IND does not guarantee FDA
approval of a marketing application.
Clinical trials involve the administration of the product
candidate to humans under the supervision of a qualified
principal investigator. In the United States, clinical trials
must be conducted in accordance with Good Clinical Practices
under protocols submitted to the FDA as part of the IND. In
addition, each clinical trial must be approved and conducted
under the auspices of an Institutional Review Board, or IRB, and
with the patients informed consent. European and Asian
countries have similar regulations.
The goal of Phase 1 clinical trials is to establish initial data
about safety and tolerability of the product candidate in
humans. The investigators seek to evaluate the effects of
various dosages and to establish an optimal dosage level and
schedule. The goal of Phase 2 clinical trials is to provide
evidence about the desired therapeutic efficacy of the product
candidate in limited studies with small numbers of carefully
selected subjects. Investigators also gather additional safety
data. Phase 3 clinical trials consist of expanded, large-scale,
multi-center studies in the target patient population. This
phase further tests the products effectiveness, monitors
side effects, and, in some cases, compares the products
effects to a standard treatment, if one is already available.
Phase 3 trials are designed to more rigorously test the efficacy
of a product candidate and are normally randomized and
double-blinded. Phase 3 trials are typically monitored by an
independent DMC which periodically reviews data as a trial
progresses. A DMC may recommend that a trial be stopped before
completion for a number of reasons including safety concerns,
patient benefit or futility.
Data obtained from this development program are submitted as an
NDA to the FDA and possibly to corresponding agencies in other
countries for review, and requires agency approval prior to
marketing in the relevant country. Extensive regulations define
the form, content and methods of gathering, compiling and
analyzing the product candidates safety and efficacy data.
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The process of obtaining regulatory approval can be costly, time
consuming and subject to unanticipated delays. Regulatory
agencies may refuse to approve an application if they believe
that applicable regulatory criteria are not satisfied and may
also require additional testing for safety and efficacy
and/or
post-marketing surveillance or other ongoing requirements for
post-marketing studies. In some instances, regulatory approval
may be granted with the condition that confirmatory Phase 4
clinical trials are carried out, and if these trials do not
confirm the results of previous studies, regulatory approval for
marketing may be withdrawn. Moreover, each regulatory approval
of a product is limited to specific indications. The FDA or
other regulatory authorities may approve only limited label
information for the product. The label information describes the
indications and methods of use for which the product is
authorized, may include Risk Evaluation and Mitigation
Strategies and, if overly restrictive, may limit a
sponsors ability to successfully market the product.
Regulatory agencies routinely revise or issue new regulations,
which can affect and delay regulatory approval of product
candidates.
In addition to the FDAs internal review, the FDA may
request the Oncology Drugs Advisory Committee, or ODAC, to
review and evaluate data concerning the safety and effectiveness
of marketed and investigational human drug products for use in
the treatment of cancer. The ODAC subsequently makes non-binding
recommendations to the FDA about the advisability of approving
new medications to treat cancer. The ODAC consists of a core of
13 voting members from among authorities knowledgeable in the
fields of general oncology, pediatric oncology, hematologic
oncology, immunologic oncology, biostatistics and other related
professions.
For Nexavar, we rely on Bayer to manage communications with
regulatory agencies, including filing new drug applications,
submitting promotional materials and generally directing the
regulatory processes. We also rely on Bayer to complete the
necessary government reporting obligations such as price
calculation reporting and clinical study disclosures to federal
and state regulatory agencies. If we have disagreements as to
ownership of clinical trial results or regulatory approvals, and
the FDA refuses to recognize Onyx as holding, or having access
to, the regulatory approvals necessary to commercialize Nexavar,
we may experience delays in or be precluded from marketing or
further developing Nexavar.
For carfilzomib, we are responsible for managing communications
with regulatory agencies, including filing investigational new
drug applications, filing new drug applications, submission of
promotional materials and generally directing the regulatory
processes in all territories except Japan. In Japan, Ono will be
responsible for managing communications with regulatory
agencies, including filing new drug applications, submitting
promotional materials and generally directing the regulatory
processes. We have limited experience directing such activities
and may not be successful with our planned development
strategies, on the planned timelines, or at all. Even if
carfilzomib or any other product candidate is designated for
fast track or priority review status or
if we seek approval under accelerated approval (Subpart
H) regulations, such designation or approval pathway does
not necessarily mean a faster development process or regulatory
review process or necessarily confer any advantage with respect
to approval compared to conventional FDA procedures. Accelerated
development and approval procedures will only be available if
the indications for which we are developing products remain
unmet medical needs and if our clinical trial results support
use of surrogate endpoints, respectively. Even if these
accelerated development or approval mechanisms are available to
us, depending on the results of clinical trials, we may elect to
follow the more traditional approval processes for strategic and
marketing reasons, since drugs approved under accelerated
approval procedures are more likely to be subjected to
post-approval requirements for clinical studies to provide
confirmatory evidence that the drugs are safe and effective. If
we fail to conduct any such required post-approval studies or if
the studies fail to verify that any of our product candidates
are safe and effective, our FDA approval could be revoked.
It can be difficult, time-consuming and expensive to enroll
patients in such clinical trials because physicians and patients
are less likely to participate in a clinical trial to receive a
drug that is already commercially available. Drugs approved
under accelerated approval procedures also require regulatory
pre-approval of promotional materials which may delay or
otherwise hinder commercialization efforts.
Some of our product candidates may be based on new technologies,
which may affect our ability or the time we require to obtain
necessary regulatory approvals. The regulatory requirements
governing these types of products may be more rigorous than for
conventional products. As a result, we may experience a longer
development or regulatory process in connection with any
products (e.g. carfilzomib) that we develop based on these new
technologies or new therapeutic approaches.
19
Pharmaceutical manufacturing processes must conform to current
good manufacturing practices, or cGMPs. Manufacturers, including
a drug sponsors third party contract manufacturers, must
expend time, money and effort in the areas of production,
quality control and quality assurance, including compliance with
stringent record-keeping requirements. Manufacturing
establishments are subject to periodic inspections by the FDA or
other health authorities, in order to assess, among other
things, compliance with cGMP. Before approval of the initiation
of commercial manufacturing processes, the FDA will usually
perform a preapproval inspection of the facility to determine
its compliance with cGMP and other rules and regulations. In
addition, foreign manufacturing establishments must also comply
with cGMPs in order to supply products for use in the United
States, and are subject to periodic inspection by the FDA or by
regulatory authorities in certain countries under reciprocal
agreements with the FDA. Manufacturing processes and facilities
for pharmaceutical products are highly regulated. Regulatory
authorities may choose not to certify or may impose
restrictions, or even shut down existing manufacturing
facilities which they determine are non-compliant.
We also must comply with clinical trial and post-approval safety
and adverse event reporting requirements. Adverse events related
to our products must be reported to the FDA in accordance with
regulatory timelines based on their severity and expectedness.
Failure to make timely safety reports and to establish and
maintain related records could result in withdrawal of marketing
authorization.
Violations of regulatory requirements, at any stage, including
after approval, may result in various adverse consequences,
including the delay by a regulatory agency in approving or
refusal to approve a product, withdrawal or recall of an
approved product from the market, other voluntary
agency-initiated action that could delay further development or
marketing, as well as the imposition of criminal penalties
against the manufacturer and NDA holder.
Other
Regulations
Pharmaceutical companies, including Onyx, are subject to various
federal and state laws pertaining to healthcare fraud and
abuse, including anti-kickback and false claims laws. The
Federal Anti-kickback Statute makes it illegal for any person,
including a prescription drug manufacturer, or a party acting on
its behalf, to knowingly and willfully solicit, offer, receive
or pay any remuneration, directly or indirectly, in exchange
for, or to induce, the referral of business, including the
purchase, order or prescription of a particular drug, for which
payment may be made under federal healthcare programs such as
Medicare and Medicaid. Some of the state prohibitions apply to
referral of patients for healthcare services reimbursed by any
source, not only the Medicare and Medicaid programs.
In the course of practicing medicine, physicians may legally
prescribe FDA approved drugs for an indication that has not been
approved by the FDA and which, therefore, is not described in
the products approved labeling so-called
off-label use. The FDA does not ordinarily regulate
the behavior of physicians in their choice of treatments. The
FDA and other governmental agencies do, however, restrict
communications on the subject of off-label use by a manufacturer
or those acting on behalf of a manufacturer. Companies may not
promote FDA-approved drugs for off-label uses. The FDA has not
approved the use of Nexavar for the treatment of any diseases
other than advanced kidney cancer and unresectable liver cancer,
and neither we nor Bayer may market Nexavar for any unapproved
use. The FDA and other governmental agencies do permit a
manufacturer (and those acting on its behalf) to engage in some
limited, non-misleading, non-promotional exchanges of scientific
information regarding unapproved indications. The United States
False Claims Act prohibits, among other things, anyone from
knowingly and willfully presenting, or causing to be presented
for payment to third party payers (including Medicare and
Medicaid) claims for reimbursed drugs or services that are false
or fraudulent, claims for items or services not provided as
claimed or claims for medically unnecessary items or services.
Violations of fraud and abuse laws may be punishable by criminal
and/or civil
sanctions, including imprisonment, fines and civil monetary
penalties, as well as possible exclusion from federal health
care programs (including Medicare and Medicaid). In addition,
under this and other applicable laws, such as the Food, Drug and
Cosmetic Act, there is an ability for private individuals to
bring similar actions. Further, there are an increasing number
of state laws that require manufacturers to make reports to
states on pricing and marketing information. Many of these laws
contain ambiguities as to what is required to comply with the
law.
Increased industry trends in U.S. regulatory scrutiny of
promotional activity by the FDA, Department of Justice, Office
of Inspector General and Offices of State Attorney Generals
resulting from healthcare fraud and abuse,
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including, but not limited to, violations of the Food, Drug and
Cosmetic Act, False Claims Act and Federal Anti-kickback
Statute, have led to significant penalties for those
pharmaceutical companies alleged of non-compliance. If we or
Bayer fail to comply with applicable regulatory requirements,
including strict regulation of marketing and sales activities,
we could be subject to penalties, including fines, suspensions
of regulatory approval, product recall, seizure of products and
criminal prosecution.
We have adopted the voluntary Code on Interactions with
Healthcare Professionals, or PhRMA Code, promulgated by the
Pharmaceutical Research and Manufacturers of America, including
its 2009 revisions. The PhRMA Code addresses interactions with
respect to marketed products and related pre- and post-launch
activities and reinforces the intention that interactions with
healthcare professionals are professional exchanges designed to
benefit patients and to enhance the practice of medicine.
We are subject to various laws and regulations regarding
laboratory practices and the experimental use of animals in
connection with our research. In each of these areas, as above,
the FDA and other regulatory authorities have broad regulatory
and enforcement powers, including the ability to suspend or
delay issuance of approvals, seize or recall products, withdraw
approvals, enjoin violations and institute criminal prosecution,
any one or more of which could have a material adverse effect
upon our business, financial condition and results of operations.
We must comply with regulations under the Occupational Safety
and Health Act, the Environmental Protection Act, the Toxic
Substances Control Act and other federal, state and local
regulations. We are subject to federal, state and local laws and
regulations governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of
certain hazardous or potentially hazardous materials. We may be
required to incur significant costs to comply with environmental
and health and safety regulations in the future. Our research
and development involves the controlled use of hazardous
materials, including, but not limited to, certain hazardous
chemicals and radioactive materials.
Our activities are also potentially subject to federal and state
consumer protection and unfair competition laws. We are also
subject to the U.S. Foreign Corrupt Practices Act, or the
FCPA, which prohibits companies and individuals from engaging in
specified activities to obtain or retain business or to
influence a person working in an official capacity. Under the
FCPA, it is illegal to pay, offer to pay, or authorize the
payment of anything of value to any foreign government official,
governmental staff members, political party or political
candidate in an attempt to obtain or retain business or to
otherwise influence a person working in an official capacity. In
addition, federal and state laws protect the confidentiality of
certain health information, in particular, individually
identifiable information, and restrict the use and disclosure of
that information. At the federal level, the Department of Health
and Human Services promulgated health information privacy and
security rules under the Health Insurance Portability and
Accountability Act of 1996. In addition, many state laws apply
to the use and disclosure of health information.
Employees
We believe our success is dependent on our ability to attract
and retain qualified employees. As of December 31, 2010, we
had 299 full-time employees, of whom 52 hold
Ph.D., M.D. or Pharm.D. degrees. Of our employees, 116 are
in research and development, 105 are in operations, sales and
marketing and 78 are in finance, administration and corporate
development. No employee is represented by a labor union and we
believe our employee relations to be good.
Available
Information
Our website is located at
http://www.onyx-pharm.com.
However, information found on our website is not incorporated by
reference into this Annual Report on
Form 10-K.
We make our SEC filings available free of charge on or through
our website, including our Annual Report on
Form 10-K,
quarterly interim reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Further, a copy of
this Annual Report on
Form 10-K
is located at the Securities and Exchange Commissions
Public Reference Rooms at 100 F Street, N.E.,
Washington, D. C. 20549. Information on the operation of the
Public Reference Room can be obtained by calling the Securities
and Exchange Commission at
1-800-SEC-0330.
The Securities and Exchange Commission maintains a website that
contains reports, proxy and information statements and other
information regarding our filings at
http://www.sec.gov.
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Code of
Conduct
In 2003, we adopted a code of conduct that applies to our
principal officers, directors and employees. We have posted the
text of our code of conduct on our website at
http://www.onyx-pharm.com
in connection with Investors materials under
Corporate Governance. However, information found on
our website is not incorporated by reference into this report.
In addition, we intend to promptly disclose (1) the nature
of any amendment to our code of conduct that applies to our
principal executive officer, principal financial officer,
principal accounting officer or persons performing similar
functions and (2) the nature of any waiver, including an
implicit waiver, from a provision of our code of conduct that is
granted to one of these specified officers, the name of such
person who is granted the waiver and the date of the waiver on
our website in the future.
You should carefully consider the risks described below,
together with all of the other information included in this
report, in considering our business and prospects. The risks and
uncertainties described below contain forward-looking
statements, and our actual results may differ materially from
those discussed here. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also
may impair our business operations. Each of these risk factors
could adversely affect our business, operating results and
financial condition, as well as adversely affect the value of an
investment in our common stock.
Nexavar®
is our only approved product and we may never obtain
regulatory approval for carfilzomib or any other future product
candidate. If Nexavar fails and we are unable to develop, obtain
approval for and commercialize alternative product candidates
our business would fail.
Nexavar is the only approved product that generated commercial
revenues for the year ended December 31, 2010 and which we
rely on to fund our operations. Unless we can successfully
commercialize one of our other product candidates, we will
continue to rely on Nexavar to generate substantially all of our
revenues and fund our operations. All of our other product
candidates are still development stage and we may never obtain
approval of or earn revenues from any of our product candidates.
Carfilzomib is in
mid-to-late
stage clinical development and our other product candidates are
in early clinical stage. Successful development and
commercialization of these compounds and our other product
candidates is highly uncertain and depends on a number of
factors, many of which are beyond our control. The NDA for
accelerated approval of carfilzomib may take longer to file than
we expect or may not be filed at all. We have limited experience
managing filing and managing regulatory filings and we may not
succeed in obtaining accelerated approval, or full approval of
carfilzomib on anticipated timelines or at all.
Our stock price is volatile, our operating results are
unpredictable, we have a history of losses and we may be unable
to sustain profitability.
Our stock price is volatile and is likely to continue to be
volatile. A variety of factors may have a significant effect on
our stock price, including:
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fluctuations in our results of operations;
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results from or speculation about clinical trials or the
regulatory status of Nexavar, carfilzomib or other product
candidates;
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decisions by regulatory agencies, or changes in regulatory
requirements;
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announcements by us regarding, or speculation about, our
business development activities;
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ability to accrue patients into clinical trials or submit
regulatory filings;
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developments in our relationship with Bayer;
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changes in healthcare reimbursement policies or other government
regulations;
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changes in generally accepted accounting principles and changes
in tax laws;
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announcements by us or our competitors of innovations or new
products;
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sales by us of our common stock or debt securities; and
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foreign currency fluctuations, which would affect our share of
collaboration profits or losses.
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In the past, following our or Bayers announcements
regarding lower than anticipated Nexavar sales, and
disappointing clinical trials in melanoma and NSCLC, our stock
price has declined in some cases significantly.
Our operating results and Nexavar sales will likely fluctuate
from quarter to quarter and from year to year, and are difficult
to predict. Our operating expenses are highly dependent on
expenses incurred by Bayer and in certain regions are
independent of Nexavar sales. We have to date incurred losses
principally from costs incurred in our research and development
programs, from our general and administrative costs and the
development of our commercialization infrastructure. We might
incur operating losses in the future as we expand our
development and commercial activities for Nexavar and our
product candidates. We expect to incur significant operating
expenses associated with the development activities of
carfilzomib and additional products.
As a result of the acquisition of Proteolix, we may be required
to pay up to an additional $535.0 million in four earn-out
payments upon the receipt of certain regulatory approvals and
the satisfaction of other milestones. We recorded a liability
for this contingent consideration for the four earn-out payments
with a fair value of $253.5 million at December 31,
2010 based upon a discounted cash flow model that uses
significant estimates and assumptions. Any changes to these
estimates and assumptions could significantly impact the fair
values recorded for this liability resulting in significant
charges to our Consolidated Statements of Operations. Moreover,
we may, at our discretion, make any of the remaining earn-out
payments in the form of cash, shares of Onyx common stock or a
combination thereof. If we elect to issue shares of our common
stock in lieu of making an earn-out payment in cash, this would
have a dilutive effect on our common stock and could cause the
trading price of our common stock to decline.
It is, therefore, difficult for us to accurately forecast
profits or losses. It is possible that in some quarters our
operating results could disappoint securities analysts or
investors. Many factors, including, but not limited to
disappointing operating results
and/or the
other factors outlined above, could cause the trading price of
our common stock to decline, perhaps substantially.
Our clinical trials for Nexavar or carfilzomib could take
longer to complete than we project or may not be completed at
all, and we may never obtain regulatory approval for carfilzomib
or any other product candidate.
The timing of initiation and completion of clinical trials may
be subject to significant delays resulting from various causes,
including actions by Bayer for Nexavar clinical trials,
scheduling conflicts with participating clinicians and clinical
institutions, difficulties in identifying and enrolling patients
who meet trial eligibility criteria and shortages of available
drug supply for clinical and commercial purposes. We may face
difficulties developing relationships with carfilzomib
development partners, including clinical research organizations,
contract manufacturing organizations, key opinion leaders and
clinical investigators. We may not complete clinical trials
involving Nexavar, carfilzomib or any of our other product
candidates as projected or at all.
We may not have the necessary capabilities to successfully
manage the execution and completion of clinical trials in a way
that leads to approval of Nexavar, carfilzomib or other product
candidates for their target indications. In addition, we rely on
Bayer, academic institutions, cooperative oncology organizations
and clinical research organizations to conduct, supervise or
monitor the majority of clinical trials involving Nexavar and
carfilzomib. We have less control over the timing and other
aspects of these clinical trials than if we conducted them
entirely on our own. The timing of review by regulatory
authorities is uncertain. We may not obtain priority review from
the FDA for our application for accelerated approval of
carfilzomib, and we may not receive accelerated approval or any
approval for carfilzomib.
Development and commercialization of compounds that appear
promising in research or development, including Phase 2 clinical
trials, may be delayed or fail to reach later stages of
development or the market for a variety of reasons including:
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nonclinical tests may show the product to be toxic or lack
efficacy in animal models;
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clinical trial results may show the product to be less effective
than desired or to have harmful or problematic side effects;
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regulatory approvals may not be received, or may be delayed due
to factors such as slow enrollment in clinical studies, extended
length of time to achieve study endpoints, additional time
requirements for data analysis or preparation of an IND,
discussions with regulatory authorities, requests from
regulatory authorities for additional preclinical or clinical
data, analyses or changes to study design, including possible
changes in acceptable trial endpoints, or unexpected safety,
efficacy or manufacturing or quality issues;
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difficulties formulating the product, scaling the manufacturing
process or in validating or getting approval for manufacturing;
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manufacturing costs, pricing or reimbursement issues, or other
factors may make the product uneconomical;
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proprietary or contractual rights of others and their competing
products and technologies may prevent our product from being
developed or commercialized or may increase the cost of doing
so; and
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contractual rights of our collaborators or others may prevent
our product from being developed or commercialized or may
increase the cost of doing so.
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Failure to successfully commercialize carfilzomib or to complete
additional development of Nexavar for these or any other reasons
would significantly harm our business and could cause the
trading price of our common stock to decline significantly.
If Nexavar is not broadly adopted for the treatment of
unresectable liver cancer, our business would be harmed. If our
ongoing and planned clinical trials fail to demonstrate that
Nexavar is safe and effective for additional indications or we
are unable to obtain necessary approvals for other uses, we will
be unable to expand the commercial market for Nexavar and our
business may fail.
The rate of adoption of Nexavar for unresectable liver cancer
and the ultimate market size will be dependent on several
factors including educating treating physicians on the
appropriate use of Nexavar and the management of patients who
are receiving Nexavar. This may be difficult as liver cancer
patients typically have underlying liver disease and other
comorbidities and can be treated by a variety of medical
specialists. In addition, screening, diagnostic and treatment
practices can vary significantly by region. Further, liver
cancer is common in many regions in the developing world where
the healthcare systems are limited and reimbursement for Nexavar
is limited or unavailable, which will likely limit or slow
adoption. If we are unable to change the treatment paradigms for
this disease, we may be unable to successfully achieve the
market potential of Nexavar in this indication, which could harm
our business.
Outside the United States and European Union, some regulatory
authorities have not completed their review of our submissions
for the use of Nexavar for unresectable liver cancer. These
submissions may not result in marketing approval by these
authorities in this indication. In addition, certain countries
require pricing to be established before reimbursement for this
indication may be obtained and in some Asian Pacific countries
in particular these approvals require prolonged negotiations
with the governments. In addition, we may not receive or
maintain pricing approvals at favorable levels or at all, which
could harm our ability to broadly market Nexavar.
Nexavar has not been approved in any indications other than
unresectable liver cancer and advanced kidney cancer. We and
Bayer are currently conducting a number of clinical trials of
Nexavar; however, our clinical trials may fail to demonstrate
that Nexavar is safe and effective in other indications, and
Nexavar may not gain additional regulatory approval, which would
limit the potential market for the product causing our business
to fail.
Success in one or even several cancer types does not indicate
that Nexavar would be approved or have successful clinical
trials in other cancer types. Bayer and Onyx have conducted
Phase 3 trials in melanoma and non-small cell lung cancer, or
NSCLC,that were not successful. In addition, in the NSCLC Phase
3 trial, higher mortality was observed in the subset of patients
with squamous cell carcinoma of the lung treated with Nexavar
and carboplatin and paclitaxel than in the subset of patients
treated with carboplatin and paclitaxel alone. Based on this
observation, further enrollment of squamous cell carcinoma of
the lung was suspended from other NSCLC trials sponsored by us.
Other cancer types with a histology similar to squamous cell
carcinoma of the lung may yield a similar adverse treatment
outcome. If so, patients having this histology may be excluded
from ongoing and future clinical trials, which could potentially
delay clinical trial enrollment and would reduce the number of
patients that could potentially receive Nexavar. Regulatory
requirements change over time, including acceptable clinical
endpoints.
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We may be unable to satisfy new requirements or expectations of
regulatory authorities and hence, Nexavar may never be approved
in additional indications.
We face intense competition and many of our competitors
have substantially greater experience and resources than we
have.
We are engaged in a rapidly changing and highly competitive
field. We are seeking to develop and market oncology products
that face significant competition from other products and
therapies that currently exist or are being developed.
Nexavar faces significant competition. There are many existing
approaches used in the treatment of unresectable liver cancer
including alcohol injection, radiofrequency ablation,
chemoembolization, cryoablation and radiation therapy. Several
other therapies are in development, including Bristol-Myers
Squibbs brivanib, a Vascular Endothelial Growth Factor
Receptor 2 (VEGFR 2) inhibitor and regorafenib, to which we
refer as fluoro-sorafenib, a multiple kinase inhibitor, and
which is the subject of litigation between us and Bayer. If
Nexavar is unable to compete or be combined successfully with
existing approaches or if new therapies are developed for
unresectable liver cancer, our business would be harmed.
There are several competing therapies approved for the treatment
of advanced kidney cancer, including Sutent, a multiple kinase
inhibitor marketed in the United States, the European Union and
other countries by Pfizer; Torisel, an mTOR inhibitor marketed
in the United States, the European Union and other countries by
Wyeth; Avastin, an angiogenesis inhibitor approved for the
treatment of advanced kidney cancer in the United States and the
European Union and marketed by Genentech, a member of the Roche
Group; Afinitor, an mTOR inhibitor marketed in the United States
and the European Union by Novartis; and GlaxoSmithKlines
Votrient, a multiple kinase inhibitor recently approved by the
FDA. Nexavars U.S. market share in advanced kidney
cancer has declined following the introduction of these products
into the market. Bayer is conducting clinical trials of
fluoro-sorafenib in kidney cancer. We expect competition to
increase as additional products are approved to treat advanced
kidney cancer. The successful introduction of other new
therapies, including generic versions of competing therapies, to
treat advanced kidney cancer could significantly reduce the
potential market for Nexavar in this indication.
Beyond unresectable liver cancer and advanced kidney cancer,
competitors that target the same tumor types as our Nexavar
program and that have commercial products or product candidates
at various stages of clinical development include Bayer, Pfizer,
Roche, Wyeth, Novartis International AG, Amgen, AstraZeneca PLC,
Astellas Pharma Inc., GlaxoSmithKline, Eli Lilly and several
others. A number of companies have agents such as small
molecules or antibodies targeting VEGF, VEGF receptors,
Epidermal Growth Factor, or EGF, EGF receptors, and other
enzymes. In addition, many other pharmaceutical companies are
developing novel cancer therapies that, if successful, would
also provide competition for Nexavar.
A demonstrated survival benefit is often an important element in
determining standard of care in oncology. We did not demonstrate
a statistically significant overall survival benefit for
patients treated with Nexavar in our Phase 3 kidney cancer
trial, which we believe was due in part to the crossover of
patients from placebo to Nexavar during the conduct of our
pivotal clinical trial. Competitors with statistically
significant overall survival data could be preferred in the
marketplace. The FDA approval of Nexavar permits Nexavar to be
marketed as an initial, or first-line, therapy and subsequent
lines of therapy for the treatment of advanced kidney cancer,
but approvals in some other regions do not. For example, the
European Union approval indicates Nexavar only for advanced
kidney cancer patients that have failed prior cytokine therapy
or whose physicians deem alternate therapies inappropriate. We
may be unable to compete effectively against competitive
products with broader or different marketing authorizations in
one or more countries.
Nexavar may face challenges and competition from generic
products. Generic manufacturers may file ANDAs in the
U.S. seeking FDA authorization to manufacture and market
generic versions of Nexavar, together with Paragraph IV
certifications that challenge the scope, validity or
enforceability of the Nexavar patents. If Bayer or we fail to
timely file a lawsuit against any ANDA filer, that ANDA filer
may not be subject to an FDA stay, and upon approval of the
ANDA, the ANDA filer may elect to launch a generic version of
Nexavar, thereby harming our business. Even if a lawsuit is
timely filed, Bayer and we may be unable to successfully enforce
and defend the Nexavar patents and we may face generic
competition prior to expiration of the Nexavar patents in 2020.
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Similarly, outside the United States, generic companies or other
competitors may challenge the scope, validity or enforceability
of the Nexavar patents, requiring Bayer and us to engage in
complex, lengthy and costly litigation or other proceedings.
Generic companies may develop, seek approval for, and launch
generic versions of Nexavar. For example, a generic version of
Nexavar has been launched in Peru and Cipla recently received
approval to launch its version of sorafenib in India at a price
that is significantly less than that charged for Nexavar in
India. Bayer has ongoing litigations with Cipla, including a
patent infringement case in India, and has requested the court
to issue an injunction against Cipla. Bayer may be unsuccessful
in defending or enforcing the Nexavar patents in one or more
countries and could face generic competition prior to expiration
of the Nexavar patents, which would harm our business.
We have not developed or marketed products for any hematological
cancer, including multiple myeloma, and may be at a disadvantage
to our competitors. Carfilzomib, if approved for multiple
myeloma, would compete directly with products marketed by
Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of
Takeda Pharmaceutical Company Limited, Celgene Corporation and
potentially against agents currently in development for
treatment of this disease by Merck & Co. Inc.,
Bristol-Myers Squibb, Keryx Biopharmaceuticals, Inc., Nereus
Pharmaceuticals Cephalon, Inc., and other companies.
Many of our competitors, either alone or together with
collaborators, have substantially greater financial resources
and research and development staffs. In addition, many of these
competitors, either alone or together with their collaborators,
have significantly greater experience than we do in:
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discovering and patenting products;
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undertaking preclinical testing and human clinical trials;
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obtaining FDA and other regulatory approvals;
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manufacturing products; and
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marketing and obtaining reimbursement for products.
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Accordingly, our competitors may be more successful than we in
any or all of these areas. Developments by competitors may
render our product candidates obsolete or noncompetitive. We
face and will continue to face intense competition from other
companies for collaborations with pharmaceutical and
biotechnology companies, for establishing relationships with
academic and research institutions, and for licenses to
proprietary technology.
We are dependent upon our collaborative relationship with
Bayer to further develop, manufacture and commercialize Nexavar.
Bayers interest in other anti-cancer drugs, including
fluoro-sorafenib, may reduce its incentive to develop and
commercialize Nexavar.
Our success for developing, manufacturing and commercializing
Nexavar depends in large part upon our relationship with Bayer.
If we are unable to maintain our collaborative relationship with
Bayer, we may be unable to continue development, manufacturing
and marketing activities at our own expense. If we were able to
do so on our own, this would significantly increase our capital
and infrastructure requirements, would necessarily impose delays
on development programs, may limit the indications we are able
to pursue and could prevent us from effectively developing and
commercializing Nexavar. Disputes with Bayer may delay or
prevent us from further developing, manufacturing or
commercializing or increasing the sales of Nexavar, and could
lead to additional litigation or arbitration against Bayer,
which could be time consuming and expensive.
We are subject to a number of risks associated with our
dependence on our collaborative relationship with Bayer,
including:
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the outcome of our pending lawsuit against Bayer and the
development and commercialization by Bayer of fluoro-sorafenib;
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decisions by Bayer regarding the amount and timing of resource
expenditures for the development and commercialization of
Nexavar;
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possible disagreements as to development plans, clinical trials,
regulatory marketing or sales;
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our inability to co-promote Nexavar in any country outside the
United States, which makes us solely dependent on Bayer to
promote Nexavar in foreign countries;
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Bayers right to terminate the collaboration agreement on
limited notice in certain circumstances involving our insolvency
or material breach of the agreement;
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loss of significant rights if we fail to meet our obligations
under the collaboration agreement;
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adverse regulatory or legal action against Bayer resulting from
failure to meet healthcare industry compliance requirements in
the promotion and sale of Nexavar, including federal and state
reporting requirements;
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changes in key management personnel at Bayer, including
Bayers representatives on the collaborations
executive team; and
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disagreements with Bayer regarding interpretation or enforcement
of the collaboration agreement.
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We have limited ability to direct Bayer in its promotion of
Nexavar and we may be unable to obtain any remedy against Bayer.
Bayer may not have sufficient expertise to promote or obtain
reimbursement for oncology products in foreign countries and may
fail to devote appropriate resources to this task. In addition,
Bayer may establish a sales and marketing infrastructure for
Nexavar outside the United States that is too large and
expensive in view of the magnitude of the Nexavar sales
opportunity or establish this infrastructure too early in view
of the ultimate timing of potential regulatory approvals. We are
at risk with respect to the success or failure of Bayers
commercial decisions related to Nexavar as well as the extent to
which Bayer succeeds in the execution of its strategy.
Bayers development of other products, including
fluoro-sorafenib, may affect Bayers incentives to develop
and commercialize Nexavar that are different from our own. Our
litigation against Bayer regarding fluoro-sorafenib, may be time
consuming and expensive, and may be a distraction to our
management. If it is ultimately determined that Onyx has no
rights to fluoro-sorafenib and if Bayer obtains approval for
this product, it would likely compete with and cannibalize sales
of Nexavar, thereby harming our business. Bayer has disclosed a
clinical development plan for fluoro-sorafenib that includes
tumor types for which Nexavar has been approved (renal cell
carcinoma and hepatocellular carcinoma), as well as tumor types
for which Nexavar is in development (colorectal cancer and
NSCLC). In June 2010, we filed an amended complaint in our
pending litigation against Bayer to include an allegation that
Bayer has prejudiced the value of Nexavar by reason of its
interest in other drugs, including fluoro-sorafenib; Bayer may
continue to prejudice the value of Nexavar.
Under the terms of the collaboration agreement, we and Bayer
must agree on the development plan for Nexavar. If we and Bayer
cannot agree, clinical trial progress could be significantly
delayed or halted. Further, if we or Bayer cease funding
development of Nexavar under the collaboration agreement, then
that party will be entitled to receive a royalty, but not to
share in profits. Bayer could, upon 60 days notice, elect
at any time to terminate its co-funding of the development of
Nexavar. If Bayer terminates its co-funding of Nexavar
development, further development of Nexavar could be delayed and
we may be unable to fund the development costs on our own and
may be unable to find a new collaborator.
In addition, Bayer has the right, which it is not currently
exercising, to nominate a member to our board of directors as
long as we continue to collaborate on the development of a
compound. Because of these rights, ownership and voting
arrangements, our officers, directors, principal stockholders
and collaborator may not be able to effectively control the
election of all members of the board of directors and determine
all corporate actions.
Moreover, we are highly dependent on Bayer for timely and
accurate information regarding any revenues realized from sales
of Nexavar and the costs incurred in developing and selling it,
in order to accurately report our results of operations. If we
do not receive timely and accurate information or incorrectly
estimate activity levels associated with the co-promotion and
development of Nexavar at a given point in time, we could be
required to record adjustments in future periods and may be
required to restate our results for prior periods. Such
inaccuracies or restatements could cause a loss of investor
confidence in our financial reporting or lead to claims against
us, resulting in a decrease in the trading price of shares of
our common stock.
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Our collaboration agreement with Bayer will terminate when
patents expire that were issued in connection with product
candidates discovered under that agreement, or at the time when
neither we nor Bayer are entitled to profit sharing under that
agreement, whichever is later. The worldwide patents and patent
applications covering Nexavar are owned by Bayer and certain
Nexavar patents are licensed to us through our collaboration
agreement. We have no control over the filing, strategy, or
prosecution of the Nexavar patent applications nor of
enforcement or defense of the Nexavar patents outside the United
States.
Our operating results could be adversely affected by
product sales occurring outside the United States and
fluctuations in the value of the United States dollar against
foreign currencies or unintended consequences from our currency
contracts.
A majority of Nexavar sales are generated outside of the United
States, and a significant percentage of Nexavar commercial and
development expenses are incurred outside of the United States.
Under our collaboration agreement, when these sales and expenses
are translated into U.S. dollars by Bayer in determining
amounts payable to us or payable by us, we are exposed to
fluctuations in foreign currency exchange rates. In July 2010 we
began entering into transactions to manage our exposure to
fluctuations in foreign currency exchange rates. Such
transactions may expose us to the risk of financial loss in
certain circumstances, including instances in which there is a
change in the expected differential between the underlying
exchange rate in the contracts and actual exchange rate.
The primary foreign currencies in which we have exchange rate
fluctuation exposure are the Euro and the Japanese Yen. As we
expand our business geographically, we could be exposed to
exchange rate fluctuation in other currencies. Exchange rates
between these currencies and the U.S. dollar have
fluctuated significantly in recent years and may do so in the
future. Hedging foreign currencies can be difficult, especially
if the currency is not freely traded. We cannot predict the
impact of future exchange rate fluctuations on our operating
results.
We may be unsuccessful in launching, maintaining adequate
supply or obtaining reimbursement for carfilzomib, if it
receives regulatory approval.
In order to commercialize carfilzomib, if approved, we must
ensure an adequate supply chain, including validation of
commercial manufacturing processes, build capabilities for
managed care and reimbursement by private and public insurers,
and expand our U.S. sales force and must develop and
maintain an international sales, marketing and distribution
infrastructure. We have limited experience building and
maintaining a commercialization infrastructure in the U.S., no
experience in building such an infrastructure internationally,
and no experience in building or maintaining a supply chain or
managed care and reimbursement infrastructure, which is
difficult and time consuming, and requires substantial financial
and other resources. Factors that may hinder our efforts to
expand our U.S. presences and develop an international
sales, marketing, supply chain, managed care and distribution
infrastructure include:
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inability to recruit, retain and effectively manage adequate
numbers of effective sales and marketing, supply chain and
managed care personnel;
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inability to establish or maintain relationships with
pharmaceutical manufacturers, suppliers, wholesalers, insurers
and distributors;
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delay in launch due to the need to validate manufacturing
processes;
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inability to sufficiently manufacture adequate quantities of our
products;
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the inability of sales personnel to obtain access to or convince
adequate numbers of physicians to prescribe our products;
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the lack of complementary products to be offered by sales
personnel, which may put us at a competitive disadvantage
relative to companies with more extensive product lines; and
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unforeseen delays, costs and expenses associated with creating
international capabilities, including an international sales and
marketing organization and international supply chain and
reimbursement capabilities.
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If serious adverse side effects are associated with
Nexavar or carfilzomib, our business could be harmed.
The FDA-approved package insert for Nexavar includes several
warnings relating to observed adverse reactions. With continued
commercial use of Nexavar and additional clinical trials of
Nexavar, we and Bayer have updated and expect to continue to
update adverse reactions listed in the package insert to reflect
current information. If additional adverse reactions emerge, or
a pattern of severe or persistent previously observed side
effects is observed in the Nexavar patient population, the FDA
or other international regulatory agencies could modify or
revoke approval of Nexavar or we may choose to withdraw it from
the market. If this were to occur, we may be unable to obtain
approval of Nexavar in additional indications and foreign
regulatory agencies may decline to approve Nexavar for use in
any indication. In addition, if patients receiving Nexavar were
to suffer harm as a result of their use of Nexavar, these
patients or their representatives may bring claims against us.
These claims, or the mere threat of these claims, could have a
material adverse effect on our business and results of
operations. We plan to seek regulatory approval of carfilzomib,
and we expect that its package insert will include information
related to safety and adverse events.
If previously unforeseen and unacceptable side effects are
observed in Nexavar or carfilzomib, we may be unable to proceed
with further clinical trials, to seek regulatory approval in one
or more indications, or to realize full commercial benefits of
our products. In our clinical trials, we may treat patients with
Nexavar or carfilzomib as a single agent or in combination with
other therapies. During the course of treatment, these patients
may die or suffer adverse medical effects for reasons unrelated
to our products, including adverse effects related to the
products that are administered in combination with our products.
These adverse effects may impact the interpretation of clinical
trial results, which could lead to adverse conclusions regarding
the toxicity or efficacy of Nexavar or carfilzomib.
We are dependent on Bayer and third parties to manufacture
and distribute our products, and do not have the manufacturing
expertise or capabilities to manufacture or distribute any
current or future products.
Under our collaboration agreement with Bayer, Bayer has the
manufacturing responsibility to supply Nexavar for clinical
trials and for commercialization. Should Bayer give up its right
to co-develop Nexavar, we would have to manufacture Nexavar, or
contract with another third party to do so for us. In addition,
we have manufacturing responsibility for carfilzomib and ONX
0912, which we currently manufacture through third-party
contract manufacturers, and have not yet established
back-up
manufacturers for these compounds.
We lack the resources, experience and capabilities to
manufacture Nexavar, carfilzomib or any other product candidate
on our own and would require substantial funds and time to
establish these capabilities. Consequently, we are, and expect
to remain, dependent on third parties for manufacturing. These
parties may encounter difficulties and delays in production
scale-up,
production yields, control and quality assurance, validation,
regulatory status or shortage of qualified personnel. They may
not perform as agreed or may not continue to manufacture our
products for the time required to test or market our products.
They may fail to deliver the required quantities of our products
or product candidates on a timely basis and at commercially
reasonable prices. For example, we utilize a sole manufacturer
for carfilzomib, and if this manufacturer became unable to
deliver our required quantities of carfilzomib on a timely
basis, or ceased production, we would experience delays in the
clinical trial schedule of our drugs and drug candidates, the
regulatory approval process, ability to timely ship product, and
may be required to find an alternative manufacturer. In
addition, marketed drugs and their contract manufacturing
organizations are subject to continual review, including review
and approval of their manufacturing facilities and the
manufacturing processes, which can result in delays in the
regulatory approval process. For example, in October 2010, we
announced a delay in our planned NDA filing for accelerated
approval of carfilzomib from 2010 to no earlier than the middle
of 2011. The delay was based on pre-NDA discussions with the
Chemistry, Manufacturing and Controls, or CMC, reviewing
division of the FDA regarding CMC information to support the
commercial manufacturing of carfilzomib.
In addition, discovery of previously unknown problems with a
medicine may result in restrictions on its permissible uses, or
on the manufacturer, including withdrawal of the medicine from
the market. The FDA and similar foreign regulatory authorities
may also implement additional new standards, or change their
interpretation and enforcement of existing standards and
requirements for the manufacture, packaging or testing of
products at any time. Manufacturing processes and facilities for
pharmaceutical products are highly regulated. Regulatory
authorities may chose not to certify or may impose restrictions,
or even shut down existing manufacturing facilities which they
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determine are non-compliant. If we or our third party
manufacturers are unable to comply, we may be unable to obtain
regulatory approval, or if we fail to maintain regulatory
approval, this will impair our ability to meet the market demand
for our approved drugs, delay ongoing clinical trials of our
product candidates or delay our drug applications for regulatory
approval. If these third parties do not adequately perform, we
may be forced to incur additional expenses to pay for the
manufacture of products or to develop our own manufacturing
capabilities. In addition, we could be subject to regulatory or
civil actions or penalties that could significantly and
adversely affect our business.
Our success also depends on the continued customer support
efforts of our network of specialty pharmacies and distributors.
A specialty pharmacy is a pharmacy that specializes in the
dispensing of medications for complex or chronic conditions,
which often require a high level of patient education and
ongoing management. The use of specialty pharmacies and
distributors involves certain risks, including, but not limited
to, risks that these specialty pharmacies and distributors will:
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not provide us accurate or timely information regarding their
inventories, the number of patients who are using Nexavar or
complaints about Nexavar;
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reduce their efforts or discontinue to sell or support or
otherwise not effectively sell or support Nexavar;
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not devote the resources necessary to sell Nexavar in the
volumes and within the time frames that we expect;
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be unable to satisfy financial obligations to us or others;
and/or
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cease operations.
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We are subject to extensive government regulation, which
can be costly, time consuming and subject us to unanticipated
delays. We may incur significant liability if it is determined
that we are in violation of federal and state regulations
related to the promotion of drugs in the United States or
elsewhere.
If we have disagreements with Bayer regarding ownership of
clinical trial results or regulatory approvals for Nexavar, and
the FDA refuses to recognize Onyx as holding, or having access
to, the regulatory approvals necessary to commercialize Nexavar,
we may experience delays in or be precluded from marketing
Nexavar.
For carfilzomib, we are responsible for managing communications
with regulatory agencies, including filing investigational new
drug applications, filing new drug applications, submission of
promotional materials and generally directing the regulatory
processes. We have limited experience directing such activities
and may not be successful with our planned development
strategies, on the planned timelines, or at all. Even if
carfilzomib or any other product candidate is designated for
fast track or priority review status or
if we seek approval under accelerated approval (Subpart
H) regulations, such designation or approval pathway does
not necessarily mean a faster development process or regulatory
review process or necessarily confer any advantage with respect
to approval compared to conventional FDA procedures. If we fail
to conduct any required post-approval studies or if the studies
fail to verify that any of our product candidates are safe and
effective, our FDA approval could be revoked.
If we or Bayer fail to comply with applicable regulatory
requirements we could be subject to penalties, including fines,
suspensions of regulatory approval, product recall, seizure of
products and criminal prosecution.
To date, the FDA has approved Nexavar only for the treatment of
advanced kidney cancer and unresectable liver cancer. Physicians
are not prohibited from prescribing Nexavar for the treatment of
diseases other than advanced kidney cancer or unresectable liver
cancer, however, we and Bayer are prohibited from promoting
Nexavar for any non-approved indication, often called off
label promotion. The FDA and other regulatory agencies
actively enforce regulations prohibiting off label promotion and
the promotion of products for which marketing authorization has
not been obtained. A company that is found to have improperly
promoted an off label use may be subject to significant
liability, including civil and administrative remedies, as well
as criminal sanctions.
Notwithstanding the regulatory restrictions on off-label
promotion, the FDA and other regulatory authorities allow
companies to engage in truthful, non-misleading and
non-promotional medical and scientific communication concerning
their products. We engage in the support of medical education
activities and engage investigators and
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potential investigators interested in our clinical trials.
Although we believe that all of our communications regarding
Nexavar are in compliance with the relevant regulatory
requirements, the FDA or another regulatory authority may
disagree, and we may be subject to significant liability,
including civil and administrative remedies as well as criminal
sanctions.
The market may not accept our products and we may be
subject to pharmaceutical pricing and third-party reimbursement
pressures.
Nexavar, carfilzomib or our product candidates that may be
approved may not gain market acceptance among physicians,
patients, healthcare payers
and/or the
medical community or the market may not be as large as
forecasted. A significant factor that affects market acceptance
of our products is the availability of third-party
reimbursement. Our commercial success may depend, in part, on
the availability of adequate reimbursement for patients from
third-party healthcare payers, such as government and private
health insurers and managed care organizations. Third-party
payers are increasingly challenging the pricing of medical
products and services, especially in global markets, and their
reimbursement practices may affect the price levels for Nexavar,
if approved, carfilzomib or any other future product.
Governments outside of the US may increase their use of
risk-sharing programs, which will only pay for a drug after it
demonstrates efficacy in a given patient. In addition,
governments may increasingly rely on Heath Technology
Assessments to determine payment policy for cancer drugs. Health
Technology Assessments are used by governments to assess if
health services are safe and cost-effective. In addition, the
market for our products may be limited by third-party payers who
establish lists of approved products and do not provide
reimbursement for products not listed. If our products are not
on the approved lists in one or more countries, our sales may
suffer. Non-government organizations can influence the use of
our products and reimbursement decisions for our products in the
United States and elsewhere. For example, the National
Comprehensive Cancer Network, or NCCN, a
not-for-profit
alliance of cancer centers, has issued guidelines for the use of
Nexavar in the treatment of advanced kidney cancer and
unresectable liver cancer. These guidelines may affect treating
physicians use of Nexavar.
Nexavars success in Europe and other regions, particularly
in Asia Pacific, will also depend largely on obtaining and
maintaining government reimbursement. For example, in Europe and
in many other international markets, most patients will not use
prescription drugs that are not reimbursed by their governments.
Negotiating prices with governmental authorities can delay
commercialization by twelve months or more. Even if
reimbursement is available, reimbursement policies may adversely
affect sales and profitability of Nexavar. In addition, in
Europe and in many international markets, governments control
the prices of prescription pharmaceuticals and expect prices of
prescription pharmaceuticals to decline over the life of the
product or as volumes increase. In the Asia-Pacific region,
excluding Japan, China leads in Nexavar sales, however,
reimbursement typically requires multiple steps. Also, in
December 2009, health authorities in China published a new
National Reimbursement Drug List, or NRDL, which lists medicines
that are expected to be sold at government-controlled prices.
There were no targeted oncology drugs, including Nexavar, on the
NRDL, however, we believe that the Ministry of Human Resource
and Social Security, the group responsible for developing the
NDRL, plans to establish a mechanism and framework for
reimbursement of high-value innovative products, such as
targeted oncology drugs. Reimbursement policies are subject to
change due to economic, political or competitive factors. We
believe that this will continue into the foreseeable future as
governments struggle with escalating health care spending.
A number of additional factors may limit the market acceptance
and commercialization of our products, including the following:
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rate of adoption by healthcare practitioners;
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treatment guidelines issued by government and non-government
agencies;
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types of cancer for which the product is approved;
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rate of a products acceptance by the target patient
population;
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timing of market entry relative to competitive products;
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availability of alternative therapies;
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price of our product relative to alternative therapies,
including generic versions of our products, or generic versions
of innovative products that compete with our products;
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patients reliance on patient assistance programs, under
which we provide free drug;
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extent of marketing efforts by us and third-party distributors
or agents retained by us; and
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side effects or unfavorable publicity concerning our products or
similar products.
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If Nexavar, carfilzomib or any of our future products do not
achieve market acceptance, we may not realize sufficient
revenues from product sales, which may cause our stock price to
decline.
We may not be able to realize the potential financial or
strategic benefits of our acquisition of Proteolix, or any
future business acquisitions or strategic investments, which
could hurt our ability to grow our business, develop new
products or sell our products.
In 2009 we acquired Proteolix, and in the future we may enter
into other acquisitions of, or investments in, businesses, in
order to complement or expand our current business or enter into
a new product area. Achieving the anticipated benefits of the
Proteolix acquisition, or any future acquisition, depends upon
the successful integration of the acquired business
operations and personnel in a timely and efficient manner. The
difficulties of integration include, among others:
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consolidating research and development operations;
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retaining key employees;
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consolidating corporate and administrative infrastructures,
including integrating and managing information technology and
other support systems and processes;
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preserving relationships with third parties, such as regulatory
agencies, clinical investigators, key opinion leaders, clinical
research organizations, contract manufacturing organizations,
licensors and suppliers;
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appropriately identifying and managing the liabilities of the
combined company;
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utilizing potential tax assets of the acquired business; and
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managing risks associated with acquired facilities, including
environmental risks and compliance with laws regulating
laboratories.
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We cannot assure stockholders that we will receive any benefits
of the Proteolix acquisition or any other merger or acquisition,
or that any of the difficulties described above will not
adversely affect us. In addition, integration efforts, such as
those for Proteolix, place a significant burden on our
management and internal resources, which could result in delays
in clinical trial and product development programs and otherwise
harm our business, financial condition and operating results.
Negotiations associated with an acquisition or strategic
investment could divert managements attention and other
company resources. Any of the following risks associated with
future acquisitions or investments could impair our ability to
grow our business, develop new products, or sell Nexavar or
carfilzomib, and ultimately could have a negative impact on our
growth or our financial results:
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difficulty in operating in a new or multiple new locations;
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difficulty in realizing the potential financial or strategic
benefits of the transaction;
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difficulty in maintaining uniform standards, controls,
procedures and policies;
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disruption of or delays in ongoing research, clinical trials and
development efforts;
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diversion of capital and other resources;
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assumption of liabilities and unanticipated expenses resulting
from litigation arising from potential or actual business
acquisitions or investments; and
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difficulties in entering into new markets in which we have
limited or no experience and where competitors in such markets
have stronger positions.
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In addition, the consideration for any future acquisition could
be paid in cash, shares of our common stock, the issuance of
convertible debt securities or a combination of cash,
convertible debt and common stock. If we make an investment in
cash or use cash to pay for all or a portion of an acquisition,
our cash and investment balances would be reduced which could
negatively impact our liquidity, the growth of our business or
our ability to develop new products. However, if we pay the
consideration with shares of common stock, or convertible
debentures, the holdings of our existing stockholders would be
diluted. The significant decline in the trading price of our
common stock would make the dilution to our stockholders more
extreme and could negatively impact our ability to pay the
consideration with shares of common stock or convertible
debentures. We cannot forecast the number, timing or size of
future strategic investments or acquisitions, or the effect that
any such investments or acquisitions might have on our
operations or financial results.
If we lose our key employees or are unable to attract or
retain qualified personnel, our business could suffer. Our
planned move of our headquarters may cause additional disruption
and turnover of employees.
The loss of the services of key employees may have an adverse
impact on our business unless or until we hire a suitably
qualified replacement. Any of our key personnel could terminate
their employment with us at any time and without notice. We
depend on our continued ability to attract, retain and motivate
highly qualified personnel. We face competition for qualified
individuals from numerous pharmaceutical and biotechnology
companies, universities and other research institutions. In
order to succeed in our research and development efforts, we
will need to continue to hire individuals with the appropriate
scientific skills.
In 2011, we plan to move our corporate headquarters from
Emeryville, California to South San Francisco, California.
As a result, we expect to incur additional expenses, including
exit costs, and may encounter disruption of operations related
to the move, all of which could have an adverse effect on our
financial condition and results of operations. In addition,
relocation of our corporate headquarters may make it more
difficult to retain certain of our employees, and any resulting
need to recruit and train new employees could be disruptive to
our business.
Provisions in our collaboration agreement with Bayer may
impact certain change in control transactions.
Our collaboration agreement with Bayer provides that if we are
acquired by another entity by reason of merger, consolidation or
sale of all or substantially all of our assets, or if a single
entity other than Bayer or its affiliate acquires ownership of a
majority of the Companys outstanding voting stock, and
Bayer does not consent to the transaction, then for 60 days
following the transaction, Bayer may elect to terminate our
co-development and co-promotion rights under the collaboration
agreement. If Bayer were to exercise this right, Bayer would
gain exclusive development and marketing rights to the product
candidates developed under the collaboration agreement,
including Nexavar. If this happens, we, or our successor, would
receive a royalty based on any sales of Nexavar and other
collaboration products, rather than a share of any profits.
Under the royalty formula, an acquisition transaction that
occurred prior to the fifth anniversary of the initial
regulatory approval of Nexavar, or December 20, 2010, could
have substantially reduced the economic value derived from the
sales of Nexavar to us or our successor as compared to the
economic value of the profit share interest we would have
received absent such an acquisition. However, for an acquisition
transaction that closes after December 20, 2010, we believe
the economic value of the royalty amount, which would depend in
part on the expected profitability of Nexavar for the remaining
patent life of Nexavar, could be substantially equivalent to the
economic value of the profit share interest for Nexavar during
the remaining patent life absent such an acquisition
transaction. Bayer has notified us that they disagree with this
conclusion.
The potential for disagreements and disputes with Bayer
regarding interpretation and implementation of these provisions
could have the effect of delaying or preventing a change in
control, or a sale of all or substantially all of our assets, or
could reduce the number of companies interested in acquiring us.
However, we believe that a reorganization transaction in which
the persons who held majority ownership of Onyx prior to the
transaction continue to hold majority ownership of Onyx,
directly or through a parent company, after the transaction
would be outside the scope of the foregoing provision of the
collaboration agreement. Moreover, we believe that a merger
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transaction in which Onyx was the surviving entity would also be
outside the scope of the foregoing provision of the
collaboration agreement.
Healthcare policy changes, including recently enacted
legislation, may have a material adverse effect on us.
Healthcare costs have risen significantly over the past decade.
On March 23, 2010, the President signed one of the most
significant health care reform measures in decades. The Patient
Protection and Affordable Care Act, as amended by the Health
Care and Education Affordability Reconciliation Act
(collectively, the Healthcare Reform Act), substantially changes
the way health care is financed by both governmental and private
insurers, and significantly impacts the pharmaceutical industry.
The Healthcare Reform Act contains a number of provisions,
including those governing enrollment in federal healthcare
programs, the increased use of comparative effectiveness
research on healthcare products, reimbursement and fraud and
abuse changes, which will impact existing government healthcare
programs and will result in the development of new programs. A
significant portion of the U.S. Nexavar revenue recorded by
Bayer is derived from U.S. government healthcare programs,
including Medicare. An expansion in the governments role
in the U.S. healthcare industry may lower reimbursements
for pharmaceutical products and adversely affect our business
and results of operations. Furthermore, beginning in 2011, the
Healthcare Reform Act will impose a non-deductible excise tax on
pharmaceutical manufacturers or importers who sell branded
prescription drugs, which includes innovator drugs and
biologics (excluding orphan drugs or generics) to
U.S. government programs.
In addition to this recently enacted legislation, there are
expected to be other proposals by legislators at both the
federal and state levels, regulators and third-party payors to
keep healthcare costs down while expanding individual healthcare
benefits. Certain of these anticipated changes could impose
limitations on the prices we or our collaborators will be able
to charge for our products or the amounts of reimbursement
available for these products from governmental agencies or
third-party payors or may increase the tax requirements for
pharmaceutical companies such as ours. While it is too early to
predict what affect the recently enacted Health Reform Act or
any future legislation or regulation will have on us, such laws
could have a material adverse effect on our business, financial
position and results of operations.
We may need additional funds, our future access to capital
is uncertain, and unstable market and economic conditions may
have serious adverse consequences on our business.
We may need additional funds to conduct the costly and
time-consuming activities related to the development and
commercialization of Nexavar and carfilzomib, including
manufacturing, clinical trials and regulatory approval. Also, we
may need funds to develop our early stage product candidates, to
acquire rights to additional product candidates, or acquire new
or complementary businesses. Our future capital requirements
will depend upon a number of factors, including:
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revenue from our product sales;
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global product development and commercialization activities;
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the cost involved in enforcing patents against third parties and
defending claims by third parties;
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the costs associated with acquisitions or licenses of additional
products;
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the cost of acquiring new or complementary businesses;
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competing technological and market developments; and
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future fee and milestone payments to BTG, S*BIO and former
stockholders of Proteolix.
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We may not be able to raise additional capital on favorable
terms, or at all. If we are unable to obtain additional funds,
we may not be able to fund our share of commercialization
expenses and clinical trials. We may also have to curtail
operations or obtain funds through collaborative and licensing
arrangements that may require us to relinquish commercial rights
or potential markets or grant licenses on terms that are
unfavorable to us.
We believe that our existing capital resources and interest
thereon will be sufficient to fund our current development plans
beyond 2011. However, if we change our development plans,
acquire rights to or license additional products, or seek to
acquire new or complementary businesses, we may need additional
funds sooner than we expect. In
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addition, we anticipate that our expenses related to carfilzomib
and our share of expenses under our collaboration with Bayer
will increase over the next several years. While these costs are
unknown at the current time, we may need to raise additional
capital and may be unable to do so.
Our general business may be adversely affected by the recent
economic downturn and volatile business environment and
continued unpredictable and unstable market conditions. If the
current equity and credit markets do not sustain improvement or
begin to deteriorate again, it may make any necessary future
debt or equity financing more difficult, more costly and more
dilutive, and may result in adverse changes to product
reimbursement and pricing and sales levels, which would harm our
operating results. Failure to secure any necessary financing in
a timely manner and on favorable terms could have a material
adverse effect on our growth strategy, financial performance and
stock price and could require us to delay or abandon clinical
development plans or plans to acquire additional technology.
There is also a possibility that our stock price may decline,
due in part to the volatility of the stock market and the
general economic downturn, such that we would lose our status as
a Well-Known Seasoned Issuer, which allows us to more rapidly
and more cost-effectively raise funds in the public markets.
Additionally, other challenges resulting from the current
economic environment include fluctuations in foreign currency
exchange rates, global pricing pressures, increases in national
unemployment impacting patients ability to access drugs,
increases in uninsured or underinsured patients affecting their
ability to afford pharmaceutical products and increased
U.S. free goods to patients. There is a risk that one or
more of our current service providers, manufacturers and other
partners may not survive these difficult economic times, which
would directly affect our ability to attain our operating goals
on schedule and on budget. Further dislocations in the credit
market may adversely impact the value
and/or
liquidity of marketable securities owned by us.
We incurred significant indebtedness through the sale of
our 4.0% convertible senior notes due 2016, and we may incur
additional indebtedness in the future. The indebtedness created
by the sale of the notes and any future indebtedness we incur
exposes us to risks that could adversely affect our business,
financial condition and results of operations.
We incurred $230.0 million of senior indebtedness in August
2009 when we sold $230.0 million aggregate principal amount
of 4.0% convertible senior notes due 2016, or the 2016 Notes. We
may also incur additional long-term indebtedness or obtain
additional working capital lines of credit to meet future
financing needs. Our indebtedness could have significant
negative consequences for our business, results of operations
and financial condition, including:
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increasing our vulnerability to adverse economic and industry
conditions;
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limiting our ability to obtain additional financing;
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requiring the dedication of a substantial portion of our cash
flow from operations to service our indebtedness, thereby
reducing the amount of our cash flow available for other
purposes;
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limiting our flexibility in planning for, or reacting to,
changes in our business; and
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placing us at a possible competitive disadvantage with less
leveraged competitors and competitors that may have better
access to capital resources.
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We cannot assure stockholders that we will continue to maintain
sufficient cash reserves or that our business will continue to
generate cash flow from operations at levels sufficient to
permit us to pay principal, premium, if any, and interest on our
indebtedness, or that our cash needs will not increase. If we
are unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments, or if we fail to
comply with the various requirements of the 2016 Notes, or any
indebtedness which we may incur in the future, we would be in
default, which would permit the holders of the 2016 Notes and
such other indebtedness to accelerate the maturity of the notes
and such other indebtedness and could cause defaults under the
2016 Notes and such other indebtedness. Any default under the
notes or any indebtedness which we may incur in the future could
have a material adverse effect on our business, results of
operations and financial condition.
In the event the conditional conversion features of the 2016
Notes are triggered, holders of the 2016 Notes will be entitled
to convert the 2016 Notes at any time during specified periods
at their option. If one or more holders elect to
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convert their 2016 Notes, unless we elect to satisfy our
conversion obligation by delivering solely shares of our common
stock, we would be required to make cash payments to satisfy all
or a portion of our conversion obligation based on the
applicable conversion rate, which could adversely affect our
liquidity. In addition, even if holders do not elect to convert
their 2016 Notes, we could be required under applicable
accounting rules to reclassify all or a portion of the
outstanding principal of the 2016 Notes as a current rather than
long-term liability, which could result in a material reduction
of our net working capital.
We face product liability risks and may not be able to
obtain adequate insurance.
The sale of Nexavar and the use of it and other products and
product candidates in clinical trials expose us to product
liability claims. In the United States, FDA approval of a drug
may not offer protection from liability claims under state law
(i.e., federal preemption defense), the tort duties for which
may vary state to state. If we cannot successfully defend
ourselves against product liability claims, we may incur
substantial liabilities or be required to limit
commercialization of Nexavar
and/or
future products.
We may not be able to maintain insurance product liability
coverage at a reasonable cost. We may not be able to obtain
additional insurance coverage that will be adequate to cover
product liability risks that may arise should a future product
candidate receive marketing approval. Whether or not we are
insured, a product liability claim or product recall may result
in significant losses. Regardless of merit or eventual outcome,
product liability claims may result in:
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decreased demand for a product;
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injury to our reputation;
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distraction of management;
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withdrawal of clinical trial volunteers; and
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loss of revenues.
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We or Bayer may not be able to protect or enforce our or
their intellectual property and we may not be able to operate
our business without infringing the intellectual property rights
of others.
We can protect our technology from unauthorized use by others
only to the extent that our technology is covered by valid and
enforceable patents, effectively maintained as trade secrets, or
otherwise protected as confidential information or know-how. We
depend in part on our ability to:
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obtain patents;
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license technology rights from others;
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protect trade secrets;
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operate without infringing upon the proprietary rights of
others; and
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prevent others from infringing on our proprietary rights,
particularly generic drug manufacturers.
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Patents and patent applications covering Nexavar are owned by
Bayer. Those Nexavar patents that arose out of our collaboration
agreement with Bayer are licensed to us, including two United
States patents covering Nexavar and pharmaceutical compositions
of Nexavar. Both patents will expire January 12, 2020.
These two patents are listed in the FDAs Approved Drug
Product List (Orange Book). Based on publicly available
information, Bayer also has patents in several European
countries covering Nexavar, which will expire in 2020. Bayer has
other patents and patent applications pending worldwide that
cover Nexavar alone or in combination with other drugs for
treating cancer. Certain of these patents may be subject to
possible patent-term extension, the entitlement to and the term
of which cannot presently be calculated, in part because Bayer
does not share with us information related to its Nexavar patent
portfolio. We cannot be certain that these issued patents and
future patents if they issue will provide adequate protection
for Nexavar or will not be challenged by third parties in
connection with the filing of an ANDA, or otherwise. Similarly,
we cannot be certain that the patents and patent applications
acquired in the Proteolix acquisition, or licensed to us by any
licensor, will provide adequate protection for carfilzomib or
any other product, or will not be challenged by third parties in
connection with the filing of an ANDA, or otherwise. The patents
related
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to carfilzomib and 0912 will begin to expire in 2025 and 2027,
respectively. Third parties may claim to have rights in the
assets that we acquired with Proteolix, including carfilzomib,
or to have intellectual property rights that will be infringed
by our commercialization of the assets that we acquired with
Proteolix. If third parties were to succeed in such claims, our
business and company would be harmed.
The patent positions of biotechnology and pharmaceutical
companies are highly uncertain and involve complex legal and
factual questions. Our patents, or patents that we license from
others, may not provide us with proprietary protection or
competitive advantages against competitors with similar
technologies. Competitors may challenge or circumvent our
patents or patent applications. Courts may find our patents
invalid. Due to the extensive time required for development,
testing and regulatory review of our potential products, our
patents may expire or remain in existence for only a short
period following commercialization, which would reduce or
eliminate any advantage the patents may give us.
We may not have been the first to make the inventions covered by
each of our issued or pending patent applications, or we may not
have been the first to file patent applications for these
inventions. Third party patents may cover the materials, methods
of treatment or dosage related to our product, or compounds to
be used in combination with our products; those third parties
may make allegations of infringement. We cannot provide
assurances that our products or activities, or those of our
licensors or licensees, will not infringe patents or other
intellectual property owned by third parties. Competitors may
have independently developed technologies similar or
complementary to ours, including compounds to be used in
combination with our products. We may need to license the right
to use third-party patents and intellectual property to develop
and market our product candidates. We may be unable to acquire
required licenses on acceptable terms, if at all. If we do not
obtain these required licenses, we may need to design around
other parties patents, or we may not be able to proceed
with the development, manufacture or, if approved, sale of our
product candidates. We may face litigation to defend against
claims of infringement, assert claims of infringement, enforce
our patents, protect our trade secrets or know-how, or determine
the scope and validity of others proprietary rights. In
addition, we may require interference proceedings in the United
States Patent and Trademark Office. These activities are
uncertain, making any outcome difficult to predict and costly
and may be a substantial distraction for our management team.
Bayer may have rights to publish data and information in which
we have rights. In addition, we sometimes engage individuals,
entities or consultants, including clinical investigators, to
conduct research that may be relevant to our business. The
ability of these third parties to publish or otherwise publicly
disclose information generated during the course of their
research is subject to certain contractual limitations; however,
these contracts may be breached and we may not have adequate
remedies for any such breach. If we do not apply for patent
protection prior to publication or if we cannot otherwise
maintain the confidentiality of our confidential information,
then our ability to receive patent protection or protect our
proprietary information will be harmed.
Limited foreign intellectual property protection and
compulsory licensing could limit our revenue
opportunities.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United
States. The requirements for patentability may differ in certain
countries, particularly developing countries. In 2009, we became
aware that a third-party had filed an opposition proceeding with
the Chinese patent office to invalidate the patent that covers
Nexavar. Unlike other countries, China has a heightened
requirement for patentability, and specifically requires a
detailed description of medical uses of a claimed drug, such as
Nexavar. Bayer also has a patent in India the covers Nexavar.
Cipla Limited, an Indian generic drug manufacturer, applied to
the Drug Controller General of India (DCGI) for market approval
for Nexavar, which Bayer sought to block based on its patent.
Bayer sued the DCGI and Cipla Limited in the Delhi High Court
requesting an injunction to bar the DCGI from granting Cipla
Limited market authorization. The Court ruled against Bayer,
stating that in India, unlike the U.S., there is no link between
regulatory approval of a drug and its patent status. Bayer
appealed, which it recently lost. Consequently, Bayer has
appealed to the Indian Supreme Court, and has filed a patent
infringement suit against Cipla that is currently pending before
the Delhi high court. Some companies have encountered
significant problems in protecting and defending such rights in
foreign jurisdictions. Many countries, including certain
countries in Europe and developing countries, have compulsory
licensing laws under which a patent owner may be compelled to
grant licenses to third parties. In those countries, Bayer, the
owner of the Nexavar patent estate, may have limited remedies if
the Nexavar patents are infringed or if Bayer is compelled to
grant a license of
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Nexavar to a third party, which could materially diminish the
value of those patents that cover Nexavar. If compulsory
licenses were extended to include Nexavar, this could limit our
potential revenue opportunities. Moreover, the legal systems of
certain countries, particularly certain developing countries, do
not favor aggressive enforcement of patent and other
intellectual property protection, which may make it difficult to
stop infringement. Many countries limit the enforceability of
patents against government agencies or government contractors.
These factors could also negatively affect our revenue
opportunities in those countries.
If we use hazardous or potentially hazardous materials in
a manner that causes injury or violates applicable law, we may
be liable for damages.
Our research and development activities involve the controlled
use of hazardous or potentially hazardous materials, including
chemical, biological and radioactive materials. In addition, our
operations produce hazardous waste products. Federal, state and
local laws and regulations govern the use, manufacture, storage,
handling and disposal of hazardous materials. We may incur
significant additional costs to comply with these and other
applicable laws in the future. Also, even if we are in
compliance with applicable laws, we cannot completely eliminate
the risk of contamination or injury resulting from hazardous
materials and we may incur liability as a result of any such
contamination or injury. In the event of an accident, we could
be held liable for damages or penalized with fines, and the
liability could exceed our resources. We do not have any
insurance for liabilities arising from hazardous materials.
Compliance with applicable environmental laws and regulations is
expensive, and current or future environmental regulations may
impair our research, development and manufacturing efforts,
which could harm our business.
A portion of our investment portfolio is invested in
auction rate securities, and if auctions continue to fail for
amounts we have invested, our investment will not be liquid. If
the issuer of an auction rate security that we hold is unable to
successfully close future auctions and their credit rating
deteriorates, we may be required to adjust the carrying value of
our investment through an impairment charge to earnings.
A portion of our investment portfolio is invested in auction
rate securities. The underlying assets of these securities are
student loans substantially backed by the federal government.
Due to adverse developments in the credit markets, beginning in
February 2008, these securities have experienced failures in the
auction process. When an auction fails for amounts we have
invested, the security becomes illiquid. In the event of an
auction failure, we are not able to access these funds until a
future auction on these securities is successful. We have
reclassified these securities from current to non-current
marketable securities, and if the issuer is unable to
successfully close future auctions and their credit rating
deteriorates, we may be required to adjust the carrying value of
the marketable securities through an impairment charge to
earnings.
Existing stockholders have significant influence over
us.
Our executive officers, directors and 5% stockholders own, in
the aggregate, approximately 21% of our outstanding common
stock. As a result, these stockholders will be able to exercise
substantial influence over all matters requiring stockholder
approval, including the election of directors and approval of
significant corporate transactions. This could have the effect
of delaying or preventing a change in control of our company and
will make some transactions difficult or impossible to
accomplish without the support of these stockholders.
Provisions in the indenture for the 2016 Notes may deter
or prevent a business combination.
If a fundamental change occurs prior to the maturity date of the
2016 Notes, holders of the notes will have the right, at their
option, to require us to repurchase all or a portion of their
notes. In addition, if a fundamental change occurs prior to the
maturity date of 2016 Notes, we will in some cases be required
to increase the conversion rate for a holder that elects to
convert its notes in connection with such fundamental change. In
addition, the indenture for the notes prohibits us from engaging
in certain mergers or acquisitions unless, among other things,
the surviving entity assumes our obligations under the 2016
Notes. These and other provisions could prevent or deter a third
party from acquiring us even where the acquisition could be
beneficial to our stockholders.
Provisions in Delaware law, our charter and executive
change of control agreements we have entered into may prevent or
delay a change of control.
38
We are subject to the Delaware anti-takeover laws regulating
corporate takeovers. These anti-takeover laws prevent a Delaware
corporation from engaging in a merger or sale of more than 10%
of its assets with any stockholder, including all affiliates and
associates of the stockholder, who owns 15% or more of the
corporations outstanding voting stock, for three years
following the date that the stockholder acquired 15% or more of
the corporations stock unless:
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|
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|
|
the board of directors approved the transaction where the
stockholder acquired 15% or more of the corporations stock;
|
|
|
|
after the transaction in which the stockholder acquired 15% or
more of the corporations stock, the stockholder owned at
least 85% of the corporations outstanding voting stock,
excluding shares owned by directors, officers and employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held under the plan will
be tendered in a tender or exchange offer; or
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|
|
on or after this date, the merger or sale is approved by the
board of directors and the holders of at least two-thirds of the
outstanding voting stock that is not owned by the stockholder.
|
As such, these laws could prohibit or delay mergers or a change
of control of us and may discourage attempts by other companies
to acquire us.
Our certificate of incorporation and bylaws include a number of
provisions that may deter or impede hostile takeovers or changes
of control or management. These provisions include:
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our board is classified into three classes of directors as
nearly equal in size as possible with staggered three-year terms;
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the authority of our board to issue up to 5,000,000 shares
of preferred stock and to determine the price, rights,
preferences and privileges of these shares, without stockholder
approval;
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all stockholder actions must be effected at a duly called
meeting of stockholders and not by written consent;
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special meetings of the stockholders may be called only by the
chairman of the board, the chief executive officer, the board or
10% or more of the stockholders entitled to vote at the
meeting; and
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no cumulative voting.
|
These provisions may have the effect of delaying or preventing a
change in control, even at stock prices higher than the then
current stock price.
We have entered into change in control severance agreements with
each of our executive officers. These agreements provide for the
payment of severance benefits and the acceleration of stock
option vesting if the executive officers employment is
terminated within 24 months of a change in control. The
change in control severance agreements may have the effect of
preventing a change in control.
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Item 1B.
|
Unresolved
Staff Comments
|
None.
Our corporate headquarters, including our principal offices, are
currently located in Emeryville, California. We began occupying
these premises in December 2004 and lease a total
60,000 square feet of office space, which will expire in
2013. We also acquired a lease for 67,000 square feet of
office and laboratory space in South San Francisco,
California, which has a remaining period of four years with the
option to extend the lease for two additional one-year terms. In
addition, we leased 9,000 square feet of space in Richmond,
California that was subleased through the expiration of that
lease in September 2010.
In 2011, we plan to move our corporate headquarters from
Emeryville, California to South San Francisco, California.
In July 2010, we entered into arrangements to lease and sublease
a total of approximately 126,493 square
39
feet located at 249 East Grand Avenue, South San Francisco,
California. The lease and the sublease expire in 2021 and 2015,
respectively. Upon expiration of the sublease, the lease will be
automatically expanded to include the premises subject to the
sublease. The lease includes two successive five-year options to
extend the term of the lease. The lease also includes a one-time
option exercisable until 2014 to lease additional premises that
will be constructed after the exercise of the option. If the
option is exercised, the term of the lease will be automatically
extended by ten years. Please refer to Note 12,
Facility Leases, of the accompanying Consolidated
Financial Statements for further information regarding our lease
obligations.
We believe that our current facilities are sufficient to meet
our present requirements. We anticipate that additional space
will be available, when needed, on commercially reasonable terms.
|
|
Item 3.
|
Legal
Proceedings
|
In May 2009, we filed a complaint against Bayer Corporation and
Bayer A.G. in the United States District Court for the Northern
District of California under the caption Onyx
Pharmaceuticals, Inc. v. Bayer Corporation and Bayer
AG, Case
No. CV09-2145
MHP (N.D. Cal.). In the complaint, we have asserted our rights
under the Collaboration Agreement to fluoro-sorafenib, an
anti-cancer compound that Bayer is developing and to which Bayer
refers as regorafenib, its International Nonproprietary Name.
Fluoro-sorafenib has the same chemical structure as sorafenib
(Nexavar), except that a single fluorine atom has been
substituted for a hydrogen atom. Bayer is currently conducting
trials of fluoro-sorafenib in mixed solid tumors,
gastrointestinal stromal tumors (GIST), kidney, colorectal and
liver cancer and non-squamous non-small cell lung cancer (NSCLC)
and has initiated Phase 3 clinical trials in metastatic
colorectal carcinoma and GIST. In the lawsuit, we allege that
fluoro-sorafenib was discovered during joint research between us
and Bayer and we are seeking monetary damages and a court ruling
that we have certain rights to fluoro-sorafenib under the
collaboration agreement. Bayer has asserted that we have no such
rights. In June 2010, we filed an amended complaint to include
an allegation that Bayer has prejudiced the value of Nexavar by
reason of its interest in other drugs, including
fluoro-sorafenib. The litigation is currently in the discovery
phase, with trial scheduled to begin in June 2011.
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|
Item 4.
|
Submission
of Matters to a Vote of Securities Holders
|
No matters were submitted to a vote of our stockholders during
the quarter ended December 31, 2010.
40
PART II.
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock is traded on the NASDAQ Global Market (NASDAQ)
under the symbol ONXX. We commenced trading on
NASDAQ on May 9, 1996. The following table presents the
high and low closing sales prices per share of our common stock
reported on NASDAQ.
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Common Stock
|
|
|
|
2010
|
|
|
2009
|
|
|
|
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|
High
|
|
|
|
Low
|
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|
|
High
|
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
32.46
|
|
|
$
|
27.76
|
|
|
$
|
36.50
|
|
|
$
|
26.27
|
|
Second Quarter
|
|
|
31.18
|
|
|
|
21.59
|
|
|
|
28.77
|
|
|
|
22.17
|
|
Third Quarter
|
|
|
28.11
|
|
|
|
19.90
|
|
|
|
36.55
|
|
|
|
27.23
|
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Fourth Quarter
|
|
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37.10
|
|
|
|
25.53
|
|
|
|
30.04
|
|
|
|
25.13
|
|
On February 17, 2011, the last reported sales price of our
common stock on NASDAQ was $37.64 per share.
Stock
Performance Graph
The following performance graph is not soliciting
material, is not deemed filed with the SEC and is not to
be incorporated by reference in any filing by us under the
Securities Act of 1933, as amended (the Securities
Act), or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation
language in any such filing. The stock price performance shown
on the graph is not necessarily indicative of future price
performance.
|
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* |
|
$100 invested on 12/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31. |
Holders
There were approximately 151 holders of record of our common
stock as of February 17, 2011.
Dividends
We have not paid cash dividends on our common stock and do not
plan to pay any cash dividends in the foreseeable future.
41
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
None.
|
|
Item 6.
|
Selected
Financial Data
|
This section presents our selected historical financial data.
You should carefully read the consolidated financial statements
and the notes thereto included in this report and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
The Statement of Operations data for the years ended
December 31, 2010, 2009 and 2008 and the Balance Sheet data
as of December 31, 2010 and 2009 has been derived from our
audited consolidated financial statements included elsewhere in
this report. The Statement of Operations data for the years
ended December 31, 2007 and 2006 and the Balance Sheet data
as of December 31, 2008, 2007 and 2006 has been derived
from our audited consolidated financial statements that are not
included in this report. Historical results are not necessarily
indicative of future results.
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|
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|
|
|
|
|
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|
|
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|
|
Year Ended December 31,
|
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|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
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|
Statement of Operations Data:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
265,350
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|
|
$
|
250,390
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|
|
$
|
194,343
|
|
|
$
|
90,429
|
|
|
$
|
29,274
|
|
License revenue
|
|
|
59,165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
Contract revenue from collaboration
|
|
|
-
|
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|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total operating expenses(1)
|
|
|
(392,837
|
)
|
|
|
(231,166
|
)
|
|
|
(204,743
|
)
|
|
|
(143,852
|
)
|
|
|
(134,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(68,322
|
)
|
|
|
20,224
|
|
|
|
(10,400
|
)
|
|
|
(53,423
|
)
|
|
|
(104,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Investment income, net
|
|
|
2,829
|
|
|
|
4,028
|
|
|
|
12,695
|
|
|
|
19,256
|
|
|
|
11,983
|
|
Interest expense
|
|
|
(19,400
|
)
|
|
|
(6,858
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expense
|
|
|
(773
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provision (benefit) for income taxes
|
|
|
(819
|
)
|
|
|
1,233
|
|
|
|
347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(84,847
|
)
|
|
$
|
16,161
|
|
|
$
|
1,948
|
|
|
$
|
(34,167
|
)
|
|
$
|
(92,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(1.35
|
)
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
|
$
|
(0.67
|
)
|
|
$
|
(2.20
|
)
|
Diluted net income (loss) per share
|
|
$
|
(1.35
|
)
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
|
$
|
(0.67
|
)
|
|
$
|
(2.20
|
)
|
Shares used in computing basic net income (loss) per share
|
|
|
62,618
|
|
|
|
59,215
|
|
|
|
55,915
|
|
|
|
51,177
|
|
|
|
42,170
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
62,618
|
|
|
|
59,507
|
|
|
|
56,765
|
|
|
|
51,177
|
|
|
|
42,170
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and current and non-current marketable
|
|
$
|
577,868
|
|
|
$
|
587,282
|
|
|
$
|
458,046
|
|
|
$
|
469,650
|
|
|
$
|
271,403
|
|
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill(2)
|
|
|
193,675
|
|
|
|
193,675
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Intangible assets in-process research and
development(2)
|
|
|
438,800
|
|
|
|
438,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total assets
|
|
|
1,352,635
|
|
|
|
1,324,680
|
|
|
|
509,767
|
|
|
|
484,083
|
|
|
|
286,246
|
|
Working capital
|
|
|
572,324
|
|
|
|
530,945
|
|
|
|
428,755
|
|
|
|
469,215
|
|
|
|
256,699
|
|
Advance from collaboration partner, non-current
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,234
|
|
|
|
40,000
|
|
Liability for contingent consideration, current and
non-current(2)
|
|
|
253,458
|
|
|
|
200,528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible senior notes due 2016(3)
|
|
|
152,701
|
|
|
|
143,669
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(539,396
|
)
|
|
|
(454,549
|
)
|
|
|
(470,710
|
)
|
|
|
(472,658
|
)
|
|
|
(438,491
|
)
|
Total stockholders equity
|
|
|
697,574
|
|
|
|
750,556
|
|
|
|
475,200
|
|
|
|
432,237
|
|
|
|
222,780
|
|
|
|
|
(1) |
|
Total operating expenses in 2010 includes a $92.9 million
expense associated with the change in the fair value of the
non-current contingent consideration liability related to the
acquisition of Proteolix in November 2009. |
|
(2) |
|
In November 2009, we completed our acquisition of Proteolix for
an aggregate purchase price with a fair value of
$475.0 million. As a result of the acquisition, we acquired
$438.8 million of in-process research and development and
$193.7 million of goodwill, and we recorded
$157.1 million of deferred tax liabilities primarily
related to the difference between the book basis and tax basis
of the intangible assets related to the IPR&D projects. We
also recorded a liability for contingent consideration for
amounts payable to former Proteolix stockholders upon the
achievement of specified regulatory approvals within
pre-specified timeframes for carfilzomib. |
|
(3) |
|
In August 2009, we issued, through an underwritten public
offering, $230.0 million aggregate principal amount of 4.0%
convertible senior notes due 2016. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties.
We use words such as may, will,
expect, anticipate,
estimate, intend, plan,
predict, potential, believe,
should and similar expressions to identify
forward-looking statements. These statements appearing
throughout our Annual Report on
Form 10-K
are statements regarding our intent, belief, or current
expectations, primarily regarding our operations. You should not
place undue reliance on these forward-looking statements, which
apply only as of the date of this Annual Report on
Form 10-K.
Our actual results could differ materially from those
anticipated in these forward-looking statements for many
reasons, including those set forth under Business,
Item 1A Risk Factors and elsewhere in this
Annual Report on
Form 10-K.
Overview
We are a biopharmaceutical company dedicated to developing
innovative therapies that target the molecular mechanisms that
cause cancer. Through our internal research programs and in
conjunction with our collaborators, we are applying our
expertise to develop and commercialize therapies designed to
exploit the genetic and molecular differences between cancer
cells and normal cells. We are continuing to maximize current
commercialization opportunities for
Nexavar®
(sorafenib) tablets, along with our collaborator, Bayer
HealthCare Pharmaceuticals Inc., or Bayer, and we seek to enter
the hematologic cancer market through the development of
carfilzomib, a selective
43
proteasome inhibitor, for the potential treatment of patients
with multiple myeloma and solid tumors. Carfilzomib is a mid-to
late-stage compound with the potential for accelerated marketing
approval in the United States based on our current clinical
trial data and assuming favorable regulatory outcomes. In
addition, we continue to expand our development pipeline, with
multiple clinical and preclinical stage product candidates.
Our first commercially available product,
Nexavar®
(sorafenib) tablets, being developed with our collaborator Bayer
is approved by the United States Food and Drug Administration,
or FDA, for the treatment of patients with unresectable liver
cancer and advanced kidney cancer. Nexavar is a novel, orally
available multiple kinase inhibitor and is one of a new class of
anti-cancer treatments that target both cancer cell
proliferation and tumor growth through the inhibition of key
signaling pathways. In December 2005, Nexavar became the first
newly approved drug for patients with advanced kidney cancer in
over a decade. In November 2007, Nexavar was approved as the
first and is currently the only systemic therapy for the
treatment of patients with unresectable liver cancer. Nexavar is
now approved in more than 90 countries worldwide for the
treatment of advanced kidney cancer and unresectable liver
cancer. In 2010, worldwide net sales of Nexavar as recorded by
Bayer were $934.0 million. We and Bayer are also conducting
clinical trials of Nexavar in several important cancer types in
addition to advanced kidney cancer and unresectable liver
cancer, including lung, thyroid, breast, ovarian and colon
cancers.
In collaboration with Bayer, we initially focused on
demonstrating Nexavars ability to benefit patients
suffering from a cancer for which there were no or few
established therapies. With the approval of Nexavar for the
treatment of advanced kidney cancer and unresectable liver
cancer, the two companies have established the Nexavar brand and
created a global commercial oncology presence. In order to
benefit as many patients as possible, we and Bayer are
investigating the administration of Nexavar with previously
approved and investigational anti-cancer therapies in more
common cancers, with the objective of enhancing the anti-tumor
activity of existing therapies through combination with Nexavar.
We and Bayer are developing and marketing Nexavar under our
collaboration and co-promotion agreements. We fund 50% of
the development costs for Nexavar worldwide, excluding Japan.
With Bayer, we co-promote Nexavar in the United States and share
equally in any profits or losses. Outside of the United States,
excluding Japan, Bayer has exclusive marketing rights and we
share profits equally. In Japan, Bayer funds all product
development, and we will receive a royalty on any sales. Our
collaboration agreement with Bayer will terminate when patents
expire that were issued in connection with product candidates
discovered under the agreement, or at the time when neither we
nor Bayer are entitled to profit sharing under the agreement,
whichever is latest. Our co-promotion agreement with Bayer will
terminate upon the earlier of the termination of our
collaboration agreement with Bayer or the date products subject
to the co-promotion agreement are no longer sold by either party
in the United States. Either party may also terminate the
co-promotion agreement upon failure to cure a material breach of
the agreement within a specified cure period.
Our collaboration agreement with Bayer provides that if we are
acquired by another entity by reason of merger, consolidation or
sale of all or substantially all of our assets, or if a single
entity other than Bayer or its affiliate acquires ownership of a
majority of the our outstanding voting stock, and Bayer does not
consent to the transaction, then for 60 days following the
transaction, Bayer may elect to terminate our co-development and
co-promotion rights under the collaboration agreement and
convert our profit sharing interest under that agreement into a
royalty based on any sales of Nexavar and other collaboration
products. The applicable royalty rate would be a function of
expected profitability of Nexavar for the remaining patent life
of Nexavar. As of December 20, 2010, the fifth anniversary
of the initial regulatory approval of Nexavar, in the event of
an acquisition transaction, we believe the economic value of a
royalty amount should be substantially equivalent to the
economic value of the profit share interest for Nexavar during
the remaining patent life absent such an acquisition
transaction. Bayer has informed us they do not agree with this
conclusion. The application of the royalty formula to any
transaction that closed prior to the fifth anniversary of the
initial regulatory approval of Nexavar would have been
different, however, and could have substantially reduced the
economic value derived from the sales of Nexavar to us or our
successor, compared to the economic value we would have received
absent such an acquisition transaction. Also, either party may
terminate the agreement upon 30 days notice within
60 days of specified events relating to insolvency of the
other party.
In November 2009, we made a significant move towards achieving
our goal of becoming a multi-product portfolio company by
acquiring Proteolix, Inc., or Proteolix, a privately-held
biopharmaceutical company located in South
44
San Francisco, California. Proteolix focused primarily on
the discovery and development of novel therapies that target the
proteasome for the treatment of hematological malignancies,
solid tumors and autoimmune disorders. This acquisition, which
included carfilzomib, has provided us with an opportunity to
expand into the hematological malignancies market. The aggregate
cash consideration paid to former Proteolix stockholders at
closing was $276.0 million with another $40.0 million
paid in April 2010 upon the achievement of a pre-specified
milestone. In addition, we may be required to pay up to an
additional $535.0 million in earn-out payments upon the
receipt of certain regulatory approvals and the satisfaction of
other milestones.
We have also expanded our development pipeline through the
acquisition of rights to development-stage novel anti-cancer
agents. In November 2008, we entered into an agreement to
license worldwide development and commercialization rights to
ONX 0801, previously known as BGC 945, from BTG International
Limited, or BTG, a London-based specialty pharmaceuticals
company. ONX 0801 is in preclinical development and is believed
to work by combining two established approaches to improve
outcomes for cancer patients, selectively targeting tumor cells
through the alpha-folate receptor, which is overexpressed in a
number of tumor types, and inhibiting thymidylate synthase, a
key enzyme responsible for cell growth and division. In
September 2009, we initiated Phase 1 studies of ONX 0801 in
advanced solid tumors, triggering a $7.0 million milestone
payment to BTG. In December 2008, we acquired options to license
SB1518 (designated by Onyx as ONX 0803) and SB1578
(designated by Onyx as ONX 0805), which are both Janus Kinase,
or JAK, inhibitors, from S*BIO Pte Ltd, or S*BIO, a
Singapore-based company. The activation of JAK stimulates blood
cell production and the JAK pathway is known to play a critical
role in the proliferation of certain types of cancer cells and
in the anti-inflammatory pathway. ONX 0803 is in multiple Phase
1 studies and ONX 0805 is in preclinical development. We have
not yet exercised our options to license rights to ONX 0803 and
ONX 0805.
In December 2009, our collaborator, Warner-Lambert Company, now
a subsidiary of Pfizer Inc., initiated a Phase 2 clinical trial
administering PD 0332991, a small molecule cell cycle inhibitor
resulting from our collaboration that targets a cyclin-dependent
kinase 4/6, or CDK 4/6. In accordance with our collaboration
agreement, we received a $1.0 million milestone payment
from Pfizer in 2009.
Our product development pipeline expansion has led us to begin
building our presence internationally, with particular focus on
Europe. In 2010, we established Zug, Switzerland as our European
headquarters. International expansion will assist in carrying
out various functions relating to product sales, interfacing
with regulatory agencies, research and development and
management of our clinical and future commercial product supply
chain.
For the year ended December 31, 2010, we reported a net
loss of $84.8 million, which is principally attributed to a
$92.9 million expense associated with the change in the
fair value of the non-current contingent consideration liability
for amounts payable to former Proteolix stockholders upon the
achievement of specified regulatory approvals within
pre-specified timeframes for carfilzomib. With the exception of
the years ended December 31, 2009 and 2008, we have
incurred annual net losses since our inception. Our ability to
achieve sustainable profitability is uncertain and is dependent
on a number of factors. These factors include, but are not
limited to, the level of patient demand for Nexavar, the ability
of Bayers distribution network to process and ship product
on a timely basis, investments in sales and marketing efforts to
support the sales of Nexavar, Bayer and our investments in the
research and development of Nexavar, fluctuations in foreign
exchange rates, revenues, including milestone payments from
development and commercialization partnerships, expenses
associated with the change in the fair value of the non-current
contingent consideration liability, and expenditures we may
incur to acquire or develop and commercialize carfilzomib and
other additional products. Our operating results will likely
fluctuate from quarter to quarter and from year to year, and are
difficult to predict. Since inception, we have relied on public
and private financings, combined with milestone payments from
our collaborators, to fund our operations and may continue to do
so in future periods. As of December 31, 2010, our
accumulated deficit was approximately $539.4 million.
Our business is subject to significant risks, including the
risks inherent in our development efforts, the results of the
Nexavar clinical trials, the marketing of Nexavar as a treatment
for patients in approved indications, our dependence on
collaborative parties, uncertainties associated with obtaining
and enforcing patents, the lengthy and expensive regulatory
approval process and competition from other products. For a
discussion of these and some of the other risks and
uncertainties affecting our business, see Item 1A
Risk Factors of this Annual Report on
Form 10-K.
45
2010
Business Highlights
In 2010, we continued to execute on our value building strategy
by increasing worldwide sales of Nexavar, producing cash flow
for expansion and strengthening our pipeline.
Nexavar margins remained stable year over year, and sales of
Nexavar as recorded by Bayer in countries around the world
increased from $843.5 million in 2009 to
$934.0 million in 2010 despite pricing pressures in
European countries and the strengthening of the U.S. Dollar
against the Euro.
In September 2010, we entered into an exclusive license
agreement with Ono Pharmaceutical Co., Ltd., or Ono. The
agreement grants Ono the right to develop and commercialize both
carfilzomib and ONX 0912 for all oncology indications in Japan.
We retain development and commercialization rights for all other
countries. If regulatory approval for carfilzomib
and/or ONX
0912 is achieved in Japan, Ono is obligated to pay us
double-digit royalties on net sales of the licensed compounds in
Japan.
Significant highlights of our product candidates included:
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In December 2010, we presented complete data results from an
ongoing pivotal Phase 2b trial, known as the
003-A1
trial, for carfilzomib in multiple myeloma patients. Results
demonstrated carfilzomib was well-tolerated in heavily
pre-treated relapsed and refractory multiple myeloma patients
and could be administered at a full dose over prolonged periods
of time, even in a very sick patient population for whom all
available treatment options have been exhausted and who have
multiple comorbidities.
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We began enrollment in two Phase 3 trials to evaluate the
efficacy of carfilzomib in multiple myeloma patients. One trial,
referred to as the ASPIRE trial, will evaluate carfilzomib in
combination with lenalidomide and low dose dexamethasone, versus
lenalidomide and low dose dexamethasone alone. The other trial,
referred to as the FOCUS trial, was initiated after seeking
Protocol Assistance/Scientific Advice from the Committee for
Medicinal Products for Human Use of the European Medical Agency
on the development of cafilzomib in the European Union. The
FOCUS trial will evaluate carfilzomib monotherapy in refractory
multiple myeloma patients in Europe using best supportive care
as the comparator.
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We completed enrollment in two trials to evaluate the efficacy
of Nexavar in hepatocellular carcinoma (HCC), or liver cancer,
patients. One trial, referred to as the SPACE trial, is Phase 2
trial which will evaluate Nexavar or placebo in combination with
transarterial chemoembolization (TACE) performed with drug
eluting beads and doxorubicin for patients with intermediate
stage HCC. The other trial, referred to as the STORM trial, is a
Phase 3 clinical trial which will evaluate the efficacy of
Nexavar as an adjuvant therapy for patients with liver cancer
who have undergone resection or loco-regional treatment with
curative intent. In early 2011, we also completed enrollment in
another Phase 3 trial, referred to as the SEARCH trial, which
will examine Nexavar tablets in combination with
Tarceva®
(erlotinib) tablets as a potential new treatment option for
patients with advanced HCC.
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We also completed enrollment in a Phase 3 trial, referred to as
the MISSION trial, which will evaluate the efficacy of Nexavar
tablets in patients with relapsed or refractory advanced
predominantly non-squamous NSCLC who have failed two or three
previous treatments.
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In July 2010, we entered into arrangements to lease and sublease
additional premises in South San Francisco, California,
which will consolidate our facilities and serve as our new
company headquarters in 2011.
2010
Financial Highlights
Our operating results for the year included revenue from the
Nexavar collaboration agreement of $265.4 million, an
increase of $15.0 million, or 6%, from $250.4 million
in 2009. The increase in revenue from the Nexavar collaboration
agreement was driven primarily by an increase in Nexavar net
sales. Our operating results for the year also included
$59.2 million in license revenue from our license agreement
with Ono.
Total operating expenses for the year were $392.8 million,
an increase of $161.7 million, or 70%, from
$231.2 million in 2009. The increase in operating expenses
was primarily driven by an expense associated with
46
the increase in the fair value of the non-current contingent
consideration liability of $92.9 million for estimated
amounts payable to former Proteolix stockholders upon the
achievement of specified regulatory approvals within
pre-specified timeframes for carfilzomib and a full year of
research and development expenses to further develop carfilzomib.
Cash, cash equivalents and current and non-current marketable
securities at December 31, 2010 were $577.9 million, a
decrease of $9.4 million, or 2%, from $587.3 million
at December 31, 2009. Cash, cash equivalents and current
and non-current marketable securities remained relatively
consistent despite increases in expenses incurred for our
continued expansion and the development of carfilzomib.
2011
Outlook
Our initiatives for fiscal year 2011 are intended to promote the
development of carfilzomib, the growth of Nexavar and the growth
of our development pipeline. These initiatives include
continuing momentum in the clinical program for carfilzomib and
continuing to invest in the development of carfilzomib, for
which we expect to submit an NDA with the FDA as early as
mid-year 2011. We also expect data from the Phase 3 FOCUS trial
for patients with refractory multiple myeloma in the first half
of 2012, which will be used to support initial market
authorization in the European Union.
We expect to continue to support clinical activities for the
development of Nexavar in liver cancer, breast cancer,
colorectal cancer, lung cancer and thyroid cancer. In 2011, we
expect data from several clinical trials, including the Phase 2
SPACE trial for patients with intermediate stage HCC, the Phase
2 TIES trial for patients with HER-2 negative breast cancer, and
the Phase 3 MISSION trial for patients with non-small cell lung
cancer. We also expect to complete enrollment in a Phase 3
trial, referred to as the DECISION trial, which will evaluate
the efficacy of Nexavar in the treatment of patients with
radioactive iodine-refractory, locally advanced or metastatic
differentiated thyroid cancer. In addition, South Korea will
begin reimbursements for Nexavar in liver cancer in 2011.
We expect to continue to invest in the development of our
earlier-stage product candidates, including ONX 0912 and ONX
0914. In 2011, we expect to also evaluate our options to license
rights to exclusively develop and commercialize ONX 0803 and ONX
0805 for all potential indications in the United States, Canada
and Europe under our development collaboration, option and
license agreement with S*BIO.
We are mindful that conditions in our current macroeconomic
environment could affect our ability to achieve our goals,
including healthcare policy changes in the United States and
continued government pricing pressures internationally. We will
continue to monitor these factors and will adjust our business
processes to mitigate these risks to our business.
The successes we experienced in 2010 have helped us execute our
strategy and as we continue to grow our business and achieve
greater operational leverage, we remain focused on profitable
revenue growth and prudent expense management that we believe
will enable execution of our operating objectives for 2011.
Critical
Accounting Policies, Estimates and Judgments
The accompanying discussion and analysis of our financial
condition and results of operations are based upon our
Consolidated Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these Consolidated Financial
Statements requires us to make significant estimates,
assumptions and judgments that affect the amounts of assets,
liabilities, revenues and expenses and related disclosures. We
base our estimates and judgments on historical experience and on
various other assumptions that we believe to be reasonable under
the circumstances. Significant estimates used in 2010 include
assumptions used in the determination of the fair value of
marketable securities, revenue from collaboration agreement,
multiple element arrangements, the effect of business
combinations, fair value measurement of tangible and intangible
assets and liabilities, goodwill and other intangible assets,
fair value of convertible senior notes, research and development
expenses, stock-based compensation and the provision for income
taxes. Actual results may differ materially from these estimates.
We believe the following critical accounting policies reflect
the more significant judgments and estimates used in the
preparation of our Consolidated Financial Statements.
47
Marketable Securities: Marketable securities
consist primarily of corporate debt securities, corporate
commercial paper, debt securities of United States government
agencies, auction rate notes and money market funds and are
classified as
available-for-sale
securities. Concentration of risk is limited by diversifying
investments among a variety of industries and issuers.
Available-for-sale
securities are carried at fair value based on quoted market
prices, with any unrealized gains and losses reported in
accumulated other comprehensive income (loss). For securities
with unobservable quoted market prices, such as the AAA rated
auction rate securities collateralized by student loans that are
included in our investment portfolio, the fair value is
determined using a discounted cash flow analysis. The discounted
cash flow model used to value these securities is based on a
specific term and liquidity assumptions. An increase or decrease
in either of these assumptions could result in a
$1.2 million decrease or increase in value. Unrealized
losses are charged against investment income when a
decline in fair value is determined to be
other-than-temporary.
We review several factors to determine whether a loss is
other-than-temporary.
These factors include but are not limited to: (i) the
extent to which the fair value is less than cost and the cause
for the fair value decline, (ii) the financial condition
and near-term prospects of the issuer, (iii) the length of
time a security is in an unrealized loss position and
(iv) our ability to hold the security for a period of time
sufficient to allow for any anticipated recovery in fair value.
We do not intend to sell our marketable securities and it is not
more likely than not that we will be required to sell our
marketable securities prior to the recovery of their amortized
cost bases.
Available-for-sale
securities with remaining maturities of greater than one year
are classified as long-term. The amortized cost of securities in
this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is
included in interest income. The cost of securities sold or the
amount reclassified out of accumulated other comprehensive
income into earnings is based on the specific identification
method. Realized gains and losses and declines in value judged
to be other than temporary are included in the statements of
operations. Interest and dividends on securities classified as
available-for-sale
are included in investment income.
Revenue from Collaboration Agreement: In
accordance with Accounting Standards Codification (ASC) Subtopic
808-10,
Collaborative Arrangements, we record our share of the
pre-tax commercial profit generated from the collaboration with
Bayer, reimbursement of our shared marketing costs related to
Nexavar and royalty revenue in one line item, Revenue from
collaboration agreement. Our portion of shared
collaboration research and development expenses is not included
in the line item Revenue from collaboration
agreement, but is reflected under operating expenses.
According to the terms of the collaboration agreement, the
companies share all research and development, marketing and
non-U.S. sales
expenses. We and Bayer each bear our own U.S. sales force
and medical science liaison expenses. These costs related to our
U.S. sales force and medical science liaisons are recorded
in selling, general and administrative expenses. Bayer
recognizes all revenue under the Nexavar collaboration and
incurs the majority of expenses relating to the development and
marketing of Nexavar. We are highly dependent on Bayer for
timely and accurate information regarding any revenues realized
from sales of Nexavar and the costs incurred in developing and
selling it, in order to accurately report our results of
operations. For the periods covered in the financial statements
presented, there have been no significant or material changes to
prior period estimates of revenues and expenses. However, if we
do not receive timely and accurate information or incorrectly
estimate activity levels associated with the collaboration of
Nexavar at a given point in time, we could be required to record
adjustments in future periods and may be required to restate our
results for prior periods.
Multiple Element Arrangements: Beginning in 2010,
we account for multiple element arrangements, such as license
and development agreements in which a customer may purchase
several deliverables, in accordance with Accounting Standard
Update (ASU)
No. 2009-13,
Multiple Deliverable Revenue Arrangements, For these
multiple element arrangements, we allocate revenue to each
non-contingent element based upon the relative selling price of
each element. When applying the relative selling price method,
we determine the selling price for each deliverable using
vendor-specific objective evidence (VSOE) of selling price, if
it exists, or third-party evidence (TPE) of selling price, if it
exists. If neither VSOE nor TPE of selling price exist for a
deliverable, we use best estimated selling price (BESP) for that
deliverable. Revenue allocated to each element is then
recognized based on when the basic four revenue recognition
criteria are met for each element.
Determining whether and when some of these criteria have been
satisfied often involves assumptions and judgments that can have
a significant impact on the timing and amount of revenue we
report. Changes in assumptions or
48
judgments or changes to the elements in an arrangement could
cause a material increase or decrease in the amount of revenue
that we report in a particular period.
Business Combinations: We accounted for the
acquisition of Proteolix in 2009 in accordance with ASC Topic
805, Business Combinations. ASC Topic 805 establishes
principles and requirements for recognizing and measuring the
total consideration transferred to and the assets acquired and
liabilities assumed in the acquired target in a business
combination. The consideration paid to acquire Proteolix is
required to be measured at fair value and included cash
consideration and contingent consideration, which are earn-out
payments that will be paid upon the receipt of certain
regulatory approvals and the satisfaction of other milestones.
After the total consideration transferred was calculated by
determining the fair value of the contingent consideration plus
the cash consideration, we assigned the purchase price of
Proteolix to the fair value assets acquired and liabilities
assumed. This resulted in recognition of intangible assets
related to in-process research and development (IPR&D)
projects and goodwill. The determination and allocation of the
consideration transferred requires management to make
significant estimates and assumptions, especially at the
acquisition date with respect to the fair value of the
contingent consideration and intangible assets acquired. We
believe the fair values assigned to our liability for contingent
consideration and acquired intangible assets are based on
reasonable estimates and assumptions given the available facts
and circumstances as of the acquisition dates. Discounted cash
flow models are used in valuing these assets and liabilities,
and these models require the use of significant estimates and
assumptions including but not limited to:
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estimated cash flows projected from the success of unapproved
product candidates;
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the probability of technical and regulatory success for
unapproved product candidates considering their stages of
development;
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the time and resources needed to complete the development and
approval of product candidates;
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the life of the potential commercialized products and associated
risks, including the inherent difficulties and uncertainties in
developing a product candidate such as obtaining FDA and other
regulatory approvals; and
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risk associated with uncertainty, achievement and payment of the
milestone events.
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In determining the probability of technical and regulatory
success, we utilized data regarding similar milestone events
from several sources, including industry studies. We based the
time needed to complete the development and approval of product
candidates on the current stages of development of the product
candidates, resources needed to complete the development and
approval of product candidates and the inherent difficulties and
uncertainties in developing a product candidate, such as
obtaining FDA and other regulatory approvals. Inputs related to
the time needed to complete the development and approval of
product candidates is highly judgmental as they are not readily
determinable because the drug development process can be
unpredictable. We established a discount rate based on future
cash flows that would be required by a market participant for
similar instruments, based on the estimated cost of capital and
the inherent risk premium associated with repayment. That
discount rate, representative of the rate of return required by
a market participant, has been determined by us to be 9%, and
has been applied to the contingent payment amounts to determine
their present values.
Changes to any of these estimates and assumptions could
significantly impact the fair values recorded for these assets
and liabilities resulting in significant charges to our
Consolidated Statement of Operations. In addition, unanticipated
events and circumstances may occur which may affect the accuracy
or validity of such assumptions, estimates or actual results.
Goodwill and Other Intangible Assets: We account
for goodwill and other intangible assets in accordance with ASC
Topic 805, and ASC Topic 350, Intangibles
Goodwill and Other. ASC Topic 805 requires that the purchase
method of accounting be used for all business combinations and
specifies the criteria that must be met in order for intangible
assets acquired in a business combination to be recognized and
reported apart from goodwill. Our intangible assets and goodwill
are determined to have indefinite lives and, therefore, are not
amortized. Instead they are tested for impairment at least
annually or whenever events or circumstances occur that indicate
impairment might have occurred in accordance with ASC Topic 350.
Judgment regarding the existence of impairment indicators will
be based on historical and projected future operating results,
changes in the manner of our use of the acquired
49
assets or our overall business strategy, and market and economic
trends. In the future, events could cause us to conclude that
impairment indicators exist and that certain other intangibles
with determinable lives and other long-lived assets are impaired
resulting in an adverse impact on our financial position and
results of operations.
Convertible Senior Notes: In August 2009, we
issued, through an underwritten public offering,
$230.0 million aggregate principal amount of 4.0%
convertible senior notes due 2016, or the 2016 Notes. The 2016
Notes are accounted for in accordance with ASC Subtopic
470-20,
Debt with Conversion and Other Options. Under ASC
Subtopic
470-20
issuers of certain convertible debt instruments that have a net
settlement feature and may be settled in cash upon conversion,
including partial cash settlement, are required to separately
account for the liability (debt) and equity (conversion option)
components of the instrument. The carrying amount of the
liability component of the 2016 Notes, as of the issuance date,
was computed by estimating the fair value of a similar liability
issued at a 12.5% effective interest rate, which was determined
by considering the rate of return investors would require in our
capital structure as well as taking into consideration effective
interest rates derived by comparable companies. The amount of
the equity component was calculated by deducting the fair value
of the liability component from the principal amount of the 2016
Notes and results in a corresponding increase to debt discount.
Subsequently, the debt discount is amortized as interest expense
through the maturity date of the 2016 Notes.
Stock-Based Compensation: We account for
stock-based compensation of stock options granted to employees
and directors and of employee stock purchase plan shares by
estimating the fair value of stock-based awards using the
Black-Scholes option-pricing model and amortizing the fair value
of the stock-based awards granted over the applicable vesting
period. The Black-Scholes option pricing model includes
assumptions regarding dividend yields, expected volatility,
expected option term and risk-free interest rates. We estimate
expected volatility based upon a combination of historical and
implied stock prices. The risk-free interest rate is based on
the U.S. treasury yield curve in effect at the time of
grant. The expected option term calculation incorporates
historical employee exercise behavior and post-vesting employee
termination rates. We account for stock-based compensation of
restricted stock award grants by amortizing the fair value of
the restricted stock awards grants, which is the grant date
market price, over the applicable vesting period.
Net income (loss) for the years ended December 31, 2010 and
2009 includes employee stock-based compensation expense of
$22.1 million, or $0.35 per diluted share, and
$21.1 million, or $0.35 per diluted share, respectively.
The net loss for the year ended December 31, 2008 includes
employee stock-based compensation expense of $18.8 million,
or $0.33 per diluted share. As of December 31, 2010, the
total unrecorded stock-based compensation expense for unvested
stock options, net of expected forfeitures, was
$37.5 million, which is expected to be amortized over a
weighted-average period of 2.7 years. As of
December 31, 2010, the total unrecorded stock-based
compensation expense for unvested restricted stock awards, net
of expected forfeitures, was $6.8 million, which is
expected to be amortized over a weighted-average period of
1.6 years.
All stock option awards to non-employees are accounted for at
the fair value of the consideration received or the fair value
of the equity instrument issued, as calculated using the
Black-Scholes model. The option arrangements are subject to
periodic remeasurement over their vesting terms. We recorded
compensation expense related to option grants to non-employees
of $0.7 million, $1.5 million and $1.7 million
for the years ended December 31, 2010, 2009 and 2008,
respectively.
The assumptions used in computing the fair value of stock-based
awards reflect our best estimates, but involve uncertainties
relating to market and other conditions, many of which are
outside of our control. In addition, our estimate of future
stock-based compensation expense will be affected by a number of
items including our stock price, the number of stock options our
board of directors may grant in future periods, as well as a
number of complex and subjective valuation adjustments and the
related tax effect. As a result, if other assumptions or
estimates had been used, the stock-based compensation expense
that was recorded for the years ended December 31, 2010,
2009 and 2008 could have been materially different. Furthermore,
if different assumptions are used in future periods, stock-based
compensation expense could be materially impacted in the future.
Research and Development Expense: Research and
development costs are charged to expense when incurred. The
major components of research and development costs include
clinical manufacturing costs, preclinical study expenses,
clinical trial expenses, consulting and other third-party costs,
salaries and employee benefits, stock-based compensation
expense, supplies and materials and allocations of various
overhead and occupancy costs. Preclinical
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study expenses include, but are not limited to, costs incurred
for the laboratory evaluation of a product candidates
chemistry and its biological activities and costs incurred to
assess the potential safety and efficacy of a product candidate
and its formulations. Clinical trial expenses include, but are
not limited to, investigator fees, site costs, comparator drug
costs and clinical research organization costs. In the normal
course of business, we contract with third parties to perform
various clinical trial activities in the on-going development of
potential products. The financial terms of these agreements are
subject to negotiation and variation from contract to contract
and may result in uneven payment flows. Payments under the
contracts depend on factors such as the achievement of certain
events, the successful enrollment of patients and the completion
of portions of the clinical trial or similar conditions. Our
cost accruals for clinical trials are based on estimates of the
services received and efforts expended pursuant to contracts
with numerous clinical trial sites, cooperative groups and
clinical research organizations. The objective of our accrual
policy is to match the recording of expenses in our financial
statements to the actual services received and efforts expended.
As such, expense accruals related to clinical trials are
recognized based on our estimate of the degree of completion of
the event or events specified in the specific clinical study or
trial contract. We monitor service provider activities to the
extent possible; however, if we incorrectly estimate activity
levels associated with various studies at a given point in time,
we could be required to record adjustments to research and
development expenses in future periods.
In instances where we enter into agreements with third parties
for clinical trials and other consulting activities, up-front
payment amounts are capitalized and expensed as services are
performed or as the underlying goods are delivered. If we do not
expect the services to be rendered or goods to be delivered, any
remaining capitalized amounts for non-refundable up-front
payments are charged to expense immediately. Amounts due under
such arrangements may be either fixed fee or fee for service,
and may include upfront payments, monthly payments and payments
upon the completion of milestones or receipt of deliverables.
Non-refundable option payments, including those made under our
agreement with S*BIO, that do not have any future alternative
use are recorded as research and development expense. Not all
research and development costs are incurred by us. A significant
portion of our total research and development expenses,
approximately 49% in 2010, 63% in 2009 and 55% in 2008, relates
to our cost sharing arrangement with Bayer and represents our
share of the research and development costs incurred by Bayer.
As a result of the cost sharing arrangement between us and
Bayer, there was a net reimbursable amount of
$78.8 million, $63.7 million and $50.7 million to
Bayer for the years ended December 31, 2010, 2009 and 2008,
respectively. Such amounts were recorded based on invoices and
estimates we receive from Bayer. When such invoices have not
been received, we must estimate the amounts owed to Bayer based
on discussions with Bayer. For the periods covered in the
financial statements presented, there have been no significant
or material differences between actual amounts and estimates.
However, if we underestimate or overestimate the amounts owed to
Bayer, we may need to adjust these amounts in a future period,
which could have an effect on earnings in the period of
adjustment.
Income Taxes: We use the asset and liability
method to account for income taxes in accordance with ASC
740-10,
Income Taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities. At
each balance sheet date, we evaluate the available evidence
about future taxable income and other possible sources of
realization of deferred tax assets, and record a valuation
allowance that reduces the deferred tax assets to an amount that
represents our best estimate of the amount of such deferred tax
assets that more likely than not will be realized. Deferred tax
assets and liabilities are measured using the enacted tax rates
and laws that will be in effect when the differences are
expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and the amount of which are
uncertain. Accordingly, we continue to maintain a full valuation
allowance against most of our net operating loss carryforwards
and other deferred tax assets. On a quarterly basis, we reassess
our valuation allowance for deferred income taxes. We will
consider reducing the valuation allowance when it becomes more
likely than not the benefit of those assets will be realized.
As part of our accounting for the acquisition of Proteolix in
2009, we recorded goodwill and intangible assets. Amortization
expenses associated with acquired intangible assets are
generally not tax deductible; therefore,
51
deferred taxes have been recorded for future non- deductible
amortization expenses related to intangible assets as a part of
the business combination. In the event of an impairment charge
associated with goodwill, such charges are generally not tax
deductible and would increase the effective tax rate in the
quarter any impairment is recorded.
ASC 740 also clarifies the accounting for uncertainty in tax
positions recognized in the financial statements. We adopted
this guidance on uncertain tax positions on January 1,
2007. Under this guidance, we may recognize the tax benefit from
an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the
taxing authorities based on technical merits of the position.
The tax benefits recognized in the financial statements from
such a position would be measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon
ultimate settlement. We are in the process of completing an
analysis of our tax credit carryforwards. Any uncertain tax
positions identified in the course of this analysis will not
impact our consolidated financial statements due to the full
valuation allowance.
We are subject to taxation in the U.S. and various state
and foreign jurisdictions. Our calculation of our tax
liabilities involves uncertainties in the application of complex
tax laws and regulations in various taxing jurisdictions that is
subject to legal and factual interpretation, judgment and
uncertainty. Tax laws and regulations themselves are subject to
change as a result of changes in fiscal policy, changes in
legislation, the evolution of regulations and court rulings.
Therefore, the actual liability for U.S. taxes, or the
various state and foreign jurisdictions, may be materially
different from our estimates. If, based on new facts that arise
within a period, we ultimately determine that the payment of
these liabilities will be unnecessary, the liability will be
reversed and we will recognize a tax benefit during the period
in which it is determined the liability no longer applies.
Conversely, we record additional tax charges in a period in
which it is determined that a recorded tax liability is less
than the ultimate assessment is expected to be. Interest and
penalties are included in tax expense.
Results
of Operations
Years
Ended December 31, 2010, 2009 and 2008
Revenue. Nexavar is our only marketed product.
In accordance with our collaboration agreement with Bayer, Bayer
recognizes all revenue from the sale of Nexavar. As such, for
the years ended December 31, 2010, 2009 and 2008, we
reported no product revenue related to Nexavar. Nexavar net
sales as recorded by Bayer were $934.0 million,
$843.5 million and $677.8 million for the years ended
December 31, 2010, 2009 and 2008, respectively, primarily
from sales in the United States, the European Union,
Asia-Pacific and other territories worldwide and includes the
impact in the U.S. of the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education
Affordability Reconciliation Act.
Contract Revenue from Collaborations. Contract
revenue from collaborations was zero in 2010, $1.0 million
in 2009 and zero in 2008. Contract revenue from collaborations
in 2009 relates to a milestone fee earned when Pfizer initiated
Phase 2 clinical testing to advance a lead candidate from our
previous cell cycle kinase discovery collaboration.
Revenue from Collaboration Agreement. Nexavar
is currently approved in more than 90 countries worldwide for
the treatment of unresectable liver cancer and advanced kidney
cancer. We co-promote Nexavar in the United States with Bayer
under collaboration and co-promotion agreements. Under the terms
of the co-promotion agreement and consistent with the
collaboration agreement, we and Bayer share equally in the
profits or losses of Nexavar, if any, in the United States,
subject only to our continued co-funding of the development
costs of Nexavar worldwide outside of Japan and our continued
co-promotion of Nexavar in the United States. Outside of the
United States, excluding Japan, Bayer incurs all of the sales
and marketing expenditures, and we reimburse Bayer for half of
those expenditures. In addition, for sales generated outside of
the United States, excluding Japan, we reimburse Bayer a fixed
percentage of sales for their marketing infrastructure. Research
and development expenditures on a worldwide basis, excluding
Japan, are equally shared by both companies regardless of
whether we or Bayer incurs the expense. In Japan, Bayer is
responsible for all development and marketing costs and we
receive a royalty on net sales of Nexavar.
52
In the United Sates, Bayer provides all product distribution and
all marketing support services for Nexavar, including managed
care, customer service, order entry and billing. We compensate
Bayer for distribution expenses based on a fixed percentage of
gross sales of Nexavar in the United States. We reimburse Bayer
for half of its expenses for marketing services provided by
Bayer for the sale of Nexavar in the United States. We and Bayer
share equally in any other
out-of-pocket
marketing expenses (other than expenses for sales force and
medical science liaisons) that we and Bayer incur in connection
with the marketing and promotion of Nexavar in the United
States. Bayer manufactures all Nexavar sold and is
reimbursed at an agreed transfer price per unit for the cost of
goods sold in the United States.
In the United States, we contribute half of the overall number
of sales force personnel required to market and promote Nexavar
and half of the medical science liaisons to support Nexavar. We
and Bayer each bear our own sales force and medical science
liaison expenses. These expenses are not included in the
calculation of the profits or losses of the collaboration.
Revenue from collaboration agreement consists of our share of
the pre-tax commercial profit generated from our collaboration
with Bayer, reimbursement of our shared marketing costs related
to Nexavar and royalty revenue. Under the collaboration, Bayer
recognizes all sales of Nexavar worldwide. We record revenue
from collaboration agreement on a quarterly basis. Revenue from
collaboration agreement is derived by calculating net sales of
Nexavar to third-party customers and deducting the cost of goods
sold, distribution costs, marketing costs (including without
limitation, advertising and education expenses, selling and
promotion expenses, marketing personnel expenses and Bayer
marketing services expenses), Phase 4 clinical trial costs and
allocable overhead costs. Reimbursement by Bayer of our shared
marketing costs related to Nexavar and royalty revenue are also
included in the Revenue from collaboration agreement
line item.
Our portion of shared collaboration research and development
expenses is not included in the Revenue from collaboration
agreement line item, but is reflected under operating
expenses. According to the terms of the collaboration agreement,
the companies share all research and development, marketing and
non-U.S. sales
expenses. U.S. sales force and medical science liaison
expenditures incurred by both companies are borne by each
company separately and are not included in the calculation. Some
of the revenue and expenses used to derive the revenue from
collaboration agreement during the period presented are
estimates of both parties and are subject to further adjustment
based on each partys final review should actual results
differ from these estimates. For the periods covered in the
financial statements presented, there have been no significant
or material changes to prior period estimates of revenues and
expenses. However, if we do not receive timely and accurate
information or incorrectly estimate activity levels associated
with the collaboration of Nexavar at a given point in time, we
could be required to record adjustments in future periods and
may be required to restate our results for prior periods.
Revenue from collaboration agreement increases with increased
Nexavar net revenue, or decreases with decreased Nexavar net
revenue, over and above the associated cost of goods sold,
distribution, selling and general administrative expenses.
Increases to the associated costs of goods sold, distribution,
selling and general and administrative expenses will decrease
revenue from collaboration agreement and decreases to these
costs will increase revenue from collaboration agreement.
Additionally, prolonged or profound economic downturn may result
in adverse changes to product reimbursement and pricing and
sales levels, which would harm our operating results. We expect
Nexavar sales and Bayers and our shared cost of goods
sold, distribution, selling and general administrative expense
to increase as Bayer continues to expand Nexavar marketing and
sales activities outside of the United States, particularly
from certain Asia-Pacific countries.
Revenue from collaboration agreement was $265.4 million,
$250.4 million and $194.3 million and for the years
ended December 31, 2010, 2009 and 2008, respectively. The
increase in revenue from collaboration agreement is primarily a
result of increased net product revenue on sales of Nexavar as
recorded by Bayer of $934.0 million for the year ended
December 31, 2010 as compared to $843.5 million for
the year ended December 31, 2009 and $677.8 million
for the year ended December 31, 2008. The increase in net
product revenue was adversely impacted by pricing pressures in
Europe and strengthening of the U.S. Dollar against the
Euro and was partially offset by increased costs to sell,
distribute and market in countries around the world, including
certain Asia-Pacific countries
53
in advance of anticipated government reimbursement. Revenue from
collaboration agreement is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Nexavar product revenue, net (as recorded by Bayer)
|
|
$
|
934,038
|
|
|
$
|
843,470
|
|
|
$
|
677,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nexavar revenue subject to profit sharing (as recorded by Bayer)
|
|
$
|
794,977
|
|
|
$
|
753,340
|
|
|
$
|
637,459
|
|
Combined cost of goods sold, distribution, selling, general and
administrative expenses
|
|
|
329,989
|
|
|
|
312,205
|
|
|
|
298,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined collaboration commercial profit
|
|
$
|
464,988
|
|
|
$
|
441,135
|
|
|
$
|
338,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onyxs share of collaboration commercial profit
|
|
$
|
232,494
|
|
|
$
|
220,567
|
|
|
$
|
169,334
|
|
Reimbursement of Onyxs shared marketing expenses
|
|
|
23,122
|
|
|
|
23,514
|
|
|
|
22,185
|
|
Royalty revenue
|
|
|
9,734
|
|
|
|
6,309
|
|
|
|
2,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
265,350
|
|
|
$
|
250,390
|
|
|
$
|
194,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License Revenue. License revenue, as compared
to prior years, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
Change
|
|
|
For the Year Ending December 31,
|
|
2010 vs 2009
|
|
2009 vs 2008
|
|
|
2010
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(In thousands, except percentages)
|
|
|
|
License revenue
|
|
$
|
59,165
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
59,165
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
In September 2010, we entered into an exclusive license
agreement with Ono granting Ono the right to develop and
commercialize both carfilzomib and ONX 0912 for all oncology
indications in Japan. We retain development and
commercialization rights for all other countries of the world.
In accordance with ASU
2009-13, we
identified the license as one of the non-contingent deliverables
under this agreement with stand-alone value. Because VSOE or TPE
of selling price for this element was unavailable, we utilized
BESP to apply the relative selling price method to allocate
revenue to this element. The objective of BESP is to determine
the price at which we would transact a sale if the product were
sold on a stand-alone basis. Therefore, BESP for the license is
based on discounted future projected cash flows relating to the
licensed territory. Revenue allocated to the license of
$59.2 million was recognized in September 2010 when all
related knowledge and data had been transferred.
Research and Development Expenses. Research and
development expenses, as compared to prior years, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
Change
|
|
|
For the Year Ending December 31,
|
|
2010 vs 2009
|
|
2009 vs 2008
|
|
|
2010
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(In thousands, except percentages)
|
|
Research and development
|
|
$
|
185,740
|
|
|
$
|
128,506
|
|
|
$
|
123,749
|
|
|
$
|
57,234
|
|
|
|
45
|
%
|
|
$
|
4,757
|
|
|
|
4
|
%
|
The 2010 increase in research and development expenses compared
to 2009 is primarily due to increases to further develop
carfilzomib, which was acquired in November 2009. Research and
development expenses in 2010 also included $5.8 million in
expenses related to the amortization of the $20.0 million
payment made to S*BIO in May 2010 for the expansion and
acceleration of the development collaboration program for ONX
0803 and ONX 0805. The increase in research and development
expenses was partially offset by an $8.5 million
reimbursement received from Ono and by lower expenses for the
ONX 0801 program compared to 2009, when a milestone payment of
$7.0 million was made to BTG International Limited. Under
the terms of the license agreement with Ono, a percentage of the
global development costs we incur for the development of
carfilzomib and ONX 0912 is reimbursed by Ono. Refer to
Note 3 in the Consolidated Financial Statements for further
information. Research and development expenses also included
stock-based compensation of $4.3 million in 2010 compared
to $3.6 million in
54
2009. We expect that Bayer and we will continue to invest in the
development of Nexavar by conducting clinical trials to test
Nexavars efficacy in more prevalent tumor types in future
periods. Additionally, we expect our research and development
activities to include developing carfilzomib and our other
product candidates.
The 2009 increase in research and development expenses compared
to 2008 is primarily due to planned increases in the development
program for Nexavar across additional tumor types, such as
thyroid, colorectal and adjuvant liver cancer, as well as
increased costs to further develop ONX 0801, including a
milestone payment of $7.0 million to BTG, partially offset
by decreased spending for lung cancer trials. Research and
development expenses also included stock-based compensation of
$3.6 million in 2009 compared to $2.7 million in 2008.
A significant portion of our total research and development
expenses, approximately 49% in 2010, 63% in 2009 and 55% in
2008, relates to our cost sharing arrangement with Bayer and
represents our share of the research and development costs
incurred by Bayer. As a result of the cost sharing arrangement
between us and Bayer, there was a net reimbursable amount of
$78.8 million, $63.7 million and $50.7 million to
Bayer for the years ended December 31, 2010, 2009 and 2008,
respectively. Such amounts were recorded based on invoices and
estimates we receive from Bayer. When such invoices have not
been received, we must estimate the amounts owed to Bayer based
on discussions with Bayer. If we underestimate or overestimate
the amounts owed to Bayer, we may need to adjust these amounts
in a future period, which could have an effect on earnings in
the period of adjustment.
The major components of research and development costs include
clinical manufacturing costs, clinical trial expenses,
non-refundable upfront payments, consulting and other
third-party costs, salaries and employee benefits, stock-based
compensation expense, supplies and materials and allocations of
various overhead and occupancy costs. The scope and magnitude of
future research and development expenses are difficult to
predict at this time given the number of studies that will need
to be conducted for any of our potential product candidates. In
general, biopharmaceutical development involves a series of
steps beginning with identification of a potential target and
includes proof of concept in animals and Phase 1, 2 and 3
clinical studies in humans, each of which is typically more
expensive than the previous step.
The following table summarizes our principal product development
initiatives, including the related stages of development for
each product in development and the research and development
expenses recognized in connection with each product. The
information in the column labeled Phase of
Development Estimated Completion is only our
estimate of the timing of completion of the current in-process
development phases based on current information. The actual
timing of completion of those phases could differ materially
from the estimates provided in the table. We cannot reasonably
estimate the timing of completion of each clinical phase of our
development programs due to the risks and uncertainties
associated with developing pharmaceutical product candidates.
The clinical development portion of these programs may span as
many as seven to ten years, and estimation of completion dates
or costs to complete would be highly speculative and subjective
due to the numerous risks and uncertainties associated with
developing biopharmaceutical products, including significant and
changing government regulation, the uncertainty of future
preclinical and clinical study results and uncertainties
associated with process development and manufacturing as well as
marketing. For a discussion of the risks and uncertainties
associated with the timing and cost of completing a product
development phase, see Item 1A Risk Factors of
this Annual Report on
Form 10-K.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
Products/
|
|
|
|
Collabo-
|
|
Phase of Development
|
|
|
|
|
December 31,
|
|
|
|
|
Product Candidates
|
|
Description
|
|
rator
|
|
Estimated Completion
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(In millions )
|
|
|
Nexavar (sorafenib) Tablets(1)
|
|
Small molecule inhibitor of tumor cell proliferation and
angiogenesis, targeting RAF, VEGFR-2, PDGFR-ß, KIT, FLT-3
and RET.
|
|
Bayer
|
|
Phase 1 2004
Phase 2 Unknown
Phase 3 Unknown
|
|
$
|
103.0(2
|
)
|
|
$
|
101.4(2
|
)
|
|
$
|
89.8(2
|
)
|
Carfilzomib
|
|
Proteasome inhibitor
|
|
Ono
|
|
Phase 2 Unknown
Phase 3 Unknown
|
|
|
65.4
|
|
|
|
8.5(3
|
)
|
|
|
-
|
|
ONX 0801
|
|
Compound targeting apha-folate receptor and inhibiting
thymidylate synthase
|
|
BTG
|
|
Phase 1 Unknown
Phase 2 Planned
|
|
|
5.2
|
|
|
|
16.7(4
|
)
|
|
|
13.1(4
|
)
|
ONX 0912
|
|
Oral proteasome inhibitor
|
|
Ono
|
|
Phase 1 Unknown
|
|
|
3.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Phase 1b & Phase 2 Planned
|
|
|
|
|
|
|
|
|
|
|
|
|
ONX 0914
|
|
Immunoproteasome inhibitor
|
|
-
|
|
Preclinical
|
|
|
1.4
|
|
|
|
0.1(3
|
)
|
|
|
-
|
|
ONX 0803, ONX 0805
|
|
Janus Kinase Inhibitors
|
|
S*BIO
|
|
Phase 1& Phase 2 Unknown
|
|
|
6.8(6
|
)
|
|
|
0.7
|
|
|
|
20.8(5
|
)
|
Other
|
|
-
|
|
-
|
|
-
|
|
|
0.6
|
|
|
|
1.1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
185.7
|
|
|
$
|
128.5
|
|
|
$
|
123.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Aggregate research and development costs to date through
December 31, 2010 incurred by us since fiscal year 2000 for
the Nexavar project is $596.5 million. |
|
(2) |
|
Costs reflected include our share of product development costs
incurred by Bayer for Nexavar. |
|
(3) |
|
Costs reflected are from the date of acquisition,
November 16, 2009, through December 31, 2009. |
|
(4) |
|
Costs include a $13.0 million upfront payment in fiscal
year 2008 and $7.0 million milestone payment in fiscal year
2009 made to BTG under our development and license agreement. |
|
(5) |
|
Costs include the nonrefundable upfront payment of
$25.0 million made to S*BIO under our development
collaboration, option and license agreement. |
|
(6) |
|
Costs include $5.8 million in expenses related to the
amortization of the $20.0 million payment made to S*BIO in
May 2010 for the expansion and acceleration of the development
collaboration program for ONX 0803 and ONX 0805. The
$20.0 million payment was initially capitalized as prepaid
research and development expense and is being amortized as
research and development expense each period based on the actual
expenses incurred by S*BIO for the development of ONX 0803 and
ONX 0805. |
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses, as compared to prior years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
Change
|
|
|
For the Year Ending December 31,
|
|
2010 vs 2009
|
|
2009 vs 2008
|
|
|
2010
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(In thousands, except percentages)
|
|
Selling, general and administrative
|
|
$
|
114,167
|
|
|
$
|
101,132
|
|
|
$
|
80,994
|
|
|
$
|
13,035
|
|
|
|
13
|
%
|
|
$
|
20,138
|
|
|
|
25
|
%
|
The 2010 increase in selling, general and administrative
expenses compared to 2009 is primarily due to planned increases
in spending as a result of the acquisition of Proteolix, an
increase in external commercial expenses and an
56
increase in employee-related costs. Selling, general and
administrative expenses also included stock-based compensation
of $17.9 million in 2010 compared to $17.5 million in
2009.
The 2009 increase in selling, general and administrative
expenses compared to 2008 is primarily due to increased
headcount and increased employee-related expenses to support
Nexavars commercial growth, as well as increased headcount
and legal and employee-related expenses to support our growth.
Selling, general and administrative expenses also included
stock-based compensation of $17.5 million in 2009 compared
to $17.8 million in 2008.
Selling, general and administrative expenses consist primarily
of salaries, employee benefits, consulting, advertising and
promotion expenses, legal costs, other third party costs,
corporate functional expenses and allocations for overhead and
occupancy costs. We expect our selling, general and
administrative expenses to increase due to increases in
marketing expenses related to Nexavar and increases in personnel
due to preparations for the potential launch of carfilzomib.
Contingent Consideration Expense. Contingent
consideration expense, as compared to prior years, was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
Change
|
|
|
For the Year Ending December 31,
|
|
2010 vs 2009
|
|
2009 vs 2008
|
|
|
2010
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(In thousands, except percentages)
|
|
Contingent consideration
|
|
$
|
92,930
|
|
|
$
|
1,528
|
|
|
$
|
-
|
|
|
$
|
91,402
|
|
|
|
5982
|
%
|
|
$
|
1,528
|
|
|
|
|
|
As a result of the acquisition of Proteolix in November 2009
under the terms of an Agreement and Plan of Merger, or the
Merger Agreement, which was entered into in October 2009, we
made a payment of $40.0 million in April 2010 and may be
required to pay up to an additional $535.0 million payable
in up to four earn-out payments upon the achievement of certain
regulatory approvals for carfilzomib in the U.S. and Europe
within pre-specified timeframes. In January 2011, we entered
into Amendment No. 1 to the Merger Agreement, or the
Amendment. Under the original Merger Agreement, the first of
these additional earn-out payments would be in the amount of
$170.0 million if achieved by the date originally
contemplated, and would be triggered by accelerated marketing
approval for carfilzomib in the United States for
relapsed/refractory multiple myeloma. This obligation is
unchanged in the Amendment. The Amendment modifies this payment
if the milestone is not achieved by the date originally
contemplated on a sliding scale basis, as follows:
|
|
|
|
|
if accelerated marketing approval in the United States for
relapsed/refractory multiple myeloma is achieved after the date
originally contemplated, but within six months of the original
date, subject to extension under certain circumstances, then the
amount payable will be reduced to $130.0 million; and
|
|
|
|
if accelerated marketing approval in the United States for
relapsed/refractory multiple myeloma is achieved more than six
months after the date originally contemplated, but within
12 months of the original date, subject to extension under
certain circumstances, then the amount payable will be reduced
to $80.0 million.
|
The remaining earnout payments will continue to become payable
in up to three additional installments as follows:
|
|
|
|
|
$65.0 million would be triggered by marketing approval in
the European Union for relapsed/refractory multiple myeloma;
|
|
|
|
$150.0 million would be triggered by marketing approval in
the United States for relapsed multiple myeloma; and
|
|
|
|
$150.0 million would be triggered by marketing approval for
relapsed multiple myeloma in the European Union.
|
We recorded a non-current liability for the contingent
consideration related to the four remaining earn-out payments
with a fair value of $253.5 million at December 31,
2010 based upon a discounted cash flow model that uses
significant estimates and assumptions, including the probability
of technical and regulatory success (PTRS) of the product
candidate, carfilzomib. Contingent consideration expense is due
to the change in the fair value of the recognized amount of the
non-current liability for contingent consideration. For the year
ended December 31, 2010, the increase in the fair value of
the non-current liability primarily resulted from a
$74.6 million increase due to a change in the PTRS in the
second quarter of 2010, partially offset by a benefit recorded
as a result of the
57
Amendment. In June 2010, positive data was presented for the 006
carfilzomib trial, a Phase 1b multicenter dose escalation study
of carfilzomib plus lenalidomide and low-dose dexamethasone in
relapsed and refractory multiple myeloma patients. In July 2010,
positive data was also presented for the
003-A1
carfilzomib trial, an open label, single-arm Phase 2b study of
single-agent carfilzomib in relapsed and refractory multiple
myeloma patients. The data from the 006 and
003-A1
trials positively impacted the PTRS. The remaining increase in
the fair value of the non-current liability for contingent
consideration resulted from an $18.4 million increase due
to the passage of time. Any further changes to these estimates
and assumptions could significantly impact the fair values
recorded for this liability resulting in significant charges to
our Consolidated Statements of Operations.
Investment Income, net. Investment income
consists of interest income and realized gains or losses from
the sale of marketable equity investments. We had investment
income of $2.8 million for the year ended December 31,
2010, a decrease of $1.2 million, or 30%, from
$4.0 million in the same period in 2009. These decreases
were primarily due to lower effective interest rates in the
market as well as a change in the asset allocation of our
investment portfolio. Excluding restricted cash of
$31.9 million attributable primarily to the escrow account
for the acquisition of Proteolix, which was paid to former
Proteolix stockholders in February 2011, our average cash
balances in 2010 decreased by $9.4 million from 2009,
primarily as a result of a $40.0 million payment to former
Proteolix shareholders in April 2010 for the achievement of a
development milestone, a $20.0 million payment to S*BIO in
May 2010 for the expansion and acceleration of the development
collaboration program for ONX 0803 and ONX 0805 and a
$9.3 million interest payment on our 2016 Notes, which were
partially offset by $59.2 million in license revenue
received from Ono.
We had investment income of $4.0 million for the year ended
December 31, 2009, a decrease of $8.7 million, or 69%,
from $12.7 million in the same period in 2008. These
decreases were primarily due to lower effective interest rates
in the market as well as a change in the asset allocation of our
investment portfolio. Excluding restricted cash of
$27.6 million attributable to the escrow account for the
acquisition of Proteolix, our average cash balances in 2009
increased by $129.2 million from 2008, primarily as a
result of net proceeds raised by our 2016 Notes and equity
financings in August 2009 secondary offering from which we
received $356.7 million, net of underwriting discounts and
commissions, and cash from operations of $35.1 million
partially offset by total cash consideration of
$276.0 million paid to former Proteolix stockholders as a
result of our recent acquisition of Proteolix.
Interest Expense. Interest expense of
$19.4 million in 2010 primarily relates to the 2016 Notes
issued in August 2009, and includes non-cash imputed interest
expense of $9.0 million as a result of the application of
ASC Subtopic
470-20.
Other Expense. Other expense of
$0.8 million in 2010 primarily relates to net losses on
certain foreign currency option contracts that were entered into
in July 2010 and October 2010. These foreign currency option
contracts are measured at fair value. Any changes to the fair
value of foreign currency option contracts that are not
designated as hedging instruments flow through earnings and are
recorded in the line item Other expense in the
Consolidated Statements of Operations.
Income Taxes. For the years ended
December 31, 2010, 2009 and 2008, we recorded a benefit for
income taxes of $0.8 million and a provision for income
taxes of $1.2 million and $0.3 million, respectively,
related to continuing operations. In 2010, our benefit for
income taxes primarily related to our election to carryback net
operating losses under the Worker, Homeownership and Business
Association Act of 2009. The election enabled the Company to
eliminate all federal Alternative Minimum Taxes (AMT) previously
recorded in 2009. In 2009 and 2008, our tax expense was related
primarily to federal alternative minimum tax and state income
taxes.
As of December 31, 2010, our net operating loss
carryforwards for federal and state income tax purposes were
approximately $271.2 million and $434.6 million. These
net operating losses can be utilized to reduce future taxable
income, if any. Approximately $28.8 million of the federal
and $27.1 million of the state valuation allowance for the
deferred tax assets relate to net operating loss carryforwards
representing the stock option deduction arising from activity
under our stock option plan, the benefit of which will increase
additional paid in capital when realized. The federal net
operating loss carryforwards expire beginning in 2025 through
2029, and the state net operating loss carryforwards expire
beginning in 2014 through 2031 and may be subject to certain
limitations. We also had research tax credit and orphan drug
credit carryforwards of approximately $68.8 million
58
for federal income tax purposes that expire beginning in 2011
through 2030 and $12.1 million for California income tax
purposes that do not expire.
Utilization of the net operating loss and tax credit
carryforwards may be subject to substantial annual limitations
due to ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions.
As a result of these provisions, utilization of our net
operating losses would be limited in the event of any future
significant ownership changes. These annual limitations may
result in the expiration of net operating losses and tax credit
carryforwards before utilization. Please refer to Note 17
of the accompanying consolidated financial statements for
further information regarding income taxes.
Acquired
In-Process Research and Development
Intangible assets for in-process research and development, or
IPR&D, consist of product candidates resulting from our
acquisition of Proteolix, including carfilzomib, ONX 0912 and
ONX 0914. We determined that the combined estimated fair values
of carfilzomib, ONX 0912 and ONX 0914 was $438.8 million as
of November 16, 2009, or the Acquisition Date. We used an
income approach, which is a measurement of the present value of
the net economic benefit or cost expected to be derived from an
asset or liability, to measure the fair value of carfilzomib and
a cost approach to measure the fair values of ONX 0912 and ONX
0914. Under the income approach, an intangible assets fair
value is equal to the present value of the incremental after-tax
cash flows (excess earnings) attributable solely to the
intangible asset over its remaining useful life. Under the cost
approach, an intangible assets fair value is equal to the
costs incurred to-date to develop the asset to its current stage.
To calculate fair value of carfilzomib under the income
approach, we used probability-weighted cash flows discounted at
a rate considered appropriate given the inherent risks
associated with this type of asset. We estimated the fair value
of this asset using a present value discount rate based on the
estimated weighted-average cost of capital for companies with
profiles substantially similar to that of Proteolix. This is
comparable to the estimated internal rate of return for
Proteolixs operations and represents the rate that market
participants would use to value this asset. Cash flows were
generally assumed to extend either through or beyond the patent
life of the asset, depending on the circumstances particular to
the asset. In addition, we compensated for the phase of
development for this program by probability-adjusting our
estimation of the expected future cash flows. We believe that
the level and timing of cash flows appropriately reflect market
participant assumptions. The projected cash flows from this
project were based on key assumptions such as estimates of
revenues and operating profits related to the project
considering its stage of development; the time and resources
needed to complete the development and approval of the related
product candidate; the life of the potential commercialized
product and associated risks, including the inherent
difficulties and uncertainties in developing a drug compound
such as obtaining marketing approval from the FDA and other
regulatory agencies; and risks related to the viability of and
potential alternative treatments in any future target markets.
The resultant probability-weighted cash flows were then
discounted using a rate we believe is appropriate and
representative of a market participant assumption.
For the other two intangible assets acquired, ONX 0912 and 0914,
we used the costs incurred to-date by Proteolix to develop these
assets to their current stage as their fair value as result of
the lack of financial projections for these assets in their
current development stages.
These IPR&D programs represent Proteolixs incomplete
research and development projects which had not yet reached
technological feasibility at acquisition. A summary of these
programs and estimated fair values at the Acquisition Date is as
follows:
59
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Acquisition Date
|
|
|
|
|
|
Fair Value
|
|
Product Candidates
|
|
Description
|
|
(In thousands)
|
|
|
Carfilzomib
|
|
First in a new class of selective and irreversible proteasome
inhibitors
associated with prolonged target suppression, improved antitumor
activity and low neurotoxicity for treatment against multiple
myeloma and solid tumors.
|
|
$
|
435,000
|
|
ONX 0912
|
|
Oral proteasome inhibitor for treatment against hematologic and
solid tumors.
|
|
|
3,500
|
|
ONX 0914
|
|
Immunoproteasome inhibitor for treatment against rheumatoid
arthritis andinflammatory bowel disease.
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
438,800
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources
With the exception of the profitability we achieved for the
years ended December 31, 2009 and 2008, we have incurred
significant annual net losses since our inception and have
relied primarily on public and private financing, combined with
milestone payments we received from our collaborators, to fund
our operations.
At December 31, 2010, we had cash, cash equivalents and
current and non-current marketable securities of
$577.9 million, excluding $31.9 million of restricted
cash, compared to $587.3 million at December 31, 2009.
The decrease of $9.4 million was primarily attributable to
a $40.0 million payment to former Proteolix shareholders in
April 2010 for the achievement of a development milestone, a
$20.0 million payment to S*BIO in May 2010 for the
expansion and acceleration of the development collaboration
program for ONX 0803 and ONX 0805 and a $9.3 million
interest payment on our 2016 Notes, which were partially offset
by $59.2 million in license revenue received from Ono.
At December 31, 2009, we had cash, cash equivalents and
current and non-current marketable securities of
$587.3 million, excluding $27.6 million of restricted
cash, compared to $458.0 million at December 31, 2008.
The increase of $129.3 million was primarily attributable
to $356.7 million in net proceeds raised by our 2016 Notes
and equity financings in August 2009 and cash from operations of
$35.1 million, partially offset by our cash payment, net of
cash acquired, of $252.5 million to former Proteolix
stockholders in conjunction with our acquisition of Proteolix in
November 2009 and a $7.0 milestone payment to BTG.
In 2010, our cash provided by operations was $28.4 million,
compared to cash provided by operations of $35.1 million in
2009 and cash used in operations of $8.4 million in 2008.
In 2010, the cash provided by operations primarily related to
license revenue received from Ono of $59.2 million. In
2009, the cash provided by operations primarily related to net
income earned for the year. Expenditures for capital equipment
amounted to approximately $7.0 million in 2010,
$1.3 million in 2009, and $1.6 million in 2008.
Capital expenditures in 2010 were primarily for construction of
facilities in South San Francisco, California that we
leased and subleased beginning in July 2010 and for equipment to
accommodate our employee growth. Please refer to Note 12,
Facility Leases, of the accompanying consolidated
financial statements for further information. Capital
expenditures in 2009 and 2008 were primarily for equipment to
accommodate our employee growth.
At December 31, 2010, our investment portfolio includes
$32.7 million of AAA rated securities with an auction reset
feature (auction rate securities) that are
collateralized by student loans. In January 2011,
$2.7 million in securities were redeemed at par and,
accordingly, we classified these securities as current
marketable securities in the accompanying Consolidated Balance
Sheet at December 31, 2010. The remaining balance of
$29.9 million of par value auction rate securities is
currently outstanding in our investment portfolio. Since
February 2008, these types of securities have experienced
failures in the auction process. However, a limited number of
these securities have been redeemed at par by the issuing
agencies. As a result of the auction failures, interest rates on
these
60
securities reset at penalty rates linked to LIBOR or Treasury
bill rates. The penalty rates are generally higher than interest
rates set at auction. Based on the overall failure rate of these
auctions, the frequency of the failures, the underlying
maturities of the securities, a portion of which are greater
than 30 years, and our belief that the market for these
student loan collateralized instruments may take in excess of
twelve months to fully recover, we have classified the auction
rate securities with a par value of $29.9 million as
non-current marketable securities on the accompanying
Consolidated Balance Sheet. We have determined the fair value to
be $28.6 million for these securities, based on a
discounted cash flow model, and have reduced the carrying value
of these marketable securities by $1.4 million through
accumulated other comprehensive income (loss) instead of
earnings because we have deemed the impairment of these
securities to be temporary. Further adverse developments in the
credit market could result in an impairment charge through
earnings in the future. The discounted cash flow model used to
value these securities is based on a specific term and liquidity
assumptions. An increase in either of these assumptions could
result in a $1.2 million decrease in value. Alternatively,
a decrease in either of the assumptions could result in a
$1.2 million increase in value.
Currently, we believe these investments are not
other-than-temporarily
impaired as all of them are substantially backed by the federal
government, but it is not clear in what period of time they will
be settled. We do not intend to sell the securities and we
believe it is not more likely than not that we will be required
to sell the securities prior to the recovery of their amortized
cost bases. We believe that, even after reclassifying these
securities to non-current assets and the possible requirement to
hold all such securities for an indefinite period of time, our
remaining cash and cash and current marketable securities will
be sufficient to meet our anticipated cash needs beyond 2011.
We anticipate our operating costs to increase in 2011 as we
continue to incur expenses towards the development of
carfilzomib, ONX 0912 and ONX 0914. In addition, the terms of
the agreement and plan of merger for Proteolix provide that we
may be required to pay up to an additional $535.0 million
in earn-out payments upon the receipt of certain regulatory
approvals and the satisfaction of other milestones.
In July 2010, we entered into arrangements to lease and sublease
a total of approximately 126,493 square feet located at 249
East Grand Avenue, South San Francisco, California and
anticipate that we will incur cash outlays associated with the
lease and sublease of these premises. The total monthly base
rent in the first year for both the lease and sublease was
approximately $294,000 beginning in September 2010. The total
obligations under both of these operating leases will be
approximately $45.9 million.
We believe that our existing capital resources and interest
thereon will be sufficient to fund our current and planned
operations beyond 2011. However, if we change our development
plans, including acquiring or developing additional product
candidates or complementary businesses, we may need additional
funds sooner than we expect. We anticipate that we will incur
cash outlays to conduct and support additional clinical trials
both currently underway and planned for the development of
carfilzomib and our other development candidates. We also expect
to incur cash outlays as we prepare for a potential commercial
launch of carfilzomib, should it receive marketing approval. If
we exercise one or both of our options, ONX 0803 and ONX 0805,
we will be required to pay significant license fees and will
incur development expenses. Further, we may be obligated to make
up to an additional $535.0 million of contingent earn-out
payments upon the achievement of regulatory approvals for
carfilzomib in the U.S. and Europe, payable in either cash
or common stock, at our discretion. The terms of the development
and license agreement dated November 6, 2008 with BTG
provide that we may be required to make payments to BTG of up to
$65.0 million upon the attainment of certain global
development and regulatory milestones, plus additional milestone
payments upon the achievement of certain marketing approvals and
commercial milestones.
While most of our anticipated development costs are unknown at
the current time, we may need to raise additional capital to
continue the funding of our product development programs and our
development plans in future periods beyond 2011. We intend to
seek any required additional funding through collaborations,
public and private equity or debt financings, capital lease
transactions or other available financing sources. Additional
financing may not be available on acceptable terms, if at all.
If additional funds are raised by issuing equity securities,
substantial dilution to existing stockholders may result. If
adequate funds are not available, we may be required to delay,
reduce the scope of or eliminate one or more of our development
programs or to obtain funds through collaborations with others
that are on unfavorable terms or that may require us to
relinquish rights to certain of our technologies, product
candidates or products that we would otherwise seek to develop
on our own.
61
Contractual
Obligations and Commitments
Our contractual obligations for the next five years and
thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
After
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Convertible senior notes due 2016
|
|
$
|
285,200
|
|
|
$
|
9,200
|
|
|
$
|
18,400
|
|
|
$
|
18,400
|
|
|
$
|
239,200
|
|
Operating leases, net of sublease income
|
|
|
61,494
|
|
|
|
7,345
|
|
|
|
15,608
|
|
|
|
10,036
|
|
|
|
28,505
|
|
Liability for contingent consideration
|
|
|
535,000
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Milestone payments BTG
|
|
|
65,000
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Milestone payments S*BIO
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
946,694
|
|
|
$
|
16,545
|
|
|
$
|
34,008
|
|
|
$
|
28,436
|
|
|
$
|
267,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The terms of the Agreement and Plan of Merger dated
October 12, 2009 and Amendment No. 1 to the Agreement
and Plan of Merger dated January 27, 2011 for the
acquisition of Proteolix provide that we may be required to pay
up to an additional $535.0 million in earn-out payments
upon the receipt of certain regulatory approvals and the
satisfaction of other milestones. This amount is not included in
the above table as the timing and payment amounts are unknown.
See Note 5 Acquisition of Proteolix of the
accompanying consolidated financial statements for further
information regarding the amounts payable to former stockholders
of Proteolix. |
|
(2) |
|
The terms of the development and license agreement dated
November 6, 2008 with BTG provide that we may be required
to make payments to BTG of up to $65.0 million upon the
attainment of certain global development and regulatory
milestones, plus additional milestone payments upon the
achievement of certain marketing approvals and commercial
milestones. We are also required to pay royalties to BTG on any
future product sales. |
|
(3) |
|
Under the terms of the agreement dated December 24, 2008
with S*BIO, we were granted options which, if we exercise them,
would give us rights to exclusively develop and commercialize
ONX 0803 and/or ONX 0805 for all potential indications in the
United States, Canada and Europe. Under this agreement, S*BIO
will retain responsibility for all development costs prior to
the option exercise. After the exercise of our option to license
rights to either compound, we are required to assume development
costs for the U.S., Canada and Europe subject to S*BIOs
option to fund a portion of the development costs in return for
enhanced royalties on any future product sales. Upon the
exercise of our option of either compound, S*BIO we are required
to pay a one-time option fee, milestone payments upon
achievement of certain development and sales levels and
royalties on any future product sales. |
Our corporate headquarters, including our principal offices, are
located in Emeryville, California. We began occupying these
premises in December 2004 and lease a total 60,000 square
feet of office space, which expire in 2013. We also acquired a
lease for 67,000 square feet of office and laboratory space
in South San Francisco, California, which has a remaining
period of four years with the option to extend the lease for two
additional one-year terms. In addition, we leased
9,000 square feet of space in Richmond, California that was
subleased through the expiration of that lease in September
2010. In July 2010, we entered into arrangements to lease and
sublease a total of approximately 126,493 square feet
located in South San Francisco, California. The lease and
the sublease expire in 2021 and 2015, respectively. Upon
expiration of the sublease, the lease will be automatically
expanded to include the premises subject to the sublease. The
lease includes two successive five-year options to extend the
term of the lease. The lease also includes a one-time option
exercisable until 2014 to lease additional premises that will be
constructed after the exercise of the option. If the option is
exercised, the term of the lease will be automatically extended
by ten years. Please refer to Note 12 in the accompanying
Consolidated Financial Statements for further information
regarding our lease obligations.
Off-Balance
Sheet Arrangements
As of December 31, 2010, we did not have any material
off-balance sheet arrangements (as defined in
Item 303(a)(4)(ii) of
Regulation S-K).
62
Recent
Accounting Pronouncements
In October 2009, the FASB issued ASU
No. 2009-13,
Multiple Deliverable Revenue Arrangements, impacting the
determination of when the individual deliverables included in a
multiple element arrangement may be treated as separate units of
accounting. Additionally, ASU
2009-13
modifies the manner in which the transaction consideration is
allocated across the separately identified deliverables by no
longer permitting the residual method of allocating arrangement
consideration. This ASU will be effective for periods beginning
on or after June 15, 2010. Early application is permitted.
Entities can apply this guidance prospectively to milestones
achieved after adoption. However, retrospective application to
all prior periods is also permitted. In the second quarter of
2010, we adopted ASU
2009-13
effective January 1, 2010 on a prospective basis for
applicable transactions originating or materially modified after
December 31, 2009. The new accounting standards for revenue
recognition, if applied in the same manner to the year ended
December 31, 2009, would not have had a material impact on
our financial statements. In terms of the timing and pattern of
revenue recognition, the new accounting guidance for revenue
recognition had a significant effect on revenue in periods after
the initial adoption, as we entered into a multiple element
arrangement with Ono in September 2010. In accordance with ASU
2009-13, we
identified the license in the exclusive license agreement
entered into with Ono as a separate non-contingent deliverable
and recognized $59.2 million of revenue allocated to the
license in September 2010 when all related knowledge and data
had been transferred. Refer to Note 3 in the Consolidated
Financial Statements for further information.
In April 2010, the FASB issued ASU
No. 2010-17,
Milestone Method of Revenue Recognition, to
(1) limit the scope of this ASU to research or development
arrangements and (2) require that guidance in this ASU be
met for an entity to apply the milestone method (record the
milestone payment in its entirety in the period received).
However, the FASB clarified that, even if the requirements in
this ASU are met, entities would not be precluded from making an
accounting policy election to apply another appropriate
accounting policy that results in the deferral of some portion
of the arrangement consideration. The ASU will be effective for
periods beginning on or after June 15, 2010. Early
application is permitted. Entities can apply this guidance
prospectively to milestones achieved after adoption. However,
retrospective application to all prior periods is also
permitted. We adopted ASU
2010-17
effective January 1, 2010 and determined that the adoption
did not have any impact on our financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Interest
Rate and Market Risk
The primary objective of our investment activities is to
preserve principal while at the same time maximize the income we
receive from our investments without significantly increasing
risk. Our exposure to market rate risk for changes in interest
rates relates primarily to our investment portfolio. This means
that a change in prevailing interest rates may cause the
principal amount of the investments to fluctuate. Under our
policy, we minimize risk by placing our investments with high
quality debt security issuers, limit the amount of credit
exposure to any one issuer, limit duration by restricting the
term, and hold investments to maturity except under rare
circumstances.
We maintain our portfolio of cash equivalents and marketable
securities in a variety of securities, including commercial
paper, money market funds and investment grade government and
non-government debt securities. Through our money managers, we
maintain risk management control systems to monitor interest
rate risk. The risk management control systems use analytical
techniques, including sensitivity analysis. If market interest
rates were to increase or decrease by 100 basis points, or
1%, as of December 31, 2010, the fair value of our
portfolio would decline or increase, respectively, by
approximately $1.7 million. Additionally, a hypothetical
increase or decrease of 1% in market interest rates for the year
ended December 31, 2010 would have resulted in a
$4.6 million change in our investment income for the year
ended December 31, 2010.
63
The table below presents the amounts and related weighted
interest rates of our cash equivalents and marketable securities
at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Fair Value
|
|
Interest
|
|
|
|
Fair Value
|
|
Interest
|
|
|
Maturity
|
|
(In millions)
|
|
Rate
|
|
Maturity
|
|
(In millions)
|
|
Rate
|
|
Cash equivalents, fixed rate
|
|
|
0 3 months
|
|
|
$
|
113.9
|
|
|
|
0.48
|
%
|
|
|
0 3 months
|
|
|
$
|
103.2
|
|
|
|
|
|
|
0.11%
|
Marketable securities, fixed rate
|
|
|
0 20 months
|
|
|
$
|
351.5
|
|
|
|
0.57
|
%
|
|
|
0 12 months
|
|
|
$
|
479.6
|
|
|
|
|
|
|
0.53%
|
Our 2016 Notes, with a total par value of $230.0 million at
December 31, 2010, bear interest at a fixed rate of 4.0%.
Due to the fixed interest rate, we have no exposure to interest
rate fluctuations. However, underlying market risk exists
related to an increase in our stock price which may make the
conversion of our 2016 Notes to common stock beneficial to the
holders of such notes. Conversion of the 2016 Notes currently
would have a dilutive effect on any future earnings and book
value per common share.
Liquidity
Risk
At December 31, 2010, our investment portfolio includes
$32.7 million of AAA rated auction rate securities
collateralized by student loans. In January 2011,
$2.7 million in securities were redeemed at par and,
accordingly, we classified these securities as current
marketable securities in the accompanying Consolidated Balance
Sheet at December 31, 2010. The remaining balance of
$29.9 million of par value auction rate securities is
currently outstanding in our investment portfolio. Since
February 2008, securities of this type have experienced failures
in the auction process. However, a limited number of these
securities have been redeemed at par by the issuing agencies. As
a result of the auction failures, interest rates on these
securities reset at penalty rates linked to LIBOR or Treasury
bill rates. The penalty rates are generally higher than interest
rates set at auction. Based on the overall failure rate of these
auctions, the frequency of the failures, the underlying
maturities of the securities, a portion of which are greater
than 30 years, and our belief that the market for these
student loan collateralized instruments may take in excess of
twelve months to fully recover, we have classified the auction
rate securities with a par value of $29.9 million as
non-current marketable securities on the accompanying
Consolidated Balance Sheet. We have determined the fair value to
be $28.6 million for these securities, based on a
discounted cash flow model, and have reduced the carrying value
of these marketable securities by $1.4 million through
accumulated other comprehensive income (loss) instead of
earnings because we have deemed the impairment of these
securities to be temporary. We do not intend to sell the
securities and we believe it is not more likely than not that we
will be required to sell the securities prior to the recovery of
their amortized cost bases.
Foreign
Currency Exchange Rate Risk
A majority of Nexavar sales are generated outside of the United
States, and a significant percentage of Nexavar commercial and
development expenses are incurred outside of the United States.
Our revenue from collaboration agreement is dependent on these
foreign currency denominated activities. In addition, we incur
research and development and general and administrative expenses
outside of the United States. As a result of these underlying
non-U.S. Dollar
denominated activities, fluctuations in foreign currency
exchange rates affect our operating results. Changes in exchange
rates between these foreign currencies and the U.S. Dollar
will affect the recorded levels of our assets and liabilities as
foreign assets and liabilities are translated into
U.S. Dollars for presentation in our financial statements,
as well as our operating margins. The primary foreign currencies
that we are exposed to are the Euro and the Japanese Yen. A
hypothetical increase or decrease of 1% in exchange rates
between the Euro versus the U.S. Dollar during the year
ended December 31, 2010 would have resulted in a
$1.0 million change in our net income based on our expected
exposures. A hypothetical increase or decrease of 1% in exchange
rates between the Japanese Yen versus the U.S. Dollar
during the year ended December 31, 2010 would have resulted
in a $0.1 million change in our net income based on our
expected exposures. For these currencies, we utilize average
exchange rates for the reporting period.
As we expand, we could be exposed to exchange rate fluctuation
in other currencies. Exchange rates between foreign currencies
and U.S. Dollars have fluctuated significantly in recent
years and may do so in the future. Commencing in the third
quarter of 2010, we established a foreign currency hedging
program. The objective of the program is to mitigate the foreign
exchange risk arising from transactions or cash flows that have
a direct or underlying exposure in
64
non-U.S. Dollar
denominated currencies in order to reduce volatility in our cash
flow and earnings. Currently, we hedge a certain portion of our
foreign currency exchange rate exposure with options, typically
no more than one year into the future. These derivative
instruments, which include derivative instruments that have been
designated as hedges under ASC 815, Derivatives and
Hedging, are intended to reduce the effects of variations in
our cash flow resulting from fluctuations in foreign currency
exchange rates. However, in certain circumstances, these
derivative instruments may expose us to the risk of financial
loss. Our cash flows are denominated in U.S. Dollars.
|
|
Item 8.
|
Consolidated
Financial Statements and Supplementary Data
|
Our Consolidated Financial Statements and notes thereto appear
on pages 70 to 108 of this Annual Report on
Form 10-K.
|
|
Item 9.
|
Changes
In and Disagreements With Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation of Disclosure Controls and
Procedures: The Companys chief executive
officer and principal financial officer reviewed and evaluated
the Companys disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended). Based on
that evaluation, the Companys chief executive officer and
principal financial officer concluded that the Companys
disclosure controls and procedures were effective at the
reasonable assurance level as of December 31, 2010 to
ensure the information required to be disclosed by the Company
in this Annual Report on
Form 10-K
is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms.
Managements Report on Internal Control over Financial
Reporting: The Companys management is
responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended). Under
the supervision and with the participation of the Companys
management, including the chief executive officer and principal
financial officer, the Company conducted an evaluation of the
effectiveness of internal control over financial reporting as of
December 31, 2010. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO in Internal
Control-Integrated Framework. The Companys management has
concluded that, as of December 31, 2010, the Companys
internal control over financial reporting is effective at the
reasonable assurance level based on these criteria.
The effectiveness of our internal control over financial
reporting as of December 31, 2010 has been audited by
Ernst & Young LLP, our independent registered public
accounting firm, as stated in their attestation report, which is
included herein.
Changes in Internal Control over Financial
Reporting: There were no changes in the
Companys internal control over financial reporting during
the quarter ended December 31, 2010 that have materially
affected, or are reasonably likely to materially affect the
Companys internal control over financial reporting.
Inherent Limitations on Effectiveness of
Controls: Internal control over financial
reporting may not prevent or detect all errors and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Also, projections of
any evaluation of effectiveness of internal control to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Accordingly, our disclosure controls and procedures are designed
to provide reasonable, not absolute, assurance that the
objectives of our disclosure control system are met and, as set
forth above, our principal executive officer and principal
financial officer have concluded, based on their evaluation as
of the end of the period covered by this report, that our
disclosure controls and procedures were effective at the
reasonable assurance level to ensure that the objectives of our
disclosure control system were met.
65
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Onyx Pharmaceuticals,
Inc.
We have audited Onyx Pharmaceuticals, Inc.s internal
control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Onyx Pharmaceuticals, Inc.s management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Onyx Pharmaceuticals, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Onyx Pharmaceuticals, Inc. as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2010 of Onyx Pharmaceuticals, Inc. and our
report dated February 23, 2011 expressed an unqualified
opinion thereon.
Palo Alto, California
February 23, 2011
66
|
|
Item 9B.
|
Other
information
|
Not applicable.
PART III.
Certain information required by Part III is omitted from
this Annual Report on
Form 10-K
because the registrant will file with the U.S. Securities
and Exchange Commission a definitive proxy statement pursuant to
Regulation 14A in connection with the solicitation of
proxies for the Companys Annual Meeting of Stockholders to
be held on May 26, 2011, or the 2011 Definitive Proxy
Statement, not later than 120 days after the end of the
fiscal year covered by this Annual Report on
Form 10-K,
and certain information included therein is incorporated herein
by reference.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required under this Item 10 is incorporated
by reference from our 2011 Definitive Proxy Statement.
|
|
Item 11.
|
Executive
Compensation
|
The information required under this Item 11 is incorporated
by reference from our 2011 Definitive Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required under this Item 12 with respect to
security ownership of certain beneficial owners and management
is incorporated by reference from our 2011 Definitive Proxy
Statement.
Securities
Authorized for Issuance Under Equity Compensation Plans as of
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of securities
|
|
|
securities to be
|
|
|
|
remaining available for
|
|
|
issued upon exercise
|
|
Weighted-average
|
|
future issuance under
|
|
|
of outstanding
|
|
exercise price of
|
|
equity compensation plans
|
|
|
options
|
|
outstanding options
|
|
(excluding securities
|
|
|
and rights
|
|
and rights
|
|
reflected in column a)
|
Plan Category(1)
|
|
Column a
|
|
Column b
|
|
Column c
|
|
Equity compensation plans approved by security holders
|
|
|
6,274,471
|
|
|
$
|
29.48
|
|
|
|
6,566,178
|
(2)
|
|
|
|
(1) |
|
We have no equity compensation plans not approved by security
holders. |
|
(2) |
|
This amount includes 355,336 shares that remain available
for purchase under our Employee Stock Purchase Plan. Under the
2005 Equity Incentive Plan, as amended, shares available for
issuance should be reduced by one and six tenths (1.6) shares
for each share of common stock available for issuance pursuant
to a stock purchase award, stock bonus award, stock unit award
or other stock award granted. With this adjustment, the total
amount available for future issuance would be reduced to
4,237,112 shares. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required under this Item 13 is incorporated
by reference from our 2011 Definitive Proxy Statement.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required under this Item 14 is incorporated
by reference from our 2011 Definitive Proxy Statement.
Consistent with Section 10A (i)(2) of the Securities
Exchange Act of 1934, as amended, as added by Section 202
of the Sarbanes-Oxley Act of 2002, we are responsible for
listing the non-audit services approved by our Audit Committee
to be performed by Ernst & Young LLP, our independent
registered public accounting firm. Non-audit services are
defined as services other than those provided in connection with
an audit or a review of our consolidated financial statements.
Ernst & Young LLP did not provide any non-audit
services related to the year ended December 31, 2010.
67
PART IV.
|
|
Item 15.
|
Exhibits,
Consolidated Financial Statement Schedules
|
|
|
(a)
|
Documents
filed as part of this report.
|
|
|
(1)
|
Index to
Consolidated Financial Statements
|
The Consolidated Financial Statements required by this item are
submitted in a separate section beginning on page 73 of
this Report.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Stockholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
|
|
(2)
|
Consolidated
Financial Statement Schedules
|
Consolidated Financial statement schedules have been omitted
because the information required to be set forth therein is not
applicable.
Exhibits
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
2.1(1)*
|
|
Agreement and Plan of Merger dated as of October 10, 2009
among the Company, Proteolix, Inc., Profiterole Acquisition
Corp., and Shareholder Representative Services LLC.
|
3.1(2)
|
|
Restated Certificate of Incorporation of the Company.
|
3.2(3)
|
|
Amended and Restated Bylaws of the Company.
|
3.3(4)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
3.4(5)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
4.1
|
|
Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
|
4.2(2)
|
|
Specimen Stock Certificate.
|
4.3(6)
|
|
Indenture dated as of August 12, 2009 between the Company
and Wells Fargo Bank, National Association.
|
4.4(6)
|
|
First Supplemental Indenture dated as of August 12, 2009
between the Company and Wells Fargo Bank, National Association.
|
4.5(6)
|
|
Form of 4.00% Convertible Senior Note due 2016.
|
10.1(i)(7)*
|
|
Collaboration Agreement between Bayer Corporation (formerly
Miles, Inc.) and the Company dated April 22, 1994.
|
10.1(ii)(7)*
|
|
Amendment to Collaboration Agreement between Bayer Corporation
and the Company dated April 24, 1996.
|
10.1(iii)(7)*
|
|
Amendment to Collaboration Agreement between Bayer Corporation
and the Company dated February 1, 1999.
|
10.2(i)*
|
|
Amended and Restated Research, Development and Marketing
Collaboration Agreement effective as of May 2, 1995 between
the Company and Warner-Lambert Company.
|
10.2(ii)(8)*
|
|
Research, Development and Marketing Collaboration Agreement
dated July 31, 1997 between the Company and Warner-Lambert
Company.
|
68
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
10.2(iii)(8)*
|
|
Amendment to the Amended and Restated Research, Development and
Marketing Collaboration Agreement, dated December 15, 1997,
between the Company and Warner-Lambert Company.
|
10.2(iv)(8)*
|
|
Second Amendment to the Amended and Restated Research,
Development and Marketing Agreement between Warner-Lambert and
the Company dated May 2, 1995.
|
10.2(v)(8)*
|
|
Second Amendment to Research, Development and Marketing
Collaboration Agreement between Warner-Lambert and the Company
dated July 31, 1997.
|
10.2(vi)(9)*
|
|
Amendment #3 to the Research, Development and Marketing
Collaboration Agreement between the Company and Warner-Lambert
dated August 6, 2001.
|
10.2(vii)(10)*
|
|
Amendment #3 to the Amended and Restated Research, Development
and Marketing Collaboration Agreement between the Company and
Warner-Lambert dated August 6, 2001.
|
10.3(11)*
|
|
Technology Transfer Agreement dated April 24, 1992 between
Chiron Corporation and the Company, as amended in the Chiron
Onyx HPV Addendum dated December 2, 1992, in the Amendment
dated February 1, 1994, in the Letter Agreement dated
May 20, 1994 and in the Letter Agreement dated
March 29, 1996.
|
10.4(2)+
|
|
Letter Agreement between Dr. Gregory Giotta and the Company
dated May 26, 1995.
|
10.5(2)+
|
|
1996 Equity Incentive Plan.
|
10.6(2)+
|
|
1996 Non-Employee Directors Stock Option Plan.
|
10.7(12)+
|
|
1996 Employee Stock Purchase Plan.
|
10.8(2)+
|
|
Form of Indemnity Agreement to be signed by executive officers
and directors of the Company.
|
10.9(13)+
|
|
Form of Executive Change in Control Severance Benefits Agreement.
|
10.10(i)(14)*
|
|
Collaboration Agreement between the Company and Warner-Lambert
Company dated October 13, 1999.
|
10.10(ii)(9)*
|
|
Amendment #1 to the Collaboration Agreement between the Company
and Warner-Lambert dated August 6, 2001.
|
10.10(ii)(15)*
|
|
Second Amendment to the Collaboration Agreement between the
Company and Warner-Lambert Company dated September 16, 2002.
|
10.11(16)
|
|
Stock and Warrant Purchase Agreement between the Company and the
investors dated May 6, 2002.
|
10.12(i)(17)
|
|
Sublease between the Company and Siebel Systems dated
August 5, 2004.
|
10.12(ii)(18)
|
|
First Amendment to Sublease between the Company and Oracle USA
Inc., dated November 3, 2006.
|
10.13(i)(19)+
|
|
2005 Equity Incentive Plan.
|
10.13(ii)(18)+
|
|
Form of Stock Option Agreement pursuant to the 2005 Equity
Incentive Plan.
|
10.13(iii)(18)+
|
|
Form of Stock Option Agreement pursuant to the 2005 Equity
Incentive Plan and the Non-Discretionary Grant Program for
Directors.
|
10.13(iv)(20)+
|
|
Form of Stock Bonus Award Grant Notice and Agreement between the
Company and certain award recipients.
|
10.14(7)*
|
|
United States Co-Promotion Agreement by and between the Company
and Bayer Pharmaceuticals Corporation, dated March 6, 2006.
|
10.15(21)+
|
|
Letter Agreement between Laura A. Brege and the Company, dated
May 19, 2006.
|
10.16
|
|
Reserved.
|
10.17(22)
|
|
Common Stock Purchase Agreement between the Company and Azimuth
Opportunity Ltd., dated September 29, 2006.
|
10.18(32)+
|
|
Letter Agreement between Michael Kauffman, M.D., and the
Company, dated October 10, 2009.
|
10.19(31)+
|
|
Base Salaries and Bonus Potential for Fiscal Year 2010, Cash
Bonuses for Fiscal Year 2009 and 2010 Equity Compensation Awards
for Named Executive Officers.
|
10.20(i)(24)+
|
|
Employment Agreement between the Company and N. Anthony
Coles, M.D., dated as of February 22, 2008.
|
69
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
10.20(ii)(23)
|
|
Amendment to Executive Employment Agreement between the Company
and N. Anthony Coles, M.D., effective as of March 12,
2009.
|
10.21(24)+
|
|
Executive Change in Control Severance Benefits Agreement between
the Company and N. Anthony Coles, M.D., dated as of
February 22, 2008.
|
10.22(32)**
|
|
License and Supply Agreement, dated October 12, 2005, by
and between CyDex, Inc. and Proteolix, Inc., as amended.
|
10.23
|
|
Reserved.
|
10.24
|
|
Reserved.
|
10.25(3)+
|
|
Onyx Pharmaceuticals, Inc. Executive Severance Benefit Plan.
|
10.26(26)+
|
|
Letter Agreement between the Company and Matthew K. Fust, dated
December 12, 2008.
|
10.27(27)*
|
|
Development and License Agreement between the Company and BTG
International Limited, dated as of November 6, 2008.
|
10.28(i)(23)+
|
|
Letter Agreement between the Company and Juergen
Lasowski, Ph.D., dated April 28, 2008.
|
10.28(ii)(23)+
|
|
Amendment to Letter Agreement between the Company and Juergen
Lasowski, Ph.D., effective as of March 12, 2009.
|
10.29(28)+
|
|
Executive Employment Agreement between the Company and Suzanne
M. Shema, effective as of August 31, 2009.
|
10.30(29)+
|
|
Letter Agreement between the Company and Ted Love, M.D.,
effective as of January 28, 2010.
|
10.31(29)+
|
|
Letter Agreement between the Company and Michael
Kauffman, M.D., effective as of April 1, 2010.
|
10.32(30)+
|
|
Letter Agreement between the Company and Kaye Foster-Cheek,
effective as of September 30, 2010.
|
10.33(30)+
|
|
Separation and Consulting Agreement between the Company and Judy
Batlin, effective as of September 30, 2010.
|
10.34(30)
|
|
Lease Agreement between the Company and ARE-SAN FRANCISCO,
No. 12, LLC, dated as of July 9, 2010, as amended by
that certain Letter Agreement between the Company and ARE-SAN
FRANCISCO No. 12, dated as of July 9, 2010.
|
10.35(30)
|
|
Sublease between the Company and Exelixis, Inc., dated as of
July 9, 2010
|
10.36(30)*
|
|
License, Development and Commercialization Agreement between the
Company and Ono Pharmaceutical Co., Ltd., dated as of
September 7, 2010.
|
10.37+
|
|
Separation and Consulting Agreement between the Company and
Michael Kauffman, effective as of December 31, 2010.
|
21.1
|
|
Subsidiaries of the Registrant.
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
24.1
|
|
Power of Attorney. Reference is made to the signature page.
|
31.1
|
|
Certification of Principal Executive Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a).
|
31.2
|
|
Certification of Principal Financial Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a).
|
32.1
|
|
Certifications required by
Rule 13a-14(b)
or
Rule 15d-14(b)and
Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. 1350).
|
|
|
|
* |
|
Confidential treatment has been received for portions of this
document. |
|
** |
|
Confidential treatment has been sought for portions of this
document. |
|
+ |
|
Indicates management contract or compensatory plan or
arrangement. |
|
(1) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on October 13, 2009. |
|
(2) |
|
Filed as an exhibit to Onyxs Registration Statement on
Form SB-2
(No. 333-3176-LA). |
|
(3) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 5, 2008. |
70
|
|
|
(4) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2000. |
|
(5) |
|
Filed as an exhibit to Onyxs Registration Statement on
Form S-3
(No. 333-134565)
filed on May 30, 2006. |
|
(6) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on August 12, 2009. |
|
(7) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission. |
|
(8) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2002. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission. |
|
(9) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2001. |
|
(10) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission. |
|
(11) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2001. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission. |
|
(12) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on May 25, 2007. |
|
(13) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 10, 2008. |
|
(14) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on March 1, 2000. |
|
(15) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002. |
|
(16) |
|
Filed as an exhibit to Onyxs Registration Statement on
Form S-3
filed on June 5, 2002
(No. 333-89850). |
|
(17) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004. |
|
(18) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2006. |
|
(19) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on May 28, 2010 |
|
(20) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on July 12, 2006. |
|
(21) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 12, 2006. |
|
(22) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on September 29, 2006. |
|
(23) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009. |
|
(24) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on February 26, 2008. |
|
(25) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 23, 2008. |
|
(26) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 23, 2008. |
|
(27) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2008. |
|
(28) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009. |
|
(29) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010. |
|
(30) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2010. |
|
(31) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on February 19, 2010. |
|
(32) |
|
Filed as an exhibit to Onyxs Annual Report on Form 10-K
for the year ended December 31, 2009. |
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this Annual Report on
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Emeryville, County of Alameda, State
of California, on the 23rd day of February, 2011.
Onyx Pharmaceuticals, inc.
N. Anthony Coles
President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints N. Anthony
Coles and Matthew K. Fust or either of them, his or her
attorney-in-fact, each with the power of substitution, for him
or her in any and all capacities, to sign any amendments to this
Annual Report on
Form 10-K,
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his or her substitute or substitutes,
may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the
dates stated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ N.
ANTHONY COLES
N.
Anthony Coles
|
|
President and Chief Executive Officer (Principal Executive
Officer)
|
|
February 23, 2011
|
|
|
|
|
|
/s/ MATTHEW
K. FUST
Matthew
K. Fust
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
February 23, 2011
|
|
|
|
|
|
/s/ PAUL
GODDARD
Paul
Goddard, Ph.D.
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ ANTONIO
GRILLO-LOPEZ
Antonio
Grillo-Lopez, M.D.
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ MAGNUS
LUNDBERG
Magnus
Lundberg
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ CORINNE
H. NEVINNY
Corinne
H. Nevinny
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ WILLIAM
R. RINGO
William
R. Ringo
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ WENDELL
WIERENGA
Wendell
Wierenga, Ph.D.
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ THOMAS
G. WIGGANS
Thomas
G. Wiggans
|
|
Director
|
|
February 23, 2011
|
72
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Onyx Pharmaceuticals,
Inc.
We have audited the accompanying consolidated balance sheets of
Onyx Pharmaceuticals, Inc. as of December 31, 2010 and
2009, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Onyx Pharmaceuticals, Inc. at
December 31, 2010 and 2009, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2010, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Onyx
Pharmaceuticals, Inc.s internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 23, 2011 expressed
an unqualified opinion thereon.
Palo Alto, California
February 23, 2011
73
ONYX
PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
226,340
|
|
|
$
|
107,668
|
|
Marketable securities, current
|
|
|
322,973
|
|
|
|
442,440
|
|
Restricted cash
|
|
|
31,910
|
|
|
|
27,600
|
|
Receivable from collaboration partners
|
|
|
51,412
|
|
|
|
51,418
|
|
Prepaid expenses and other current assets
|
|
|
12,549
|
|
|
|
9,597
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
645,184
|
|
|
|
638,723
|
|
Marketable securities, non-current
|
|
|
28,555
|
|
|
|
37,174
|
|
Property and equipment, net
|
|
|
10,822
|
|
|
|
7,473
|
|
Intangible assets in-process research and development
|
|
|
438,800
|
|
|
|
438,800
|
|
Goodwill
|
|
|
193,675
|
|
|
|
193,675
|
|
Other assets
|
|
|
35,599
|
|
|
|
8,835
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,352,635
|
|
|
$
|
1,324,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
16
|
|
|
$
|
1,363
|
|
Accrued liabilities
|
|
|
16,866
|
|
|
|
11,852
|
|
Accrued clinical trials and related expenses
|
|
|
15,093
|
|
|
|
13,815
|
|
Accrued compensation
|
|
|
9,251
|
|
|
|
13,148
|
|
Liability for contingent consideration, current
|
|
|
-
|
|
|
|
40,000
|
|
Escrow account liability
|
|
|
31,634
|
|
|
|
27,600
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
72,860
|
|
|
|
107,778
|
|
Convertible senior notes due 2016
|
|
|
152,701
|
|
|
|
143,669
|
|
Liability for contingent consideration, non-current
|
|
|
253,458
|
|
|
|
160,528
|
|
Deferred tax liability
|
|
|
157,090
|
|
|
|
157,090
|
|
Other liabilities
|
|
|
18,952
|
|
|
|
5,059
|
|
Commitments and contingencies (Notes 5, 12 and 18)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 100,000,000 shares
authorized; 62,855,376 and 62,260,183 shares issued and
outstanding as of December 31, 2010 and 2009, respectively
|
|
|
63
|
|
|
|
62
|
|
Additional paid-in capital
|
|
|
1,238,204
|
|
|
|
1,207,010
|
|
Receivable from stock option exercises
|
|
|
(6
|
)
|
|
|
(5
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,291
|
)
|
|
|
(1,962
|
)
|
Accumulated deficit
|
|
|
(539,396
|
)
|
|
|
(454,549
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
697,574
|
|
|
|
750,556
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,352,635
|
|
|
$
|
1,324,680
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
74
ONYX
PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
( In thousands, except per share amounts )
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
265,350
|
|
|
$
|
250,390
|
|
|
$
|
194,343
|
|
License revenue
|
|
|
59,165
|
|
|
|
-
|
|
|
|
-
|
|
Contract revenue from collaborations
|
|
|
-
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
324,515
|
|
|
|
251,390
|
|
|
|
194,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
185,740
|
|
|
|
128,506
|
|
|
|
123,749
|
|
Selling, general and administrative
|
|
|
114,167
|
|
|
|
101,132
|
|
|
|
80,994
|
|
Contingent consideration
|
|
|
92,930
|
|
|
|
1,528
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
392,837
|
|
|
|
231,166
|
|
|
|
204,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(68,322
|
)
|
|
|
20,224
|
|
|
|
(10,400
|
)
|
Investment income, net
|
|
|
2,829
|
|
|
|
4,028
|
|
|
|
12,695
|
|
Interest expense
|
|
|
(19,400
|
)
|
|
|
(6,858
|
)
|
|
|
-
|
|
Other expense
|
|
|
(773
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
(85,666
|
)
|
|
|
17,394
|
|
|
|
2,295
|
|
Provision (benefit) for income taxes
|
|
|
(819
|
)
|
|
|
1,233
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(84,847
|
)
|
|
$
|
16,161
|
|
|
$
|
1,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(1.35
|
)
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(1.35
|
)
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share
|
|
|
62,618
|
|
|
|
59,215
|
|
|
|
55,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
62,618
|
|
|
|
59,507
|
|
|
|
56,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
75
ONYX
PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Stock
|
|
|
Comprehensive
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Option
|
|
|
Income
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Exercises
|
|
|
(Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(In thousands, except shares and per share amounts)
|
|
|
Balances at December 31, 2007
|
|
|
55,324,887
|
|
|
$
|
56
|
|
|
$
|
904,506
|
|
|
$
|
(23
|
)
|
|
$
|
356
|
|
|
$
|
(472,658
|
)
|
|
$
|
432,237
|
|
Exercise of stock options
|
|
|
1,145,281
|
|
|
|
1
|
|
|
|
25,060
|
|
|
|
(432
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
24,629
|
|
Stock-based compensation, related to stock option grants
|
|
|
-
|
|
|
|
-
|
|
|
|
16,779
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,779
|
|
Tax benefit associated with stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
Issuance of common stock pursuant to employee stock purchase plan
|
|
|
37,631
|
|
|
|
-
|
|
|
|
1,386
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,386
|
|
Restricted stock awards issued, net of forfeitures
|
|
|
52,445
|
|
|
|
-
|
|
|
|
2,785
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,785
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,676
|
)
|
|
|
-
|
|
|
|
(4,676
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,948
|
|
|
|
1,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
56,560,244
|
|
|
|
57
|
|
|
|
950,628
|
|
|
|
(455
|
)
|
|
|
(4,320
|
)
|
|
|
(470,710
|
)
|
|
|
475,200
|
|
Exercise of stock options
|
|
|
552,607
|
|
|
|
-
|
|
|
|
12,167
|
|
|
|
450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,617
|
|
Issuance of common stock in connection with follow-on public
offering
|
|
|
4,600,000
|
|
|
|
5
|
|
|
|
133,914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133,919
|
|
Warrant exercise
|
|
|
5,852
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock-based compensation, related to stock option grants
|
|
|
-
|
|
|
|
-
|
|
|
|
16,669
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,669
|
|
Tax benefit associated with stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
Issuance of common stock pursuant to employee stock purchase plan
|
|
|
45,435
|
|
|
|
-
|
|
|
|
1,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,647
|
|
Restricted stock awards issued, net of forfeitures
|
|
|
496,045
|
|
|
|
-
|
|
|
|
5,390
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
5,390
|
|
Equity component of convertible senior notes due 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
86,560
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86,560
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,358
|
|
|
|
-
|
|
|
|
2,358
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,161
|
|
|
|
16,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
62,260,183
|
|
|
|
62
|
|
|
|
1,207,010
|
|
|
|
(5
|
)
|
|
|
(1,962
|
)
|
|
|
(454,549
|
)
|
|
|
750,556
|
|
Exercise of stock options
|
|
|
323,436
|
|
|
|
1
|
|
|
|
6,863
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
6,863
|
|
Stock-based compensation, related to stock option grants
|
|
|
-
|
|
|
|
-
|
|
|
|
17,385
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,385
|
|
Issuance of common stock pursuant to employee stock purchase plan
|
|
|
78,991
|
|
|
|
-
|
|
|
|
2,129
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,129
|
|
Restricted stock awards issued, net of forfeitures
|
|
|
192,766
|
|
|
|
-
|
|
|
|
4,817
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,817
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
732
|
|
|
|
-
|
|
|
|
732
|
|
Change in unrealized gain (loss) on cash flow hedges
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
(61
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(84,847
|
)
|
|
|
(84,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
|
62,855,376
|
|
|
$
|
63
|
|
|
$
|
1,238,204
|
|
|
$
|
(6
|
)
|
|
$
|
(1,291
|
)
|
|
$
|
(539,396
|
)
|
|
$
|
697,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
76
ONYX
PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
( In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(84,847
|
)
|
|
$
|
16,161
|
|
|
$
|
1,948
|
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized losses (gains) on sales of short-term marketable
securities
|
|
|
(90
|
)
|
|
|
32
|
|
|
|
(483
|
)
|
Depreciation and amortization
|
|
|
3,641
|
|
|
|
1,625
|
|
|
|
1,333
|
|
Stock-based compensation
|
|
|
22,797
|
|
|
|
22,561
|
|
|
|
20,506
|
|
Excess tax benefit from stock-based awards
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
(112
|
)
|
Amortization of convertible senior notes discount and debt
issuance costs
|
|
|
9,655
|
|
|
|
3,371
|
|
|
|
-
|
|
Changes in fair value of liability for contingent consideration,
non-current
|
|
|
92,930
|
|
|
|
1,528
|
|
|
|
-
|
|
Deferred income taxes
|
|
|
(11,860
|
)
|
|
|
-
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(310
|
)
|
|
|
-
|
|
|
|
-
|
|
Receivable from collaboration partners
|
|
|
6
|
|
|
|
(15,582
|
)
|
|
|
(31,134
|
)
|
Prepaid expenses and other current assets
|
|
|
(3,013
|
)
|
|
|
(1,582
|
)
|
|
|
(1,383
|
)
|
Other assets
|
|
|
(15,527
|
)
|
|
|
17
|
|
|
|
(4,442
|
)
|
Accounts payable
|
|
|
(1,347
|
)
|
|
|
843
|
|
|
|
(178
|
)
|
Accrued liabilities
|
|
|
5,014
|
|
|
|
4,579
|
|
|
|
2,458
|
|
Accrued clinical trials and related expenses
|
|
|
1,278
|
|
|
|
(988
|
)
|
|
|
2,718
|
|
Accrued compensation
|
|
|
(3,897
|
)
|
|
|
2,925
|
|
|
|
232
|
|
Escrow liability
|
|
|
34
|
|
|
|
-
|
|
|
|
-
|
|
Other liabilities
|
|
|
13,893
|
|
|
|
(383
|
)
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
28,357
|
|
|
|
35,072
|
|
|
|
(8,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Proteolix, Inc., net of cash acquired
|
|
|
-
|
|
|
|
(252,514
|
)
|
|
|
-
|
|
Purchases of marketable securities
|
|
|
(508,508
|
)
|
|
|
(742,290
|
)
|
|
|
(420,344
|
)
|
Sales of marketable securities
|
|
|
277,891
|
|
|
|
106,846
|
|
|
|
96,839
|
|
Maturities of marketable securities
|
|
|
359,525
|
|
|
|
381,050
|
|
|
|
404,415
|
|
Capital expenditures
|
|
|
(6,990
|
)
|
|
|
(1,300
|
)
|
|
|
(1,550
|
)
|
Transfers to restricted cash
|
|
|
(4,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Payment for liability for contingent consideration, current
|
|
|
(36,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
81,918
|
|
|
|
(508,208
|
)
|
|
|
79,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
-
|
|
|
|
(8,160
|
)
|
|
|
-
|
|
Repurchases of restricted stock awards
|
|
|
(78
|
)
|
|
|
(18
|
)
|
|
|
(577
|
)
|
Payment to collaboration partner
|
|
|
-
|
|
|
|
(16,633
|
)
|
|
|
(22,601
|
)
|
Net proceeds from issuances of common stock
|
|
|
8,475
|
|
|
|
147,699
|
|
|
|
25,650
|
|
Proceeds from issuance of convertible senior notes
|
|
|
-
|
|
|
|
230,000
|
|
|
|
-
|
|
Convertible senior notes debt issuance costs
|
|
|
-
|
|
|
|
(7,271
|
)
|
|
|
-
|
|
Excess tax benefit from stock-based awards
|
|
|
-
|
|
|
|
35
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
8,397
|
|
|
|
345,652
|
|
|
|
2,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
118,672
|
|
|
|
(127,484
|
)
|
|
|
73,499
|
|
Cash and cash equivalents at beginning of period
|
|
|
107,668
|
|
|
|
235,152
|
|
|
|
161,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
226,340
|
|
|
$
|
107,668
|
|
|
$
|
235,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow data
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes
|
|
$
|
537
|
|
|
$
|
506
|
|
|
$
|
641
|
|
Cash paid during the period for interest
|
|
|
9,277
|
|
|
|
-
|
|
|
|
-
|
|
See accompanying notes.
77
ONYX
PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010
|
|
Note 1.
|
Overview
and Summary of Significant Accounting Policies
|
Overview
Onyx Pharmaceuticals, Inc. (Onyx or the
Company) was incorporated in California in February 1992
and reincorporated in Delaware in May 1996. Onyx is a
biopharmaceutical company dedicated to developing innovative
therapies that target the molecular mechanisms that cause
cancer. Through the Companys internal research programs
and in conjunction with its collaborators, the Company is
applying its expertise to develop and commercialize therapies
designed to exploit the genetic and molecular differences
between cancer cells and normal cells.
The Companys first commercially available product,
Nexavar®
(sorafenib) tablets, being developed with the Companys
collaborator Bayer HealthCare Pharmaceuticals, Inc., or Bayer,
is approved by the United States Food and Drug Administration,
or FDA, for the treatment of patients with unresectable liver
cancer and advanced kidney cancer.
The Company has broadened its pipeline through its acquisition
of anti-cancer compounds, including carfilzomib, a selective
proteasome inhibitor the Company is developing for the potential
treatment of patients with multiple myeloma and solid tumors,
and through the acquisition of rights to development-stage and
novel anti-cancer agents.
Basis
of Presentation
The consolidated financial statements include the accounts of
Onyx and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Business
Combinations
The Company accounted for the acquisition of Proteolix Inc., or
Proteolix, in accordance with Accounting Standards Codification
(ASC) Topic 805, Business Combinations. ASC
Topic 805 establishes principles and requirements for
recognizing and measuring the total consideration transferred to
and the assets acquired, liabilities assumed and any
non-controlling interests in the acquired target in a business
combination. ASC Topic 805 also provides guidance for
recognizing and measuring goodwill acquired in a business
combination; requires purchased in-process research and
development to be capitalized at fair value as intangible assets
at the time of acquisition; requires acquisition-related
expenses and restructuring costs to be recognized separately
from the business combination; expands the definition of what
constitutes a business; and requires the acquirer to disclose
information that users may need to evaluate and understand the
financial effect of the business combination.
Significant
Accounting Policies, Estimates and Judgments
The preparation of these Consolidated Financial Statements in
conformity with United States generally accepted accounting
principles requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures. On an ongoing
basis, management evaluates its estimates, including critical
accounting policies or estimates related to revenue from
collaboration agreement, the effect of business combinations,
fair value measurements of tangible and intangible assets and
liabilities, goodwill and other intangible assets, income taxes,
stock-based compensation and research and development expenses.
The Company bases its estimates on historical experience and on
various other market specific and other relevant assumptions
that management believes to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ significantly from these estimates.
78
Revenue
Recognition
Revenue is recognized when the related costs are incurred and
the four basic criteria of revenue recognition are met:
(1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been rendered;
(3) the fee is fixed or determinable; and
(4) collectability is reasonably assured. Determination of
criteria (3) and (4) are based on managements
judgments regarding the nature of the fee charged for products
or services delivered and the collectability of those fees.
Contract Revenue from Collaborations. Revenue
from nonrefundable, up-front license or technology access
payments under license and collaboration agreements that are not
dependent on any future performance by the Company under the
arrangements is recognized when such amounts are earned. If the
Company has continuing obligations to perform, such fees are
recognized over the period of continuing performance obligation.
Revenue from Multiple Element
Arrangements. The Company accounts for multiple
element arrangements, such as license and development agreements
in which a customer may purchase several deliverables, in
accordance with Accounting Standard Update (ASU)
No. 2009-13,
Multiple Deliverable Revenue Arrangements. ASU
2009-13 was
issued in October 2009 to:
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provide updated guidance on whether multiple deliverables exist,
how the deliverables in an arrangement should be separated, and
how the consideration should be allocated;
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require an entity to allocate revenue in an arrangement using
the best estimated selling price (BESP) of
deliverables if a vendor does not have vendor-specific objective
evidence (VSOE) of selling price or third-party
evidence (TPE) of selling price; and
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eliminate the use of the residual method and require an entity
to allocate revenue using the relative selling price method.
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In the second quarter of 2010, the Company elected to early
adopt this accounting guidance as of January 1, 2010 on a
prospective basis for applicable transactions originating or
materially modified after December 31, 2009. The new
accounting standards for revenue recognition, if applied in the
same manner to the year ended December 31, 2009, would not
have had a material impact on the Companys Consolidated
Financial Statements. In terms of the timing and pattern of
revenue recognition, the new accounting guidance for revenue
recognition had a significant effect on revenue in periods after
the initial adoption, as the Company entered into a multiple
element arrangement in September 2010. Refer to Note 3 for
further details.
The Company may continue to enter into multiple element
arrangements, such as license and development agreements, in
which a customer may purchase several deliverables. For these
multiple element arrangements, the Company allocates revenue to
each non-contingent element based upon the relative selling
price of each element. When applying the relative selling price
method, the Company determines the selling price for each
deliverable using VSOE of selling price or TPE of selling price,
if either exists. If neither VSOE nor TPE of selling price exist
for a deliverable, the Company uses BESP for that deliverable.
Revenue allocated to each element is then recognized based on
when the basic four revenue recognition criteria are met for
each element.
Revenue
from Collaboration Agreement
In accordance with ASC Subtopic
808-10,
Collaborative Arrangements, the Company records its share
of the pre-tax commercial profit generated from the
collaboration with Bayer, reimbursement of its shared marketing
costs related to Nexavar and royalty revenue in one line item,
Revenue from collaboration agreement. The
Companys portion of shared collaboration research and
development expenses is not included in the line item
Revenue from collaboration agreement, but is
reflected under operating expenses. According to the terms of
the collaboration agreement, the companies share all research
and development, marketing, and
non-U.S. sales
expenses. The Company and Bayer each bear their own
U.S. sales force and medical science liaison expenses.
These costs, which are related to the Companys
U.S. sales force and medical science liaisons, are recorded
in selling, general and administrative expenses. Bayer
recognizes all revenue under the Nexavar collaboration and
incurs the majority of expenses relating to the development and
marketing of Nexavar. The Company is highly dependent on Bayer
for timely and accurate information regarding any revenues
realized from sales of Nexavar and the costs incurred in
79
developing and selling it, in order to accurately report its
results of operations. For the periods covered in the financial
statements presented, there have been no significant or material
changes to prior period estimates of revenues and expenses.
However, if the Company does not receive timely and accurate
information or incorrectly estimates activity levels associated
with the collaboration of Nexavar at a given point in time, the
Company could be required to record adjustments in future
periods and may be required to restate its results for prior
periods.
Research
and Development
Research and development costs are charged to expense when
incurred. The major components of research and development costs
include clinical manufacturing costs, preclinical study
expenses, clinical trial expenses, consulting and other
third-party costs, salaries and employee benefits, stock-based
compensation expense, supplies and materials, and allocations of
various overhead and occupancy costs. Preclinical study expenses
include, but are not limited to, costs incurred for the
laboratory evaluation of a product candidates chemistry
and its biological activities and costs incurred to assess the
potential safety and efficacy of a product candidate and its
formulations. Clinical trial expenses include, but are not
limited to, investigator fees, site costs, comparator drug
costs, clinical research organization costs. In the normal
course of business, the Company contracts with third parties to
perform various clinical trial activities in the on-going
development of potential products. The financial terms of these
agreements are subject to negotiation and variation from
contract to contract and may result in uneven payment flows.
Payments under the contracts depend on factors such as the
achievement of certain events, the successful enrollment of
patients and the completion of portions of the clinical trial or
similar conditions. The Companys cost accruals for
clinical trials are based on estimates of the services received
and efforts expended pursuant to contracts with numerous
clinical trial sites, cooperative groups and clinical research
organizations. The objective of the Companys accrual
policy is to match the recording of expenses in its Consolidated
Financial Statements to the actual services received and efforts
expended. As such, expense accruals related to clinical trials
are recognized based on the Companys estimate of the
degree of completion of the event or events specified in the
specific clinical study or trial contract. The Company monitors
service provider activities to the extent possible; however, if
the Company incorrectly estimates activity levels associated
with various studies at a given point in time, the Company could
be required to record adjustments to its research and
development expenses in future periods.
In instances where the Company enters into agreements with third
parties for clinical trials and other consulting activities,
up-front payment amounts are capitalized and expensed as
services are performed or as the underlying goods are delivered.
If the Company does not expect the services to be rendered or
goods to be delivered, any remaining capitalized amounts for
non-refundable up-front payments are charged to expense
immediately. Amounts due under such arrangements may be either
fixed fee or fee for service, and may include upfront payments,
monthly payments and payments upon the completion of milestones
or receipt of deliverables.
Non-refundable option payments, including those made under the
Companys agreement with S*BIO, that do not have any future
alternative use are recorded as research and development
expense. Not all research and development costs are incurred by
the Company. A significant portion of the Companys total
research and development expenses, approximately 49% in 2010,
63% in 2009 and 55% in 2008, relates to the Companys cost
sharing arrangement with Bayer and represents the Companys
share of the research and development costs incurred by Bayer.
As a result of the cost sharing arrangement between the Company
and Bayer, there was a net reimbursable amount of
$78.8 million, $63.7 million and $50.7 million to
Bayer for the years ended December 31, 2010, 2009 and 2008,
respectively. Such amounts were recorded based on invoices and
estimates the Company receives from Bayer. When such invoices
have not been received, the Company must estimate the amounts
owed to Bayer based on discussions with Bayer. For the periods
covered in the financial statements presented, there have been
no significant or material differences between actual amounts
and estimates. However, if the Company underestimates or
overestimates the amounts owed to Bayer, the Company may need to
adjust these amounts in a future period, which could have an
effect on earnings in the period of adjustment.
Stock-Based
Compensation
The Company accounts for stock-based compensation of stock
options granted to employees and directors and of employee stock
purchase plan shares by estimating the fair value of stock-based
awards using the Black-Scholes option-pricing model and
amortizing the fair value of the stock-based awards granted over
the applicable vesting
80
period. The Black-Scholes option pricing model includes
assumptions regarding dividend yields, expected volatility,
expected option term and risk-free interest rates. The Company
estimates expected volatility based upon a combination of
historical and implied stock prices. The risk-free interest rate
is based on the U.S. treasury yield curve in effect at the time
of grant. The expected option term calculation incorporates
historical employee exercise behavior and post-vesting employee
termination rates. The Company accounts for stock-based
compensation of restricted stock award grants by amortizing the
fair value of the restricted stock award grants, which is the
grant date market price, over the applicable vesting period.
The net loss for the year ended December 31, 2010 includes
employee stock-based compensation expense of $22.1 million,
or $0.35 per diluted share. The net income for the years ended
December 31, 2009 and December 31, 2008 includes
employee stock-based compensation expense of $21.1 million,
or $0.35 per diluted share, and $18.8 million, or $0.33 per
diluted share, respectively. As of December 31, 2010, the
total unrecorded stock-based compensation expense for unvested
stock options, net of expected forfeitures, was
$37.5 million, which is expected to be amortized over a
weighted-average period of 2.7 years. As of
December 31, 2010, the total unrecorded stock-based
compensation expense for unvested restricted stock awards, net
of expected forfeitures, was $6.8 million, which is
expected to be amortized over a weighted-average period of
1.6 years.
All stock option awards to non-employees are accounted for at
the fair value of the consideration received or the fair value
of the equity instrument issued, as calculated using the
Black-Scholes model. The option arrangements are subject to
periodic remeasurement over their vesting terms. The Company
recorded compensation expense related to option grants to
non-employees of $0.7 million, $1.5 million and
$1.7 million for the years ended December 31, 2010,
2009 and 2008, respectively.
The assumptions used in computing the fair value of stock-based
awards reflect the Companys best estimates, but involve
uncertainties relating to market and other conditions, many of
which are outside of the Companys control. In addition,
the Companys estimate of future stock-based compensation
expense will be affected by a number of items including the
Companys stock price, the number of stock options the
Companys board of directors may grant in future periods,
as well as a number of complex and subjective valuation
adjustments and the related tax effect. As a result, if other
assumptions or estimates had been used, the stock-based
compensation expense that was recorded for the years ended
December 31, 2010, 2009 and 2008 could have been materially
different. Furthermore, if different assumptions are used in
future periods, stock-based compensation expense could be
materially impacted in the future.
Net
Income (Loss) Per Share
Basic net income (loss) per share amounts for each period
presented were computed by dividing net income (loss) by the
weighted-average number of shares of common stock outstanding.
Diluted net income (loss) per share for each period presented
was computed by dividing net income (loss) plus interest on
dilutive convertible senior notes by the weighted-average number
of shares of common stock outstanding during each period plus
all additional common shares that would have been outstanding
assuming dilutive potential common shares had been issued for
dilutive convertible senior notes and other dilutive securities.
Dilutive potential common shares for dilutive convertible senior
notes are calculated based on the if-converted
method. Under the if-converted method, when
computing the dilutive effect of convertible senior notes, the
numerator is adjusted to add back the amount of interest and
debt issuance costs recognized in the period and the denominator
is adjusted to add back the amount of shares that would be
issued if the entire obligation is settled in shares. As of
December 31, 2010, the Companys outstanding
indebtedness consisted of its 4.0% convertible senior notes due
2016, or the 2016 Notes.
Dilutive potential common shares also include the dilutive
effect of the common stock underlying
in-the-money
stock options and are calculated based on the average share
price for each period using the treasury stock method. Under the
treasury stock method, the exercise price of an option, the
average amount of compensation cost, if any, for future service
that the Company has not yet recognized when the option is
exercised, are assumed to be used to repurchase shares in the
current period. Dilutive potential common shares also reflect
the dilutive effect of unvested restricted stock units.
81
The computations for basic and diluted net income (loss) per
share were as follows:
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Year Ended December 31,
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2010
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2009
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2008
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(In thousands, except per share amounts)
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Numerator:
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Net income (loss) basic
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$
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(84,847
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)
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$
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16,161
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$
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1,948
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Add: interest and issuance costs related to convertible senior
notes
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-
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-
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-
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Net income (loss) diluted
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$
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(84,847
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)
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$
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16,161
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$
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1,948
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Denominator:
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Weighted average common shares outstanding basic
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62,618
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59,215
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55,915
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Dilutive effect of stock options
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-
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292
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850
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Weighted average common shares outstanding and dilutive
potential common shares diluted
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62,618
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59,507
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56,765
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Net income (loss) per share:
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Basic
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$
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(1.35
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)
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$
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0.27
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$
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0.03
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Diluted
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$
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(1.35
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)
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$
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0.27
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$
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0.03
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Under the if-converted method, 5.8 million
potential common shares relating to the 2016 Notes were not
included in diluted net income (loss) per share for the years
ended December 31, 2010 and 2009 because their effect would
be anti-dilutive. Diluted net income (loss) per share does not
include the effect of 5.1 million, 4.0 million and
1.8 million stock-based awards that were outstanding during
the years ended December 31, 2010, 2009 and 2008. These
stock-based awards were not included in the computation of
diluted net income (loss) per share because the proceeds
received, if any, from such stock-based awards combined with the
average unamortized compensation costs were greater than the
average market price of the Companys common stock, and,
therefore, their effect would have been antidilutive.
Income
Taxes
The Company uses the asset and liability method to account for
income taxes in accordance with ASC 740, Income
Taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities. At
each balance sheet date, the Company evaluates the available
evidence about future taxable income and other possible sources
of realization of deferred tax assets, and records a valuation
allowance that reduces the deferred tax assets to an amount that
represents managements best estimate of the amount of such
deferred tax assets that more likely than not will be realized.
Deferred tax assets and liabilities are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
On January 1, 2007 the Company adopted authoritative
guidance under ASC 740, formerly FASB Interpretation
No. 48 (FIN 48) which clarifies the
accounting for uncertainty in tax positions recognized in the
financial statements. FIN 48 provides that a tax benefit
from an uncertain tax position may be recognized when it is more
likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or
litigation processes, based on the technical merits. Income tax
positions must meet a more-likely-than-not recognition threshold
at the effective date to be recognized upon the adoption of
FIN 48 and in subsequent periods. This interpretation also
provides guidance on measurement, derecognition, classification,
interest and penalties, accounting in interim periods,
disclosure and transition.
The Companys policy for classifying interest and penalties
associated with unrecognized income tax benefits is to include
such items as tax expense.
82
Cash
and Cash Equivalents
The Company considers all highly liquid investments with a
maturity from the date of purchase of three months or less to be
cash equivalents. Cash equivalents are carried at cost, which
approximates fair value.
With the acquisition of Proteolix in November 2009 under the
Agreement and Plan of Merger, or the Merger Agreement, the
Company was required to set aside funds to be placed in an
escrow account until December 31, 2010 to secure the
indemnification rights of Onyx and other indemnitees with
respect to certain matters. However, in December 2010, the
Company filed a claim notice in good faith describing
circumstances that the Company believed entitled it to
indemnification, compensation
and/or
reimbursement. This escrow amount was paid to the former
Proteolix stockholders in February 2011 after the settlement of
the claim through the Amendment of the original Merger Agreement
in January 2011. Refer to Note 5 for further detail.
Marketable
Securities
Marketable securities consist primarily of corporate debt
securities, corporate commercial paper, debt securities of
United States government agencies, auction rate notes and money
market funds and are classified as
available-for-sale
securities. Concentration of risk is limited by diversifying
investments among a variety of industries and issuers.
Available-for-sale
securities are carried at fair value based on quoted market
prices, with any unrealized gains and losses reported in
accumulated other comprehensive income (loss). For securities
with unobservable quoted market prices, such as the AAA rated
auction rate securities collateralized by student loans that are
included in the Companys investment portfolio, the fair
value is determined using a discounted cash flow analysis. The
discounted cash flow model used to value these securities is
based on a specific term and liquidity assumptions. Unrealized
losses are charged against investment income when a
decline in fair value is determined to be
other-than-temporary.
The Company reviews several factors to determine whether a loss
is
other-than-temporary.
These factors include but are not limited to: (i) the
extent to which the fair value is less than cost and the cause
for the fair value decline, (ii) the financial condition
and near-term prospects of the issuer, (iii) the length of
time a security is in an unrealized loss position and
(iv) the Companys ability to hold the security for a
period of time sufficient to allow for any anticipated recovery
in fair value. The Company does not intend to sell its
marketable securities and it is not more likely than not that
the Company will be required to sell its securities prior to the
recovery of their amortized cost bases.
Available-for-sale
securities with remaining maturities of greater than one year
are classified as long-term. The amortized cost of securities in
this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is
included in interest income. The cost of securities sold or the
amount reclassified out of accumulated other comprehensive
income into earnings is based on the specific identification
method. Realized gains and losses and declines in value judged
to be other than temporary are included in the statements of
operations. Interest and dividends on securities classified as
available-for-sale
are included in investment income.
Fair
Value Measurements
In accordance with ASC Subtopic
820-10,
Fair Value Measurements and Disclosures, the carrying
amounts of certain financial instruments of the Company,
including cash equivalents, marketable securities and
liabilities for contingent consideration, continue to be valued
at fair value. ASC Subtopic
820-10
defines fair value and provides guidance for using fair value to
measure assets and liabilities and is applicable whenever assets
or liabilities are required or permitted to be measured at fair
value,
The fair value estimates presented in this report reflect the
information available to the Company as of December 31,
2010. See Note 7, Fair Value Measurements.
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash
equivalents and marketable securities. The Company invests cash
that is not required for immediate operating needs principally
in money market funds and corporate securities.
83
The Companys investment portfolio includes
$32.7 million of AAA rated securities with an auction reset
feature, or auction rate securities, that are collateralized by
student loans. In January 2011, $2.7 million in securities
were redeemed at par and, accordingly, the Company classified
these securities as current marketable securities in the
accompanying Consolidated Balance Sheet at December 31,
2010. The remaining balance of $29.9 million of par value
auction rate securities is currently outstanding in the
Companys investment portfolio. Since February 2008, these
types of securities have experienced failures in the auction
process. However, a limited number of these securities have been
redeemed at par by the issuing agencies. As a result of the
auction failures, interest rates on these securities reset at
penalty rates linked to LIBOR or Treasury bill rates. The
penalty rates are generally higher than interest rates set at
auction. Based on the overall failure rate of these auctions,
the frequency of the failures, the underlying maturities of the
securities, a portion of which are greater than 30 years,
and the Companys belief that the market for these student
loan collateralized instruments may take in excess of twelve
months to fully recover, the Company has classified the auction
rate securities with a par value of $29.9 million as
non-current marketable securities on the accompanying
Consolidated Balance Sheet. The Company has determined the fair
value to be $28.6 million for these securities, based on a
discounted cash flow model, and have reduced the carrying value
of these marketable securities by $1.4 million through
accumulated other comprehensive income (loss) instead of
earnings because the Company has deemed the impairment of these
securities to be temporary. Further adverse developments in the
credit market could result in an impairment charge through
earnings in the future. The Company does not intend to sell
these securities and management believes it is not more likely
than not that the Company will be required to sell these
securities prior to the recovery of their amortized cost bases.
Derivative
Instruments
The Company has established a foreign currency hedging program
beginning in 2010. The objective of the program is to mitigate
the foreign exchange risk arising from transactions or cash
flows that have a direct or underlying exposure in
non-U.S. Dollar
denominated currencies in order to reduce volatility in the
Companys cash flow and earnings. The Company hedges a
certain portion of anticipated Nexavar-related cash flows owed
to the Company with options, typically no more than one year
into the future. The underlying exposures, both revenue and
expenses, in the Nexavar program are denominated in currencies
other than the U.S. Dollar, primarily the Euro and Japanese
Yen. For purposes of calculating the cash flows due to or due
from the Company each quarter, the foreign currencies are
converted into U.S. dollars based on average exchange rates
for the reporting period. The Company does not enter into
derivative financial contracts for speculative purposes.
In accordance with ASC 815, Derivatives and Hedging,
all derivative instruments, such as foreign currency option
contracts, are recognized on the Consolidated Balance Sheet at
fair value. Changes to the fair value of derivative instruments
are recorded in current earnings or accumulated other
comprehensive gain (loss) each period, depending on whether or
not the derivative instrument is designated as part of a hedging
transaction and, if it is, the type of hedging transaction. For
a derivative to qualify as a hedge at inception and throughout
the hedged period, the Company formally documents the nature and
relationships between the hedging instruments and hedged item.
The Company assesses, both at inception and on an on-going
basis, whether the derivative instruments that are used in cash
flow hedging transactions are highly effective in offsetting the
changes in cash flows of hedged items. The Company assesses
hedge ineffectiveness on a quarterly basis and records the gain
or loss related to the ineffective portion of derivative
instruments, if any, to current earnings. If the Company
determines that a forecasted transaction is no longer probable
of occurring, it discontinues hedge accounting and any related
unrealized gain or loss on the derivative instrument is
recognized in current earnings. Changes in the fair value of
derivative instruments that are not designated as part of a
hedging transaction are recognized in current earnings. Refer to
Note 6 for further information.
Property
and Equipment
Property and equipment are stated on the basis of cost.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets, generally
two to five years. Leasehold improvements are amortized over the
lesser of the lease term or the estimated useful lives of the
related assets, generally five to seven years.
84
Deferred
Rent and Lease Incentives
Deferred rent and lease incentives consists of the difference
between cash payments and the recognition of rent expense on a
straight-line basis for the buildings the Company occupies. The
leases provide for fixed increases in minimum annual rental
payments, as well as rent free periods. The total amount of
rental payments due over the lease terms are being charged to
rent expense ratably over the life of the leases. Tenant
improvement allowances are recorded as a deferred rent liability
and are amortized over the term of the lease as a reduction to
rent expense.
Intangible
Assets In-process Research and
Development
Intangible assets related to in-process research and development
costs, or IPR&D, are considered to be indefinite-lived
until the completion or abandonment of the associated research
and development efforts. During the period the assets are
considered indefinite-lived, they will not be amortized but will
be tested for impairment on an annual basis and between annual
tests if the Company becomes aware of any events occurring or
changes in circumstances that would indicate a reduction in the
fair value of the IPR&D projects below their respective
carrying amounts. If and when development is complete, which
generally occurs if and when regulatory approval to market a
product is obtained, the associated assets would be deemed
finite-lived and would then be amortized based on their
respective estimated useful lives at that point in time.
Intangible
Assets Goodwill
Goodwill represents the excess of the consideration transferred
over the estimated fair values of assets acquired and
liabilities assumed in a business combination and is considered
to be indefinite-lived. Goodwill is not amortized but is tested
for impairment on an annual basis and between annual tests if
the Company becomes aware of any events occurring or changes in
circumstances that would indicate a reduction in the fair value
of the goodwill below its carrying amount.
Liability
for Contingent Consideration
In addition to the initial cash consideration paid to former
Proteolix stockholders and the first earn-out payment made in
April 2010 of $40.0 million, the Company may be required to
pay up to an additional $535.0 million in earn-out payments
upon the receipt of certain regulatory approvals and the
satisfaction of other milestones. These earn-out payments will
become payable in up to four additional installments, upon the
achievement of regulatory approvals in the U.S. and Europe
within pre-specified timeframes for carfilzomib. In accordance
with ASC Topic 805, Business Combinations, the Company
determined the fair value of this liability for contingent
consideration on the acquisition date using a probability
weighted income approach. Future changes to the fair value of
the contingent consideration will be determined each period and
charged to expense in the Contingent consideration
expense line item in the Consolidated Statements of Operations
under operating expenses. Refer to Liability for Contingent
Consideration in Note 5 for further information.
Convertible
Senior Notes
In August 2009, the Company issued, through an underwritten
public offering, $230.0 million aggregate principal amount
of 4.0% convertible senior notes due 2016. The 2016 Notes are
accounted for in accordance with ASC Subtopic
470-20,
Debt with Conversion and Other Options. Under ASC
Subtopic
470-20,
issuers of certain convertible debt instruments that have a net
settlement feature and may be settled in cash upon conversion,
including partial cash settlement, are required to separately
account for the liability (debt) and equity (conversion option)
components of the instrument. The carrying amount of the
liability component of the 2016 Notes, as of the issuance date,
was computed by estimating the fair value of a similar liability
issued at 12.5% effective interest rate, which was determined by
considering the rate of return investors would require in the
Companys capital structure as well as taking into
consideration effective interest rates derived by comparable
companies. The amount of the equity component was calculated by
deducting the fair value of the liability component from the
principal amount of the 2016 Notes and resulted in a
corresponding increase to debt discount. Subsequently, the debt
discount is being amortized as interest expense through the
maturity date of the 2016 Notes.
85
Segment
Reporting
The Company operates in one segment the
discovery and development of novel cancer therapies.
Recent
Accounting Pronouncements
In October 2009, the FASB issued Accounting Standard Update
(ASU)
No. 2009-13,
Multiple Deliverable Revenue Arrangements, impacting the
determination of when the individual deliverables included in a
multiple element arrangement may be treated as separate units of
accounting. Additionally, ASU
2009-13
modifies the manner in which the transaction consideration is
allocated across the separately identified deliverables by no
longer permitting the residual method of allocating arrangement
consideration. This ASU will be effective for periods beginning
on or after June 15, 2010. Early application is permitted.
Entities can apply this guidance prospectively to milestones
achieved after adoption. However, retrospective application to
all prior periods is also permitted. During the second quarter
of 2010, the Company adopted ASU
2009-13
effective January 1, 2010 on a prospective basis for
applicable transactions originating or materially modified after
December 31, 2009. The new accounting standards for revenue
recognition, if applied in the same manner to the year ended
December 31, 2009, would not have had a material impact on
the Companys financial statements. In terms of the timing
and pattern of revenue recognition, the new accounting guidance
for revenue recognition had a significant effect on revenue in
periods after the initial adoption, as the Company entered into
a multiple element arrangement with Ono Pharmaceutical Co.,
Ltd., or Ono, in September 2010. In accordance with ASU
2009-13, the
Company identified the license in the exclusive license
agreement entered into with Ono as a separate non-contingent
deliverable and recognized $59.2 million of revenue
allocated to the license in September 2010 when all related
knowledge and data had been transferred. Refer to Note 3
for further information.
In April 2010, the FASB issued ASU
No. 2010-17,
Milestone Method of Revenue Recognition, to
(1) limit the scope of this ASU to research or development
arrangements and (2) require that guidance in this ASU be
met for an entity to apply the milestone method (record the
milestone payment in its entirety in the period received).
However, the FASB clarified that, even if the requirements in
this ASU are met, entities would not be precluded from making an
accounting policy election to apply another appropriate
accounting policy that results in the deferral of some portion
of the arrangement consideration. The ASU is effective for
periods beginning on or after June 15, 2010. Early
application is permitted. Entities can apply this guidance
prospectively to milestones achieved after adoption. However,
retrospective application to all prior periods is also
permitted. During the second quarter of 2010, the Company
adopted ASU
2010-17
effective January 1, 2010 and determined that the adoption
did not have any impact on the Companys financial
statements.
|
|
Note 2.
|
Revenue
from Collaboration Agreement
|
Effective February 1994, the Company established a collaboration
agreement with Bayer to discover, develop and market compounds
that inhibit the function, or modulate the activity, of the RAS
signaling pathway to treat cancer and other diseases. Together
with Bayer, the Company concluded collaborative research under
this agreement in 1999, and based on this research, a product
development candidate, Nexavar, was identified. Bayer paid all
the costs of research and preclinical development of Nexavar
until the Investigational New Drug application, or IND, was
filed in May 2000. Under the Companys collaboration
agreement with Bayer, the Company is currently funding 50% of
mutually agreed development costs worldwide, excluding Japan.
Bayer is funding 100% of development costs in Japan and pays the
Company a royalty on sales in Japan. At any time during product
development, either company may terminate its participation in
development costs, in which case the terminating party would
retain rights to the product on a royalty-bearing basis. If the
Company does not continue to bear 50% of product development
costs, Bayer would retain exclusive, worldwide rights to this
product candidate and would pay royalties to the Company based
on net sales.
In March 2006, the Company and Bayer entered into a co-promotion
agreement to co-promote Nexavar in the United States. This
agreement amends and generally supersedes those provisions of
the collaboration agreement that relate to the co-promotion of
Nexavar in the United States. Outside of the United States, the
terms of the collaboration agreement continue to govern. Under
the terms of the co-promotion agreement and consistent with the
collaboration agreement, the Company and Bayer share equally in
the profits or losses of Nexavar, if any, in the
86
United States. If for any reason the Company does not continue
to co-promote in the United States, but continue to co-fund
development worldwide (excluding Japan), Bayer would first
receive a portion of the product revenues to repay Bayer for its
commercialization infrastructure, before determining the
Companys share of profits and losses in the United States.
The Companys collaboration agreement with Bayer will
terminate when patents expire that were issued in connection
with product candidates discovered under the agreement, or at
the time when neither we nor Bayer are entitled to profit
sharing under the agreement, whichever is latest. The
Companys co-promotion agreement with Bayer will terminate
upon the earlier of the termination of the Companys
collaboration agreement with Bayer or the date products subject
to the co-promotion agreement are no longer sold by either party
in the United States due to a permanent product withdrawal or
recall or a voluntary decision by the parties to abandon the
co-promotion of such products in the United States. Either party
may also terminate the co-promotion agreement upon failure to
cure a material breach of the agreement within a specified cure
period.
In addition, the Companys collaboration agreement with
Bayer provides that if the Company were acquired by another
entity by reason of merger, consolidation or sale of all or
substantially all of the Companys assets, or if a single
entity other than Bayer or its affiliate acquires ownership of a
majority of the Companys outstanding voting stock, and
Bayer does not consent to the transaction, then for 60 days
following the transaction, Bayer may elect to terminate the
co-development and co-promotion rights under the collaboration
agreement and convert the Companys profit sharing interest
under that agreement into a royalty based on any sales of
Nexavar and other collaboration products. The applicable royalty
rate would be a function of expected profitability of Nexavar
for the remaining patent life of Nexavar. Also, either party may
terminate the agreement upon 30 days notice within
60 days of specified events relating to insolvency of the
other party.
Nexavar is currently marketed and sold primarily in the United
States and the European Union for the treatment of advanced
kidney cancer and unresectable liver cancer. Nexavar also has
regulatory applications pending in other territories
internationally. Outside of the United States, excluding Japan,
Bayer incurs all of the sales and marketing expenditures, and
the Company reimburses Bayer for half of those expenditures. In
addition, for sales generated outside of the United States,
excluding Japan, the Company reimburses Bayer a fixed percentage
of sales for their marketing infrastructure. Research and
development expenditures on a worldwide basis, excluding Japan,
are equally shared by both companies regardless of whether the
Company or Bayer incurs the expense. In Japan, Bayer is
responsible for all development and marketing costs, and the
Company receives a royalty on net sales of Nexavar.
In the United States, Bayer provides all product distribution
and all marketing support services for Nexavar, including
managed care, customer service, order entry and billing. Bayer
is compensated for distribution expenses based on a fixed
percent of gross sales of Nexavar in the United States. Bayer is
reimbursed for half of its expenses for marketing services
provided by Bayer for the sale of Nexavar in the United States.
The companies share equally in any other
out-of-pocket
marketing expenses (other than expenses for sales force and
medical science liaisons) that the Company and Bayer incur in
connection with the marketing and promotion of Nexavar in the
United States. Bayer manufactures all Nexavar sold in the United
States and is reimbursed at an agreed transfer price per unit
for the cost of goods sold.
In the United States, the Company contributes half of the
overall number of sales force personnel required to market and
promote Nexavar and half of the medical science liaisons to
support Nexavar. The Company and Bayer each bears its own sales
force and medical science liaison expenses. These expenses are
not included in the calculation of the profits or losses of the
collaboration.
Revenue from collaboration agreement consists of the
Companys share of the pre-tax commercial profit generated
from its collaboration with Bayer, reimbursement of the
Companys shared marketing costs related to Nexavar and
royalty revenue. Under the collaboration, Bayer recognizes all
sales of Nexavar worldwide. The Company records revenue from
collaboration agreement on a quarterly basis. Revenue from
collaboration agreement is derived by calculating net sales of
Nexavar to third-party customers and deducting the cost of goods
sold, distribution costs, marketing costs (including without
limitation, advertising and education expenses, selling and
promotion expenses, marketing personnel expenses and Bayer
marketing services expenses), Phase 4 clinical trial costs and
allocable overhead costs. Reimbursement by Bayer of the
Companys shared marketing costs related to Nexavar and
royalty revenue is also included in the revenue from
collaboration agreement line item.
87
The Companys portion of shared collaboration research and
development expenses is not included in this line item, but is
reflected under operating expenses. According to the terms of
the collaboration agreement, the companies share all research
and development, marketing and
non-U.S. sales
expenses. United States sales force and medical science liaison
expenditures incurred by both companies are borne by each
company separately and are not included in the calculation. Some
of the revenue and expenses used to derive the revenue from
collaboration agreement during the period presented are
estimates of both parties and are subject to further adjustment
based on each partys final review should actual results
differ from these estimates.
Revenue from collaboration agreement was $265.4 million,
$250.4 million and $194.3 million for the years ended
December 31, 2010, 2009 and 2008, respectively, calculated
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Onyxs share of collaboration commercial profit
|
|
$
|
232,494
|
|
|
$
|
220,567
|
|
|
$
|
169,334
|
|
Reimbursement of Onyxs shared marketing expenses
|
|
|
23,122
|
|
|
|
23,514
|
|
|
|
22,185
|
|
Royalty revenue
|
|
|
9,734
|
|
|
|
6,309
|
|
|
|
2,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
265,350
|
|
|
$
|
250,390
|
|
|
$
|
194,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through December 31, 2010, 2009 and 2008, the Company has
invested $596.5 million, $493.5 million and
$392.1 million, respectively, in the development of
Nexavar, representing its share of the costs incurred to date
under the collaboration.
|
|
Note 3.
|
Agreement
with Ono Pharmaceutical Co., Ltd.
|
In September 2010, the Company entered into an exclusive license
agreement with Ono, granting Ono the right to develop and
commercialize both carfilzomib and ONX 0912 for all oncology
indications in Japan. The Company retains all development and
commercialization rights for other countries in the Asia Pacific
region, as well as in all other regions of the world, including
the United States and Europe. The Company agreed to provide Ono
with development and commercial supply of carfilzomib and ONX
0912 on a cost-plus basis. Ono agreed to pay the Company
development and commercial milestone payments based on the
achievement of pre-specified criteria. In addition, Ono agreed
to share a percentage of costs incurred by the Company for the
global development of carfilzomib and ONX 0912 that may support
filings for regulatory approval in Japan. Ono is responsible for
all development costs in support of regulatory filings in Japan
as well as commercialization costs it incurs. If regulatory
approval for carfilzomib
and/or ONX
0912 is achieved in Japan, Ono is obligated to pay the Company
double-digit royalties on net sales of the licensed compounds in
Japan.
In accordance with ASU
2009-13, the
Company identified the license and certain amounts of
development supply to be provided in 2011 as separate
non-contingent deliverables under this agreement. The Company
determined that the delivered license has stand-alone value
based on Onos internal product development capabilities.
The Company identified the reimbursement of global development
costs by Ono, and the future development and commercial supply
arrangements, subject to future negotiation, as contingent
deliverables. Contingent deliverables will be evaluated
separately as the related contingency is resolved. The Company
allocated consideration relating to non-contingent deliverables
on the basis of their relative selling price, which is BESP
because VSOE or TPE are unavailable for these elements. The
objective of BESP is to determine the price at which the Company
would transact a sale if the product were sold on a stand-alone
basis. BESP for the license is based on discounted future
projected cash flows relating to the licensed territory. Revenue
allocated to the license of $59.2 million was recognized in
September 2010 when all related knowledge and data had been
transferred. BESP for the development supply shipments is based
on an estimated cost to produce supply plus a
mark-up
consistent with similar agreements. Revenue allocated to the
clinical material to be delivered in 2011 will be recognized
upon delivery of the bulk drug product to Ono.
A percentage of costs incurred by the Company for the global
development of carfilzomib and ONX 0912 are required to be
reimbursed by Ono at cost. Global development work is conducted
by Onyx at Onyxs discretion. These reimbursements will be
recorded as a reduction of operating expenses by the Company.
For the year ended
88
December 31, 2010, the reimbursement of global development
costs was $8.5 million, which reduced the Research
and development expenses line item in the Consolidated
Statement of Operations. In addition, because the development
and commercial milestone payments are solely dependent on
Onos performance and not on any performance obligations of
the Company, revenue from the milestone payments will be
recognized as the milestones are achieved. The milestone and
global development support payments could total approximately
$283.5 million at current exchange rates. If regulatory
approval for carfilzomib
and/or ONX
0912 is achieved in Japan, royalty revenue to be received from
Ono will be recognized by the Company based upon the net sales
of the products by Ono.
The agreement will terminate upon the expiration of the royalty
terms specified for each product. In addition, Ono may terminate
this agreement for certain scientific or commercial reasons with
advance written notice, and either party may terminate this
agreement for the other partys uncured material breach or
bankruptcy.
|
|
Note 4.
|
Agreements
with Other Companies
|
Pfizer
In May 1995, the Company entered into a research and development
collaboration agreement with Warner-Lambert Company, now a
subsidiary of Pfizer, Inc., or Pfizer, to discover and
commercialize small molecule drugs that restore control of, or
otherwise intervene in, the misregulated cell cycle in tumor
cells. Under this agreement, the Company developed screening
tests, or assays, for jointly selected targets and transferred
these assays to Pfizer for screening of their compound library
to identify active compounds. The discovery research term under
the agreement ended in August 2001. Pfizer is responsible for
subsequent medicinal chemistry and preclinical investigations on
the active compounds. In addition, Pfizer is obligated to
conduct and fund all clinical development, make regulatory
filings and manufacture for sale any approved collaboration
compounds. The Company is entitled to receive payments upon
achievement of certain clinical development milestones and upon
registration of any resulting products, and is entitled to
receive royalties on worldwide sales of the products. Pfizer has
identified a small molecule lead compound, PD 0332991, an
inhibitor of cyclin-dependent kinase 4/6, or CDK 4/6, and began
clinical testing with this drug candidate in 2004. In accordance
with the Companys collaboration agreement, it earned a
$1.0 million milestone payment from Pfizer in December 2009
upon the initiation of a Phase 2 trial. To date, the Company has
earned $1.5 million in milestone fees from Pfizer relating
to this drug candidate.
The May 1995 collaboration agreement with Pfizer will remain in
effect until the expiration of all licenses granted pursuant to
the agreement. Either party may terminate the agreement for the
uncured material breach of the other party. Under this
agreement, remaining additional potential milestones payable by
Pfizer to the Company are, in aggregate, up to approximately
$15.5 million and royalty payments will be based on a
single digit percentage of net sales, if any.
BTG
In November 2008, the Company licensed a novel targeted oncology
compound, ONX 0801, from BTG. Under the terms of the agreement,
the Company obtained a worldwide license for ONX 0801 and all of
its related patents. The Company received exclusive worldwide
marketing rights and is responsible for all product development
and commercialization activities. The Company paid BTG a
$13.0 million upfront payment, a $7.0 million
milestone payment in 2009 and may be required to make additional
payments of up to $65.0 million upon the attainment of
certain global development and regulatory milestones, plus
additional milestone payments upon the achievement of certain
marketing approvals and commercial milestones. The Company is
also required to pay royalties to BTG on any future product
sales.
The Companys development and license agreement with BTG
will expire 10 years after the first commercial sale of the
licensed product or until patent coverage expires, whichever is
later. The Company may terminate the agreement at any time
without cause by giving BTG prior written notice, and either
party may terminate the agreement upon failure to cure a
material breach in certain cases. BTG may terminate the
agreement by written notice upon the occurrence of certain
specified events, including the Companys failure to pay
BTG payments due under the agreement after demand for such
payments, the Company challenging the licensed rights under the
agreement, the Companys failure to conduct material
development activity in relation to a licensed product for a
specified period,
89
the Companys decision to cease development of licensed
products, or specified events relating to insolvency of the
Company. Upon any termination of the agreement, rights to the
licensed compounds will revert to BTG. Except in the case of
termination for the Companys breach at an early stage of
development, the Company will receive a portion of any
compensation received by BTG from the sale of the reverted
compounds.
S*BIO
In December 2008, the Company entered into a development
collaboration, option and license agreement with S*BIO pursuant
to which the Company acquired options to license rights to each
of ONX 0803 and ONX 0805. Under the terms of the agreement, the
Company has obtained options, which if the Company exercises,
would give it rights to exclusively develop and commercialize
ONX 0803 and ONX 0805 for all potential indications in the
United States, Canada and Europe. S*BIO retains responsibility
for all development costs prior to the option exercise, after
which the Company will assume development costs for the U.S.,
Canada and Europe, subject to S*BIOs option to fund a
portion of the development costs in return for enhanced
royalties on any future product sales. Upon the exercise of the
Companys option of either compound, S*BIO is entitled to
receive a one-time fee, milestones upon achievement of certain
development and sales levels and royalties on future product
sales. Under the terms of the agreement, in December 2008 the
Company made a $25.0 million payment to S*BIO, including an
up-front payment and an equity investment in S*BIO.
In May 2010, the Company announced the expansion of its
development collaboration, option and license agreement with
S*BIO. The Company provided an additional $20.0 million in
funding to S*BIO to broaden and accelerate the existing
development program for ONX 0803 and ONX 0805. S*BIO agreed to
utilize the funding to continue to perform the clinical
development of ONX 0803 and preclinical through clinical
development of ONX 0805. The Company capitalized the
$20.0 million as prepaid research and development expense
and is amortizing a portion of this amount as research and
development expense each period based on the actual expenses
incurred by S*BIO for the development of ONX 0803 and ONX 0805.
The Companys development collaboration, option and license
agreement with S*BIO will remain in effect until the expiration
of all payment obligations. Because the Company has not
exercised its option in the agreement, the Company may terminate
the agreement at any time without cause by giving S*BIO prior
written notice. In addition, either party may terminate the
agreement for the uncured material breach of the other party.
|
|
Note 5.
|
Acquisition
of Proteolix
|
On November 16, 2009, or the Acquisition Date, the Company
acquired Proteolix under the terms of an Agreement and Plan of
Merger, or the Merger Agreement, entered into in October 2009.
Proteolix was a privately-held biopharmaceutical company located
in South San Francisco, California. Proteolix focused
primarily on the discovery and development of novel therapies
that target the proteasome for the treatment of hematological
malignancies, solid tumors and autoimmune disorders.
Proteolixs lead compound, carfilzomib, is a proteasome
inhibitor currently in multiple clinical trials, including an
advanced Phase 2b clinical trial for patients with relapsed and
refractory multiple myeloma. This acquisition provided the
Company with an opportunity to expand into the hematological
malignancies market.
Under the Merger agreement, the aggregate consideration payable
by the Company to former Proteolix stockholders at closing
consisted of $276.0 million in cash, less
$27.6 million that was temporarily held in an escrow
account subject to the terms described below under Escrow
Account Liability. In addition, a $40.0 million
earn-out payment, less $4.0 million that was temporarily
held in the escrow account, was made in April 2010,
180 days after the completion of enrollment in an ongoing
pivotal Phase 2b clinical study involving relapsed and
refractory multiple myeloma patients, known as the
003-A1
trial. The escrow amounts were paid to the former Proteolix
stockholders in February 2011. The Company may be required to
pay up to an additional $535.0 million in earn-out payments
as outlined below under Liability for Contingent
Consideration.
Intangible
Assets IPR&D
Intangible assets for IPR&D consist of Proteolixs
IPR&D programs resulting from the Companys
acquisition of Proteolix, including their lead compound,
carfilzomib and two other product candidates (ONX 0912 and ONX
90
0914). The Company determined that the combined estimated
Acquisition Date fair values of carfilzomib, ONX 0912 and ONX
0914 was $438.8 million. The Company used an income
approach, which is a measurement of the present value of the net
economic benefit or cost expected to be derived from an asset or
liability, to measure the fair value of carfilzomib and a cost
approach to measure the fair values of ONX 0912 and ONX 0914.
Under the income approach, an intangible assets fair value
is equal to the present value of the incremental after-tax cash
flows (excess earnings) attributable solely to the intangible
asset over its remaining useful life. Under the cost approach,
an intangible assets fair value is equal to the costs
incurred to-date to develop the asset to its current stage.
To calculate fair value of carfilzomib under the income
approach, the Company used probability-weighted cash flows
discounted at a rate considered appropriate given the inherent
risks associated with this type of asset. The Company estimated
the fair value of this asset using a present value discount rate
based on the estimated weighted-average cost of capital for
companies with profiles substantially similar to that of
Proteolix. This is comparable to the estimated internal rate of
return for Proteolixs operations and represents the rate
that market participants would use to value this asset. Cash
flows were generally assumed to extend either through or beyond
the patent life of the asset, depending on the circumstances
particular to the asset. In addition, the Company compensated
for the phase of development for this program by
probability-adjusting the Companys estimation of the
expected future cash flows. The Company believes that the level
and timing of cash flows appropriately reflect market
participant assumptions. The projected cash flows from this
project was based on key assumptions such as estimates of
revenues and operating profits related to the project
considering its stage of development; the time and resources
needed to complete the development and approval of the related
product candidate; the life of the potential commercialized
product and associated risks, including the inherent
difficulties and uncertainties in developing a drug compound
such as obtaining marketing approval from the FDA and other
regulatory agencies; and risks related to the viability of and
potential alternative treatments in any future target markets.
The resultant probability-weighted cash flows were then
discounted using a rate the Company believes is appropriate and
representative of a market participant assumption.
For the other two intangible assets acquired, ONX 0912 and 0914,
the Company used the costs incurred to-date by Proteolix to
develop these assets to their current stage as their fair value
as result of the lack of financial projections for these assets
in their current development stages.
These IPR&D programs represent Proteolixs incomplete
research and development projects, which had not yet reached
technological feasibility at the Acquisition Date. A summary of
these programs and estimated fair values at the Acquisition Date
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Acquisition Date
|
|
Product Candidates
|
|
Description
|
|
Fair Value
|
|
|
|
|
|
(In thousands)
|
|
|
Carfilzomib
|
|
First in a new class of selective and irreversible proteasome
inhibitors associated with prolonged target suppression,
improved antitumor activity and low neurotoxicity for treatment
against multiple myeloma and solid tumors.
|
|
$
|
435,000
|
|
ONX 0912
|
|
Oral proteasome inhibitor for treatment against hematologic and
solid tumors.
|
|
|
3,500
|
|
ONX 0914
|
|
Immunoproteasome inhibitor for treatment against rheumatoid
arthritis and inflammatory bowel disease.
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
438,800
|
|
|
|
|
|
|
|
|
Goodwill
The excess of the consideration transferred over the fair values
assigned to the assets acquired and liabilities assumed was
$193.7 million, which represents the goodwill amount
resulting from the acquisition. None of the goodwill is expected
to be deductible for income tax purposes. The Company tests
goodwill for impairment on an annual basis on October 1 or
sooner, if deemed necessary. As of December 31, 2010, there
were no changes in the recognized amount of goodwill resulting
from the acquisition of Proteolix.
91
Liability
for Contingent Consideration
Under the terms of the Merger Agreement, the aggregate cash
consideration paid to former Proteolix stockholders at closing
was $276.0 million and an additional $40.0 million
earn-out payment was made in April 2010, 180 days after
completion of enrollment in an ongoing pivotal Phase 2b clinical
study involving relapsed and refractory multiple myeloma
patients, known as the
003-A1
trial. The Company may also be required to pay up to an
additional $535.0 million in earn-out payments payable in
up to four installments upon the achievement of certain
regulatory approvals for carfilzomib in the United States and
Europe within pre-specified timeframes. In January 2011, the
Company entered into Amendment No. 1 to the Merger
Agreement, or the Amendment. Under the original Merger
Agreement, the first of these additional earn-out payments would
be in the amount of $170.0 million if achieved by the date
originally contemplated, and would be triggered by accelerated
marketing approval for carfilzomib in the United States for
relapsed/refractory multiple myeloma. This obligation is
unchanged in the Amendment. The Amendment modifies this payment
if the milestone is not achieved by the date originally
contemplated on a sliding scale basis, as follows:
|
|
|
|
|
if accelerated marketing approval in the United States for
relapsed/refractory multiple myeloma is achieved after the date
originally contemplated, but within six months of the original
date, subject to extension under certain circumstances, then the
amount payable will be reduced to $130.0 million; and
|
|
|
|
if accelerated marketing approval in the United States for
relapsed/refractory multiple myeloma is achieved more than six
months after the date originally contemplated, but within
12 months of the original date, subject to extension under
certain circumstances, then the amount payable will be reduced
to $80.0 million.
|
The remaining earnout payments will continue to become payable
in up to three additional installments as follows:
|
|
|
|
|
$65.0 million would be triggered by marketing approval in
the European Union for relapsed/refractory multiple myeloma;
|
|
|
|
$150.0 million would be triggered by marketing approval in
the United States for relapsed multiple myeloma; and
|
|
|
|
$150.0 million would be triggered by marketing approval for
relapsed multiple myeloma in the European Union.
|
The range of the undiscounted amounts the Company could be
required to pay for these earn-out payments is between zero and
$535.0 million. The fair value of the liability for the
contingent consideration recognized on the acquisition date was
$199.0 million, of which $40.0 million related to the
first milestone payment that was paid in full in April 2010 and
the remaining balance of $159.0 million was classified as a
non-current liability in the Consolidated Balance Sheet. The
Company determined the fair value of the liability for the
non-current liability contingent consideration based on a
probability-weighted discounted cash flow analysis. This fair
value measurement is based on significant inputs not observable
in the market and thus represents a Level 3 measurement
within the fair value hierarchy. The fair value of the
contingent consideration liability associated with those future
earn-out payments was based several factors including:
|
|
|
|
|
estimated cash flows projected from the success of unapproved
product candidates;
|
|
|
|
the probability of technical and regulatory success
(PTRS) for unapproved product candidates considering
their stages of development;
|
|
|
|
the time and resources needed to complete the development and
approval of product candidates;
|
|
|
|
the life of the potential commercialized products and associated
risks, including the inherent difficulties and uncertainties in
developing a product candidate such as obtaining FDA and other
regulatory approvals; and
|
|
|
|
risk associated with uncertainty, achievement and payment of the
milestone events.
|
The resultant probability-weighted cash flows were then
discounted using a rate that reflects the uncertainty
surrounding the expected outcomes, which the Company believes is
appropriate and representative of a market participant
assumption. During the year ended December 31, 2010, the
fair value of the non-current liability for contingent
consideration increased by $92.9 million, of which
$74.6 million was primarily due to an increase in the
92
PTRS, partially offset by a benefit recorded as a result of the
Amendment. In June 2010, positive data was presented for the 006
carfilzomib trial, a phase 1b multicenter dose escalation study
of carfilzomib plus lenalidomide and low-dose dexamethasone in
relapsed and refractory multiple myeloma patients. In July 2010,
positive data was also presented for the
003-A1
carfilzomib trial, an open label, single-arm phase 2b study of
single-agent carfilzomib in relapsed and refractory multiple
myeloma patients. The data from the 006 and
003-A1
trials positively impacted the PTRS. The remaining increase in
the fair value of the non-current liability for contingent
consideration of $18.4 million was due to the passage of
time.
Escrow
Account Liability
In accordance with the Merger Agreement, 10% of each of the
total cash consideration payment in November 2009 and the first
earn-out payment made to former Proteolix stockholders in April
2010 was placed in an escrow account and was to be held until
December 31, 2010 to secure the indemnification rights of
the Company and other indemnitees with respect to certain
matters, including breaches of representations, warranties and
covenants of Proteolix included in the Merger Agreement.
However, in December 2010, the Company filed a claim notice in
good faith describing circumstances that the Company believed
entitled it to indemnification, compensation
and/or
reimbursement under the Merger Agreement. This amount was
reported as restricted cash on the Companys Consolidated
Balance Sheet at December 31, 2010 and was paid to former
Proteolix stockholders in February 2011 after the settlement of
the claim through the Amendment of the original Merger Agreement
in January 2011.
Deferred
Tax Liabilities
The $157.1 million of deferred tax liabilities resulting
from the acquisition was related to the difference between the
book basis and tax basis of the intangible assets related to the
IPR&D projects.
|
|
Note 6.
|
Derivative
Instruments
|
In the third quarter of 2010, the Company established a foreign
currency hedging program. The objective of the program is to
mitigate the foreign exchange risk arising from transactions or
cash flows that have a direct or underlying exposure in
non-U.S. Dollar
denominated currencies in order to reduce volatility in the
Companys cash flow and earnings. The Company hedges a
certain portion of anticipated Nexavar-related cash flows owed
to the Company with options, typically no more than one year
into the future. The Companys underlying exposures, both
revenue and expenses, in the Nexavar program are denominated in
currencies other than the U.S. Dollar, primarily the Euro
and the Japanese Yen. For purposes of calculating the cash flows
due to or due from the Company each quarter, the foreign
currencies are converted into U.S. Dollars based on average
exchange rates for the reporting period. The Company does not
enter into derivative financial instruments for speculative
purposes.
The fair values of the Companys derivative instruments are
estimated as described in Note 7, taking into consideration
current market rates and the current creditworthiness of the
counterparties or the Company, as applicable. The Companys
foreign currency options to hedge anticipated cash flows, where
the underlying exposure of revenues and expenses from the
Nexavar program are denominated in the Euro, have not been
designated as hedging instruments under ASC 815. The
changes in the fair value of these foreign currency options are
included in the Other expense line item in the
Consolidated Statements of Operations. The foreign currency
options used to hedge anticipated cash flows, where the
underlying exposure of royalty income from the Nexavar program
is denominated in the Japanese Yen, are designated as cash flow
hedges. At the inception of the hedge, the Company documents the
risk management objectives and the nature of the risk being
hedged, the hedged instrument and hedged item, as well as the
manner in which hedge effectiveness and ineffectiveness will be
assessed. On a prospective and retrospective basis, at least
quarterly, the Company will assess hedge effectiveness based on
the total changes in the options cash flow. During the
life of the hedge, the Company will periodically verify that the
critical terms of the hedging instrument continue to match the
forecasted transaction, the forecasted transaction is still
probable in occurring at the same time as originally projected
based on the most recent forecasts, and the counterparties are
still able to honor their obligations under the hedge contract.
Hedge ineffectiveness, both prospective and retrospective, will
be assessed by evaluating the dollar offset ratio of the dollar
change in fair value or cash flows of the hedging instrument
with the amount of the dollar change in fair value or cash flows
of the perfectly effective hypothetical hedging
instrument that has the terms that meet the currency, notional
amount,
93
timing and credit criteria. The change in the fair value of the
hypothetical hedging instrument will be regarded as a proxy for
the present value of the cumulative change in the expected
future cash flows on the hedged transaction. The portion of
hedge ineffectiveness will be recognized in earnings. The amount
of ineffectiveness would be equal to the excess of the
cumulative change in the fair value of the actual derivative
over the cumulative change in the fair value of the
perfect hypothetical hedging instrument.
The effective component of the hedge is recorded in accumulated
other comprehensive income (OCI) within stockholders
equity as an unrealized gain or loss on the hedging instrument.
When the hedged forecasted transactions occur and the hedge
instrument matures, the hedges are de-designated and the
unrealized gains and losses are reclassified into the
Other expense line item in the Consolidated
Statement of Operations. The majority of the gains and losses
related to the hedged forecasted transactions reported in
accumulated OCI at December 31, 2010 are expected to be
reclassified to other income (expense) within 9 months. At
December 31, 2010, the Company had outstanding foreign
currency option contracts with maturity dates ranging from
December 31, 2010 to September 30, 2011 and
U.S. Dollar notional amounts ranging from $2.1 million
to $13.3 million.
At December 31, 2010, the fair value carrying amount of the
Companys derivative instruments were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
(In thousands)
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
|
Other current assets
|
|
$
|
89
|
|
|
Accrued liabilities
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
|
|
|
89
|
|
|
|
|
|
-
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
|
Other current assets
|
|
$
|
188
|
|
|
Accrued liabilities
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
|
|
188
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
277
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of derivative instruments on the Consolidated Balance
Sheet and Consolidated Statements of Operations for the year
ended December 31, 2010 was as follows:
|
|
|
|
|
|
|
Foreign Currency Option Contracts
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
(In thousands)
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
Net gain (loss) recognized in accumulated other comprehensive
income (loss)
|
|
|
|
|
(effective portion)
|
|
$
|
(61
|
)
|
Net gain (loss) reclassified from accumulated other
comprehensive income to
|
|
|
|
|
net income (loss) (effective portion)(1)
|
|
|
(10
|
)
|
Net gain (loss) recognized in net income (loss) (ineffective
portion)(1)
|
|
|
-
|
|
Derivatives not designated as hedges:
|
|
|
|
|
Net gain (loss) recognized in net income (loss)(1)
|
|
|
(763
|
)
|
|
|
|
(1) |
|
Classified in Other expense on the Consolidated
Statement of Operations |
The Company is exposed to counterparty credit risk on all of its
derivative financial instruments. The Company has established
and maintained strict counterparty credit guidelines and enters
into derivative instruments only with
94
financial institutions that are investment grade or better to
minimize the Companys exposure to potential defaults. The
Company does not generally require collateral to be pledged
under these agreements. Refer to Note 7 for further
information.
|
|
Note 7.
|
Fair
Value Measurements
|
In accordance with ASC Subtopic
820-10,
Fair Value Measurements and Disclosures, the Company
measures certain assets and liabilities at fair value on a
recurring basis using the three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. The three
tiers include:
|
|
|
|
|
Level 1, defined as observable inputs such as quoted prices
for identical assets in active markets;
|
|
|
|
Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly
observable; and
|
|
|
|
Level 3, defined as unobservable inputs in which little or
no market data exists, therefore requiring management to develop
its own assumptions based on best estimates of what market
participants would use in pricing an asset or liability at the
reporting date.
|
The Companys fair value hierarchies for its financial
assets and liabilities (cash equivalents, current and
non-current marketable securities, current and non-current
liability from contingent consideration, foreign currency option
contracts and convertible senior notes), which require fair
value measurement on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
As reflected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sheet
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
20,932
|
|
|
$
|
20,932
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,932
|
|
Corporate and financial institutions debt
|
|
|
197,813
|
|
|
|
-
|
|
|
|
197,813
|
|
|
|
-
|
|
|
|
197,813
|
|
Auction rate securities
|
|
|
31,280
|
|
|
|
-
|
|
|
|
2,725
|
|
|
|
28,555
|
|
|
|
31,280
|
|
U.S. government agencies
|
|
|
99,294
|
|
|
|
-
|
|
|
|
99,294
|
|
|
|
-
|
|
|
|
99,294
|
|
U.S. treasury bills
|
|
|
78,916
|
|
|
|
78,916
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78,916
|
|
Municipal bonds
|
|
|
37,160
|
|
|
|
-
|
|
|
|
37,160
|
|
|
|
-
|
|
|
|
37,160
|
|
Foreign currency option contracts designated as hedges
|
|
|
89
|
|
|
|
-
|
|
|
|
89
|
|
|
|
-
|
|
|
|
89
|
|
Foreign currency option contracts not designated as hedges
|
|
|
188
|
|
|
|
-
|
|
|
|
188
|
|
|
|
-
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
465,672
|
|
|
$
|
99,848
|
|
|
$
|
337,269
|
|
|
$
|
28,555
|
|
|
$
|
465,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for contingent consideration, current and non-current
|
|
$
|
253,548
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
253,548
|
|
|
$
|
253,548
|
|
Convertible senior notes due 2016 (face value $230,000)
|
|
|
152,701
|
|
|
|
-
|
|
|
|
271,768
|
|
|
|
-
|
|
|
$
|
271,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
406,249
|
|
|
$
|
-
|
|
|
$
|
271,768
|
|
|
$
|
253,548
|
|
|
$
|
525,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
As reflected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sheet
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
83,115
|
|
|
$
|
83,115
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
83,115
|
|
Corporate and financial institutions debt
|
|
|
110,644
|
|
|
|
-
|
|
|
|
110,644
|
|
|
|
-
|
|
|
|
110,644
|
|
Auction rate securities
|
|
|
37,274
|
|
|
|
-
|
|
|
|
100
|
|
|
|
37,174
|
|
|
|
37,274
|
|
U.S. government agencies
|
|
|
168,692
|
|
|
|
-
|
|
|
|
168,692
|
|
|
|
-
|
|
|
|
168,692
|
|
U.S. treasury bills
|
|
|
183,090
|
|
|
|
183,090
|
|
|
|
-
|
|
|
|
-
|
|
|
|
183,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
582,815
|
|
|
$
|
266,205
|
|
|
$
|
279,436
|
|
|
$
|
37,174
|
|
|
$
|
582,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for contingent consideration, current and non-current
|
|
$
|
200,528
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
200,528
|
|
|
$
|
200,528
|
|
Convertible senior notes due 2016 (face value $230,000)
|
|
|
143,669
|
|
|
|
-
|
|
|
|
242,098
|
|
|
|
-
|
|
|
|
242,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
344,197
|
|
|
$
|
-
|
|
|
$
|
242,098
|
|
|
$
|
200,528
|
|
|
$
|
442,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction
Rate Securities
Auction rate securities are Level 3 assets classified as
available for sale securities and are reflected at fair value.
In February 2008, auctions began to fail for the auction rate
securities and each auction for the majority of these securities
since then has failed. As of December 31, 2010, the fair
value of each of these securities is estimated utilizing a
discounted cash flow analysis that considers interest rates, the
timing and amount of cash flows, credit and liquidity premiums,
and the expected holding periods of these securities. The
following table provides a summary of changes in fair value of
the Companys auction rate securities:
|
|
|
|
|
|
|
|
|
|
|
Auction Rate Securities
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Fair value at beginning of period
|
|
$
|
37,174
|
|
|
$
|
39,622
|
|
Redemptions
|
|
|
(6,550
|
)
|
|
|
(5,600
|
)
|
Transfer to Level 2
|
|
|
(2,725
|
)
|
|
|
100
|
|
Change in valuation
|
|
|
656
|
|
|
|
3,052
|
|
|
|
|
|
|
|
|
|
|
Fair value at end of period
|
|
$
|
28,555
|
|
|
$
|
37,174
|
|
|
|
|
|
|
|
|
|
|
Transfers of auction rate securities from Level 3 to
Level 2 are recognized when the Company becomes aware of
actual redemptions of such securities. As a result of the
decline in the fair value of the Companys auction rate
securities, which the Company believes is temporary and
attributes to liquidity rather than credit issues, the Company
has recorded an unrealized loss of $1.4 million and
$2.0 million for the years ended December 31, 2010 and
2009, respectively, included in the accumulated other
comprehensive income (loss) line of stockholders equity.
All of the auction rate securities held by the Company at
December 31, 2010, consist of securities collateralized by
student loan portfolios, which are substantially guaranteed by
the United States government. Any future fluctuation in fair
value related to the non-current marketable securities that the
Company deems to be temporary, including any recoveries of
previous write-downs, will be recorded in accumulated other
comprehensive income (loss). If the Company determines that any
decline in fair value is other than temporary, it will record a
charge to earnings as
96
appropriate. The Company does not intend to sell these
securities and it is not more likely than not that the Company
will be required to sell these securities prior to the recovery
of their amortized cost bases.
Foreign
Currency Option Contracts
Foreign currency option contracts are Level 2 assets and
liabilities that are reflected at fair value. The Company has
established a foreign currency hedging program to manage the
economic risk of its exposure to fluctuations in foreign
currency exchange rates from the Nexavar program. Refer to
Note 6 for further information.
The Company has elected to use the income approach to value the
derivatives, using observable Level 2 market expectations
at the measurement date and standard valuation techniques to
convert future amounts to a single present amount assuming that
participants are motivated, but not compelled to transact.
Level 2 inputs for the valuations are limited to quoted
prices for similar assets or liabilities in active markets and
inputs other than quoted prices that are observable for the
asset or liability (specifically LIBOR cash, credit risk at
commonly quoted intervals, spot and forward rates). Mid-market
pricing is used as a practical expedient for fair value
measurements. ASC 820 states that the fair value
measurement of an asset or liability must reflect the
non-performance risk of the entity and the counterparty.
Therefore, the impact of the counterpartys
creditworthiness, when in an asset position, and the
Companys creditworthiness, when in a liability position,
has also been factored into the fair value measurement of the
derivative instruments and did not have a material impact on the
fair value of these derivative instruments. Both the
counterparty and the Company are expected to continue to perform
under the contractual terms of the instruments.
Liability
for Contingent Consideration
The Company initially recorded acquisition-related liabilities
at the acquisition date for contingent consideration
representing the amounts payable to former Proteolix
stockholders, as outlined under the terms of the Merger
Agreement, upon the achievement of specified regulatory
approvals within pre-specified timeframes for carfilzomib. The
fair values of these Level 3 liabilities are estimated
using a probability-weighted discounted cash flow analysis.
Subsequent changes in the fair value of these contingent
consideration liabilities are recorded to the Contingent
consideration expense line item in the Consolidated
Statements of Operations under operating expenses. For the year
ended December 31, 2010, the recognized amount of the
liability for contingent consideration increased by
$92.9 million primarily as the result of the change in the
PTRS, a significant input in the discounted cash flow analysis
used to calculate the fair value of the non-current liability
and also, the passage of time, partially offset by a benefit
recorded as a result of the Amendment. Refer to Liability for
Contingent Consideration in Note 5 for further details.
|
|
|
|
|
|
|
|
|
|
|
Liability for Contingent Consideration
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Fair value at beginning of period
|
|
$
|
200,528
|
|
|
$
|
199,000
|
|
Payments
|
|
|
(40,000
|
)
|
|
|
-
|
|
Change in valuation
|
|
|
92,930
|
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
Fair value at end of period
|
|
$
|
253,458
|
|
|
$
|
200,528
|
|
|
|
|
|
|
|
|
|
|
Convertible
Senior Notes due 2016
The fair value of the Companys 2016 Notes as of
December 31, 2010 is estimated by computing the fair value
of a similar liability without the conversion option in
accordance with ASC Subtopic
825-10,
Financial Instruments. The Companys 2016 Notes are
not
marked-to-market
and are shown in the accompanying consolidated balance sheet at
their original issuance value net of amortized discount. The
portion of the value allocated to the conversion option is
included in stockholders equity in the accompanying
Consolidated Balance Sheet at December 31, 2010.
97
|
|
Note 8.
|
Marketable
Securities
|
The Company limits the amount of investment exposure as to
institution, maturity, and investment type. Marketable
securities consist of investments that are subject to
concentration of credit risk that are classified as
available for sale. To mitigate credit risk, the
Company invests in marketable debt securities, primarily United
States government securities, agency bonds and corporate bonds
and notes, with investment grade ratings. Such securities are
reported at fair value, with unrealized gains and losses
excluded from earnings and shown separately as a component of
accumulated other comprehensive income (loss) within
stockholders equity. The Company may pay a premium or
receive a discount upon the purchase of marketable securities.
Interest earned and gains realized on marketable securities and
amortization of discounts received and accretion of premiums
paid on the purchase of marketable securities are included in
investment income. There was a realized gain of $90,000 for the
year ended December 31, 2010, a realized loss of $32,000
for the year ended December 31, 2009 and a realized gain of
$483,000 for the year ended December 31, 2008. The weighted
average maturity of the Companys marketable securities as
of December 31, 2010 was six months.
Available-for-sale
marketable securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Agency bond investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
178,221
|
|
|
$
|
18
|
|
|
$
|
(29
|
)
|
|
$
|
178,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency bond investments
|
|
|
178,221
|
|
|
|
18
|
|
|
|
(29
|
)
|
|
|
178,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
237,547
|
|
|
|
175
|
|
|
|
(24
|
)
|
|
|
237,698
|
|
Non-current
|
|
|
29,925
|
|
|
|
-
|
|
|
|
(1,370
|
)
|
|
|
28,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate investments
|
|
|
267,472
|
|
|
|
175
|
|
|
|
(1,394
|
)
|
|
|
266,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
marketable securities
|
|
$
|
445,693
|
|
|
$
|
193
|
|
|
$
|
(1,423
|
)
|
|
$
|
444,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Agency bond investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
349,254
|
|
|
$
|
162
|
|
|
$
|
(156
|
)
|
|
$
|
349,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency bond investments
|
|
|
349,254
|
|
|
|
162
|
|
|
|
(156
|
)
|
|
|
349,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
93,119
|
|
|
|
92
|
|
|
|
(31
|
)
|
|
|
93,180
|
|
Non-current
|
|
|
39,200
|
|
|
|
-
|
|
|
|
(2,026
|
)
|
|
|
37,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate investments
|
|
|
132,319
|
|
|
|
92
|
|
|
|
(2,057
|
)
|
|
|
130,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
marketable securities
|
|
$
|
481,573
|
|
|
$
|
254
|
|
|
$
|
(2,213
|
)
|
|
$
|
479,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investment portfolio includes
$32.7 million of AAA rated auction rate securities that are
collateralized by student loans. Since February 2008, these
types of securities have experienced failures in the auction
process. However, a limited number of these securities have been
redeemed at par by the issuing agencies. As a result of the
auction failures, interest rates on these securities reset at
penalty rates linked to LIBOR or Treasury bill rates. The
penalty rates are generally higher than interest rates set at
auction. Due to the failures in the auction process, these
securities are not currently liquid. Of the $32.7 million
of par value auction rate securities, $2.7 million in
securities were redeemed at par in January 2011. Therefore, the
Company has classified a portion of the auction rate securities
with a fair value of $2.7 million, based on the amount
redeemed in January 2011, as
98
current marketable securities and the remaining auction rate
securities with an estimated fair value of $28.6 million,
based on a discounted cash flow model, as non-current marketable
securities on the accompanying unaudited balance sheet at
December 31, 2010. The Company has reduced the carrying
value of the marketable securities classified as non-current by
$1.4 million through accumulated other comprehensive income
or loss instead of earnings because the Company has deemed the
impairment of these securities to be temporary. The Company does
not intend to sell these securities and management believes it
is not more likely than not that the Company will be required to
sell these securities prior to the recovery of their amortized
cost bases.
|
|
Note 9.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Computers, machinery and equipment
|
|
$
|
7,634
|
|
|
$
|
6,323
|
|
Furniture and fixtures
|
|
|
1,171
|
|
|
|
1,056
|
|
Leasehold and tenant improvements
|
|
|
6,074
|
|
|
|
6,078
|
|
Construction in progress
|
|
|
4,789
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,668
|
|
|
|
13,457
|
|
|
|
|
(8,846
|
)
|
|
|
(5,984
|
)
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
|
$
|
10,822
|
|
|
$
|
7,473
|
|
|
|
|
|
|
|
|
|
|
Construction in progress relates to the construction of
facilities in South San Francisco, California that the
Company leased and subleased beginning in July 2010, which will
serve as the Companys new corporate headquarters in 2011.
Depreciation expense was $3.6 million, $1.6 million
and $1.3 million for the years ended December 31,
2010, 2009 and 2008, respectively.
|
|
Note 10.
|
Other
Long-Term Assets
|
In December 2008, the Company entered into a development
collaboration, option and license agreement with S*BIO. Under
the terms of the agreement, in December 2008, the Company made a
$25.0 million payment to S*BIO, of which the Company
expensed $20.7 million as an up-front payment and
recognized the remaining amount of $4.3 million as an
equity investment. As a result, the accompanying Consolidated
Balance Sheet at December 31, 2010 includes
$4.3 million for this long-term private equity investment
in other long-term assets. The equity investment is accounted
for using the cost method of accounting. At December 31,
2010, there has been no impairment of the carrying value of the
Companys investment and there have been no events or
changes in circumstances identified by the Company that would
adversely impact the fair value of this investment.
S*BIO qualifies as a variable interest entity, or VIE. However,
the Company does not have the power to direct the activities
that most significantly impact the performance of S*BIO because
S*BIO has other compounds in development and has the decision
making authority and the power to control the clinical research
of these compounds. Therefore, the Company is not considered the
primary beneficiary and consolidation is not required. The
equity investment in S*BIO could result in the Company absorbing
losses up to the amount of its investment.
In May 2010, the Company announced the expansion of its
development collaboration, option and license agreement with
S*BIO related to its novel JAK inhibitors, ONX 0803 and ONX
0805. The expanded agreement builds upon the development and
commercialization collaboration between the two companies
announced in January 2009. The Company provided an additional
$20.0 million in funding to S*BIO to broaden and accelerate
the existing development program for both compounds. S*BIO
agreed to utilize the funding to continue to perform the
clinical development of ONX 0803 and preclinical through
clinical development of ONX 0805. The Company capitalized the
$20.0 million as prepaid research and development expense
and is amortizing a portion of this amount as research and
development expense each period based on the actual expenses
incurred by S*BIO for the development of ONX 0803 and ONX 0805.
99
The development collaboration, option and licensing agreement
with S*BIO will remain in effect until the expiration of all
payment obligations. Because the Company has not exercised its
option in the agreement, the Company may terminate the agreement
at any time without cause by giving S*BIO prior written notice.
In addition, either party may terminate the agreement for the
uncured material breach of the other party.
|
|
Note 11.
|
Convertible
Senior Notes due 2016
|
In August 2009, the Company issued $230.0 million aggregate
principal amount of 4.0% convertible senior notes due 2016, or
the 2016 Notes. The 2016 Notes will mature on August 15,
2016 unless earlier redeemed or repurchased by the Company or
converted. The 2016 Notes bear interest at a rate of 4.0% per
year, payable semi-annually in arrears on February 15 and August
15 of each year, commencing on February 15, 2010.
The 2016 Notes are general unsecured senior obligations of the
Company and rank equally in right of payment with all of the
Companys future senior unsecured indebtedness, if any, and
senior in right of payment to the Companys future
subordinated debt, if any.
On or after May 15, 2016, the 2016 Notes will be
convertible, under certain circumstances and during certain
periods, at an initial conversion rate of 25.2207 shares of
common stock per $1,000 principal amount of the 2016 Notes,
which is equivalent to an initial conversion price of
approximately $39.65 per share of common stock. The conversion
rate is subject to adjustment in certain circumstances. Upon
conversion of a 2016 Note, the Company will deliver, at its
election, shares of common stock, cash or a combination of cash
and shares of common stock.
Upon the occurrence of certain fundamental changes involving the
Company, holders of the 2016 Notes may require the Company to
repurchase all or a portion of their 2016 Notes for cash at a
price equal to 100% of the principal amount of the 2016 Notes to
be purchased, plus accrued and unpaid interest to, but
excluding, the fundamental change repurchase date.
Beginning August 20, 2013, the Company may redeem all or
part of the outstanding 2016 Notes, provided that the last
reported sale price of the common stock for 20 or more trading
days in a period of 30 consecutive trading days ending on the
trading day prior to the date the Company provides the notice of
redemption to holders of the 2016 Notes exceeds 130% of the
conversion price in effect on each such trading day. The
redemption price will equal 100% of the principal amount of the
2016 Notes to be redeemed, plus all accrued and unpaid interest,
plus a make-whole premium payment. The Company must
make the make-whole premium payments on all 2016 Notes called
for redemption prior to August 15, 2016, including the 2016
Notes converted after the date the Company delivered the notice
of redemption.
The 2016 Notes are accounted for in accordance with ASC Subtopic
470-20,
Debt with Conversion and Other Options. Under ASC
Subtopic
470-20,
issuers of certain convertible debt instruments that have a net
settlement feature and may be settled in cash upon conversion,
including partial cash settlement, are required to separately
account for the liability (debt) and equity (conversion option)
components of the instrument. The carrying amount of the
liability component of any outstanding debt instrument is
computed by estimating the fair value of a similar liability
without the conversion option. The amount of the equity
component is then calculated by deducting the fair value of the
liability component from the principal amount of the convertible
debt instrument.
The following is a summary of the equity and liability
components of the 2016 Notes, its net carrying amount and its
unamortized discount:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Carrying amount of the equity component
|
|
$
|
89,468
|
|
|
$
|
89,468
|
|
Net carrying amount of the liability component
|
|
$
|
63,233
|
|
|
$
|
54,201
|
|
Unamortized discount of the liability component
|
|
$
|
77,299
|
|
|
$
|
86,331
|
|
The effective interest rate used in determining the liability
component of the 2016 Notes was 12.5%. The application of ASC
Subtopic
470-20
resulted in an initial recognition of $89.5 million as the
debt discount with a corresponding increase to paid-in capital,
the equity component, for the 2016 Notes. The debt discount and
debt
100
issuance costs are amortized as interest expense through August
2016. The cash interest expense for the years ended
December 31, 2010 and 2009 for the 2016 Notes was
$9.3 million and $3.5 million, respectively, relating
to the 4.0% stated coupon rate. The non-cash interest expense
relating to the amortization of the debt discount for the 2016
Notes for the years ended December 31, 2010 and 2009 was
$9.0 million and $3.1 million, respectively.
In 2004, the Company entered into an operating lease for
23,000 square feet of office space in Emeryville,
California, which serves as the Companys current corporate
headquarters. In 2006, the Company amended its existing
operating lease to occupy an additional 14,000 square feet
of office space in addition to the 23,000 square feet
already occupied in Emeryville, California. The lease expires on
March 31, 2013. In 2008, the Company entered into another
operating lease for an additional 23,000 square feet of
office space in Emeryville, California. This lease expires on
November 30, 2013.
In 2009, the Company acquired an operating lease in South
San Francisco, California through its acquisition of
Proteolix. The lease, which expires October 2014, includes
67,000 square feet of office and laboratory space and has
options to extend the lease for two additional one-year terms
after the initial lease expiration. The lease provides for fixed
increases in minimum annual rental payments, as well as rent
free periods. As a result of the Company determining that the
estimated fair value of the operating lease was less than the
rent obligations, the Company recorded a liability for the
difference between the rent obligations and the estimated fair
value. This liability will be amortized over the life of the
lease using the effective interest rate method.
The Company also had a lease for 9,000 square feet of space
in a secondary facility in Richmond, California. In September
2002, the Company entered into a sublease agreement for this
space through September 2010. The lease for this facility
expired in September 2010.
In July 2010, the Company entered into an operating lease and
sublease for approximately 126,493 square feet located at
249 East Grand Avenue, South San Francisco, California,
which will serve as the Companys new corporate
headquarters in 2011. The lease and the sublease expire in 2021
and 2015, respectively. Upon expiration of the sublease, the
lease will be automatically expanded to include the premises
subject to the sublease. The lease includes two successive
five-year options to extend the term of the lease. The lease
also includes a one-time option exercisable until 2014 to lease
additional premises that will be constructed after the exercise
of the option. If the option is exercised, the term of the lease
will be automatically extended by ten years.
Minimum annual rental commitments, net of sublease income, under
all operating leases at December 31, 2010 are as follows
(in thousands):
|
|
|
|
|
Year ending December 31:
|
|
|
|
|
2011
|
|
$
|
7,345
|
|
2012
|
|
|
8,144
|
|
2013
|
|
|
7,464
|
|
2014
|
|
|
6,205
|
|
2015
|
|
|
3,831
|
|
Thereafter
|
|
|
28,505
|
|
|
|
|
|
|
|
|
$
|
61,494
|
|
|
|
|
|
|
Rent expense, net of sublease income, for the years ended
December 31, 2010, 2009 and 2008 was approximately
$4.3 million, $1.8 million and $1.0 million,
respectively. Sublease income was $66,000, $54,000 and $72,000
for the years ended December 31, 2010, 2009 and 2008,
respectively.
The Company has a 401(k) Plan that covers substantially all of
its employees. Under the 401(k) Plan, eligible employees may
contribute up to $16,500 of their eligible compensation, subject
to certain Internal Revenue Service restrictions. Historically,
the Company did not match employee contributions in the 401(k)
Plan. Beginning in fiscal
101
year 2008, the Company provided a discretionary company match to
employee contributions of $0.50 per dollar contributed, up to a
maximum match of $3,500 in any calendar year. Effective
January 1, 2011, the company match was increased to a
maximum match of $4,500 in any calendar year. The Company
incurred total expenses of $914,000, $683,000 and $548,000
related to 401(k) contribution matching for the years ended
December 31, 2010, 2009 and 2008, respectively.
|
|
Note 14.
|
Stockholders
Equity
|
Stock
Options and Employee Stock Purchase Plan
The Company has one stock option plan from which it is able to
grant new awards, the 2005 Equity Incentive Plan, or the
2005 Plan. Prior to adoption of the 2005 Plan, the
Company had two stock option plans, the 1996 Equity Incentive
Plan and the 1996 Non-Employee Directors Stock Option
Plan. Following is a brief description of the prior plans:
|
|
1) |
The 1996 Equity Incentive Plan, or the 1996 Plan,
which amended and restated the 1992 Incentive Stock Plan in
March 1996. The Companys Board of Directors reserved
1,725,000 shares of common stock for issuance under the
1996 Plan. At the Companys annual meetings of stockholders
in subsequent years, stockholders approved reserving an
additional 4,100,000 shares of common stock for issuance
under the 1996 Plan. The 1996 Plan provides for grants to
employees of either nonqualified or incentive options and
provides for the grant to consultants of the Company of
nonqualified options. Stock options may be granted with an
exercise price not less than 100% of the fair market value of
the common stock on the date of grant. Stock options are
generally granted with terms of up to ten years and vest over a
period of four years.
|
|
|
2) |
The 1996 Non-Employee Directors Stock Option Plan, or the
Directors Plan, which was approved in
March 1996 and reserved 175,000 shares for issuance to
provide for the automatic grant of nonqualified options to
purchase shares of common stock to non-employee Directors of the
Company. At the Companys annual meetings of stockholders
in subsequent years, stockholders approved reserving an
additional 250,000 shares of common stock for issuance
under the Directors Plan. Stock options may be granted
with an exercise price not less than 100% of the fair market
value of the common stock on the date of grant. Stock options
are generally granted with terms of up to ten years and vest
over a period of four years.
|
The 2005 Plan was approved at the Companys annual meeting
of stockholders to supersede and replace both the 1996 Plan and
the Directors Plan and reserved 7,560,045 shares of
common stock for issuance under the Plan, consisting of
(a) the number of shares remaining available for grant
under the Incentive Plan and the Directors Plan, including
shares subject to outstanding stock awards under those plans,
and (b) an additional 3,990,000 shares. Any shares
subject to outstanding stock awards under the 1996 Plan and the
Directors Plan that expire or terminate for any reason
prior to exercise or settlement are added to the share reserve
under the 2005 Plan. All outstanding stock awards granted under
the two prior plans remain subject to the terms of those plans.
Subsequently, at annual meetings of stockholders, a total of
9,700,000 shares were approved to be added to the 2005 Plan
reserve for a total of 17,260,045 shares available for
issuance.
In March 1996, the Board of Directors adopted the Employee Stock
Purchase Plan, or ESPP. The number of shares available for
issuance over the term of the ESPP was limited to
400,000 shares. At the May 2007 Annual Meeting of
Stockholders an additional 500,000 shares were added to the
ESPP for a total of 900,000 shares available for issuance
over the term of the ESPP. The ESPP is designed to allow
eligible employees of the Company to purchase shares of common
stock through periodic payroll deductions. The price of common
stock purchased under the ESPP will be equal to 85% of the lower
of the fair market value of the common stock on the commencement
date of each offering period or the specified purchase date.
Purchases of common stock shares made under the ESPP were
78,991 shares in 2010, 45,435 shares in 2009 and
37,631 shares in 2008. Since inception, a total of
544,664 shares have been issued under the ESPP, leaving a
total of 355,336 shares available for issuance.
In December 2010, stock options were exercised that were not
settled prior to December 31, 2010. The Company recorded a
receivable from stock option exercises of $6,000 at
December 31, 2010 related to these stock options, which is
included in the caption Receivable from stock option
exercises in the accompanying Consolidated Balance Sheets
and Consolidated Statements of Stockholders Equity as of
December 31, 2010. The Company
102
recorded a receivable from stock option exercises of $5,000 at
December 31, 2009, related to stock options exercised that
had not settled prior to December 31, 2009.
Common
Stock Offering
In August 2009, the Company sold 4,600,000 shares of its
common stock at a price to the public of $30.50 per share in an
underwritten public offering pursuant to an effective
registration statement previously filed with the Securities and
Exchange Commission. The Company received cash proceeds, net of
underwriting discounts and commissions, of approximately
$134.0 million from this public offering.
Preferred
Stock
The Companys amended and restated certificate of
incorporation provides that the Companys Board of
Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such
series, without further vote or action by the stockholders. As
of December 31, 2010, the Company had 5,000,000 shares
of preferred stock authorized at $0.001 par value, and no
shares were issued or outstanding.
Warrants
A total of 743,229 warrants for the purchase of common stock
were issued in connection with a private placement financing in
May 2002. The exercise price of these warrants is $9.59 per
share. The $4.4 million fair value of the warrants was
estimated on the date of grant using the Black-Scholes option
valuation model with the following assumptions: a
weighted-average risk-free interest rate of 4.29%, a contractual
life of seven years, a volatility of 0.94 and no dividend yield,
and accounted for as a stock issuance cost. Any of the
outstanding warrants may be exercised by applying the value of a
portion of the warrant, which is equal to the number of shares
issuable under the warrant being exercised multiplied by the
fair market value of the security receivable upon the exercise
of the warrant, less the per share price, in lieu of payment of
the exercise price per share. In 2004, the Company issued
553,835 shares of the Companys common stock upon the
exercise of 703,689 warrants, on both a cash and net exercise
basis. The Company received approximately $355,000 in net cash
proceeds from the exercise of warrants in 2004. In 2005, the
Company issued 29,550 shares of the Companys common
stock upon the exercise of 30,277 warrants, on both a cash and
net exercise basis. The Company received approximately $266,000
in net cash proceeds from the exercise of warrants in 2005. In
May 2009, the Company issued an aggregate of 5,852 shares
of its common stock pursuant to a cashless net exercise of 9,259
warrants. As of December 31, 2009 and 2010, no warrants
remained outstanding.
|
|
Note 15.
|
Stock-Based
Compensation
|
The Company accounts for stock-based compensation of stock
options granted to employees and directors and of employee stock
purchase plan shares by estimating the fair value of stock-based
awards using the Black-Scholes option-pricing model and
amortizing the fair value of the stock-based awards granted over
the applicable vesting period. The Black-Scholes option pricing
model includes assumptions regarding dividend yields, expected
volatility, expected option term and risk-free interest rates.
The Company estimates expected volatility based upon a
combination of historical and implied stock prices. The
risk-free interest rate is based on the U.S. treasury yield
curve in effect at the time of grant. The expected option term
calculation incorporates historical employee exercise behavior
and post-vesting employee termination rates. The Company
accounts for stock-based compensation of restricted stock award
grants by amortizing the fair value of the restricted stock
award grants, which is the grant date market price, over the
applicable vesting period.
103
Employee stock-based compensation for the years ended
December 31, 2010, 2009 and 2008, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands except per share data)
|
|
|
Research and development
|
|
$
|
4,252
|
|
|
$
|
3,574
|
|
|
$
|
3,166
|
|
Selling, general and administrative
|
|
|
17,865
|
|
|
|
17,506
|
|
|
|
15,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
22,117
|
|
|
$
|
21,080
|
|
|
$
|
18,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on basic net income (loss) per share
|
|
$
|
0.35
|
|
|
$
|
0.36
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on diluted net income (loss) per share
|
|
$
|
0.35
|
|
|
$
|
0.35
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All stock option awards to non-employees are accounted for at
the fair value of the consideration received or the fair value
of the equity instrument issued, as calculated using the
Black-Scholes model. The option arrangements are subject to
periodic remeasurement over their vesting terms. The Company
recorded compensation expense related to option grants to
non-employees of $0.7 million, $1.5 million and
$1.7 million for the years ended December 31, 2010,
2009 and 2008, respectively.
As of December 31, 2010, the total unrecorded stock-based
compensation expense for unvested stock options shares, net of
expected forfeitures, was $37.5 million, which is expected
to be amortized over a weighted-average period of
2.7 years. As of December 31, 2010, the total
unrecorded stock-based compensation expense for unvested
restricted stock awards, net of expected forfeitures, was
$6.8 million, which is expected to be amortized over a
weighted-average period of 1.6 years. Cash received during
the year ended December 31, 2010, for stock options
exercised under all stock-based compensation arrangements was
$6.9 million.
For the years ended December 31, 2010, 2009 and 2008, the
total fair value of restricted stock awards vested was
$5.0 million, $3.6 million and $1.8 million,
respectively, based on weighted average grant date per share
fair values of $28.74, $28.49 and $24.89 for the years ended
December 31, 2010, 2009 and 2008, respectively.
Valuation
Assumptions
As of December 31, 2010, 2009 and 2008, the fair value of
stock-based awards for employee stock option awards, restricted
stock awards and employee stock purchases made under the ESPP
was estimated using the Black-Scholes option pricing model. The
following weighted average assumptions were used:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Stock Option Plans:
|
|
|
|
|
|
|
Risk-free interest rate
|
|
2.06%
|
|
1.95%
|
|
2.86%
|
Expected life
|
|
4.4 years
|
|
4.3 years
|
|
4.4 years
|
Expected volatility
|
|
55%
|
|
64%
|
|
64%
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
Weighted average option fair value
|
|
$13.12
|
|
$15.15
|
|
$17.32
|
Restricted stock awards:
|
|
|
|
|
|
|
Expected life
|
|
3 years
|
|
3 years
|
|
3 years
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
Weighted average fair value per share
|
|
$29.92
|
|
$29.05
|
|
$30.80
|
ESPP:
|
|
|
|
|
|
|
Risk-free interest rate
|
|
0.18%
|
|
0.29%
|
|
2.69%
|
Expected life
|
|
6 months
|
|
6 months
|
|
6 months
|
Expected volatility
|
|
46%
|
|
60%
|
|
59%
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
Weighted average fair value per share
|
|
$6.25
|
|
$9.16
|
|
$13.56
|
104
The Black-Scholes fair value model requires the use of highly
subjective and complex assumptions, including the options
expected life and the price volatility of the underlying stock.
Beginning January 1, 2007, the expected stock price
volatility assumption was determined using a combination of
historical and implied volatility for the Companys stock.
The Company has determined that the combined method of
determining volatility is more reflective of market conditions
and a better indicator of expected volatility than historical
volatility. The Company considers several factors in estimating
the expected life of its options granted, including the expected
lives used by a peer group of companies and the historical
option exercise behavior of its employees, which it believes are
representative of future behavior.
Stock-Based
Payment Award Activity
The following table summarizes stock option and award activity
under all option plans for the years ended December 31,
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Available for
|
|
|
Shares
|
|
|
Average
|
|
|
|
Grant
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Employee stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
2,753,688
|
|
|
|
4,437,906
|
|
|
$
|
25.39
|
|
Shares authorized
|
|
|
3,100,000
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
(1,624,036
|
)
|
|
|
1,624,036
|
|
|
$
|
32.81
|
|
Exercised
|
|
|
-
|
|
|
|
(1,145,281
|
)
|
|
$
|
21.90
|
|
Expired
|
|
|
13,642
|
|
|
|
(13,642
|
)
|
|
$
|
35.71
|
|
Forfeited
|
|
|
336,345
|
|
|
|
(336,345
|
)
|
|
$
|
26.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
4,579,639
|
|
|
|
4,566,674
|
|
|
$
|
28.76
|
|
Shares authorized
|
|
|
2,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
(1,476,972
|
)
|
|
|
1,476,972
|
|
|
$
|
29.47
|
|
Exercised
|
|
|
-
|
|
|
|
(552,607
|
)
|
|
$
|
22.02
|
|
Expired
|
|
|
181,043
|
|
|
|
(181,043
|
)
|
|
$
|
37.92
|
|
Forfeited
|
|
|
241,886
|
|
|
|
(241,886
|
)
|
|
$
|
26.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
5,525,596
|
|
|
|
5,068,110
|
|
|
$
|
29.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares authorized
|
|
|
3,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
(2,013,989
|
)
|
|
|
2,013,989
|
|
|
$
|
28.57
|
|
Exercised
|
|
|
-
|
|
|
|
(323,436
|
)
|
|
$
|
21.22
|
|
Expired
|
|
|
98,172
|
|
|
|
(98,172
|
)
|
|
$
|
34.69
|
|
Forfeited
|
|
|
386,020
|
|
|
|
(386,020
|
)
|
|
$
|
30.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
6,995,799
|
|
|
|
6,274,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
Restricted stock awards:
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
180,023
|
|
|
$
|
24.42
|
|
Granted
|
|
|
223,015
|
|
|
$
|
30.72
|
|
Vested
|
|
|
(72,551
|
)
|
|
$
|
24.89
|
|
Cancelled
|
|
|
(34,645
|
)
|
|
$
|
26.51
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
295,842
|
|
|
$
|
28.81
|
|
Granted
|
|
|
233,934
|
|
|
$
|
28.92
|
|
Vested
|
|
|
(128,014
|
)
|
|
$
|
28.49
|
|
Cancelled
|
|
|
(33,121
|
)
|
|
$
|
27.39
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
368,641
|
|
|
$
|
29.12
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
250,464
|
|
|
$
|
29.68
|
|
Vested
|
|
|
(172,870
|
)
|
|
$
|
28.74
|
|
Cancelled
|
|
|
(54,713
|
)
|
|
$
|
28.94
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
391,522
|
|
|
$
|
28.91
|
|
|
|
|
|
|
|
|
|
|
The options outstanding and exercisable for stock-based payment
awards as of December 31, 2010 were in the following
exercise price ranges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Contractual Life
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
Number
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
(In years)
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$ 4.20 - $26.21
|
|
|
1,298,804
|
|
|
|
6.1
|
|
|
$
|
22.45
|
|
|
|
838,756
|
|
|
$
|
21.39
|
|
$26.26 - $28.62
|
|
|
1,674,304
|
|
|
|
7.7
|
|
|
$
|
28.11
|
|
|
|
802,740
|
|
|
$
|
28.36
|
|
$28.66 - $30.28
|
|
|
1,978,264
|
|
|
|
8.0
|
|
|
$
|
29.66
|
|
|
|
748,490
|
|
|
$
|
29.33
|
|
$30.50 - $54.83
|
|
|
1,261,599
|
|
|
|
6.6
|
|
|
$
|
36.97
|
|
|
|
877,334
|
|
|
$
|
37.60
|
|
$55.06 - $56.21
|
|
|
61,500
|
|
|
|
7.0
|
|
|
$
|
55.79
|
|
|
|
47,553
|
|
|
$
|
55.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,274,471
|
|
|
|
7.2
|
|
|
$
|
29.48
|
|
|
|
3,314,873
|
|
|
$
|
29.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, weighted average contractual life
remaining for exercisable shares is 6.2 years. The total
number of
in-the-money
options exercisable as of December 31, 2010 was
3,314,873 shares. The aggregate intrinsic values of options
exercised were $3.0 million and $6.1 million for the
years ended December 31, 2010 and 2009, respectively. The
aggregate intrinsic values of
in-the-money
outstanding and exercisable options were $50.2 million and
$27.0 million, respectively, as of December 31, 2010.
The aggregate intrinsic value of options represents the total
pre-tax intrinsic value, based on the Companys closing
stock price of $36.87 at December 31, 2010, which would
have been received by option holders had all option holders
exercised their options that were
in-the-money
as of that date.
As of December 31, 2009, 2,525,317 outstanding options were
exercisable, at a weighted average price of $28.93. As of
December 31, 2008, 1,956,714 outstanding options were
exercisable, at a weighted average price of $28.20.
|
|
Note 16.
|
Comprehensive
Income (Loss)
|
Comprehensive income (loss) is comprised of net income (loss)
and other comprehensive income (loss). Other comprehensive
income (loss) is comprised of unrealized holding gains and
losses on the Companys
available-for-sale
securities that are excluded from net income (loss) and reported
separately in stockholders equity and
106
changes in the fair value of the Companys outstanding
derivative instruments that have been designated as hedging
instruments. Comprehensive income (loss) and its components are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
(84,847
|
)
|
|
$
|
16,161
|
|
|
$
|
1,948
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on
available-for-sale
securities
|
|
|
732
|
|
|
|
2,358
|
|
|
|
(4,676
|
)
|
Change in unrealized gain (loss) on derivatives designated as
hedges
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(84,176
|
)
|
|
$
|
18,519
|
|
|
$
|
(2,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The activities in other comprehensive income (loss) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in unrealized gain (loss) on
available-for-sale
securities
|
|
$
|
642
|
|
|
$
|
2,390
|
|
|
$
|
(5,159
|
)
|
Reclassification adjustment for net gains (losses) on
available-for-sale
securities included in net income
|
|
|
90
|
|
|
|
(32
|
)
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on
available-for-sale
securities
|
|
$
|
732
|
|
|
$
|
2,358
|
|
|
$
|
(4,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in unrealized gain (loss) on derivatives
designated as hedges
|
|
$
|
(61
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
Realized gain (loss) reclassified from accumulated other
comprehensive income to net income (loss)
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on derivatives designated as
hedges
|
|
$
|
(71
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes for the years
ended December 31, 2010, 2009 and 2008 consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
U.S. operations
|
|
$
|
83,834
|
|
|
$
|
17,394
|
|
|
$
|
2,295
|
|
Foreign operations
|
|
|
(169,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
$
|
(85,666
|
)
|
|
$
|
17,394
|
|
|
$
|
2,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
For the years ended December 31, 2010, 2009 and 2008, the
Company recorded a benefit for income taxes of $0.8 million
and a provision for income taxes of $1.2 million and
$0.3 million, respectively, related to income from
continuing operations. The components of the (benefit) provision
for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(767
|
)
|
|
$
|
624
|
|
|
$
|
226
|
|
State
|
|
|
(52
|
)
|
|
|
609
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(819
|
)
|
|
|
1,233
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision for income taxes
|
|
$
|
(819
|
)
|
|
$
|
1,233
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys federal tax benefit in 2010 principally
related to its election to carryback net operating losses under
the Worker, Homeownership and Business Association Act of 2009.
The election enabled the Company to eliminate all federal
Alternative Minimum Taxes (AMT) previously recorded in 2009. The
Companys federal tax provision in 2009 and 2008 was
principally related to U.S. alternative minimum tax based
on the Companys ability to fully offset current regular
federal taxable income with its federal net operating loss
carryforwards. The 2009 and 2008 state tax liability was
greater than might otherwise be expected due to the State of
California suspending the utilization of California net
operating losses for those years.
Reconciliation between the Companys effective tax rate and
the U.S. statutory tax rate for the years ended
December 31, 2010, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal income tax at statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
34
|
%
|
State income tax, net of federal benefit
|
|
|
0
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
Federal minimum tax
|
|
|
0
|
%
|
|
|
4
|
%
|
|
|
10
|
%
|
Foreign rate differential
|
|
|
(69
|
)%
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock compensation expense
|
|
|
(3
|
)%
|
|
|
11
|
%
|
|
|
55
|
%
|
Research credits expense add-back
|
|
|
(8
|
)%
|
|
|
5
|
%
|
|
|
51
|
%
|
Non-deductible meals and entertainment expense
|
|
|
(1
|
)%
|
|
|
2
|
%
|
|
|
17
|
%
|
Other non-deductible expenses
|
|
|
0
|
%
|
|
|
1
|
%
|
|
|
6
|
%
|
Capitalized acquisition costs
|
|
|
0
|
%
|
|
|
11
|
%
|
|
|
0
|
%
|
Contingent consideration
|
|
|
(32
|
)%
|
|
|
3
|
%
|
|
|
0
|
%
|
Other
|
|
|
1
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Change in valuation allowance
|
|
|
78
|
%
|
|
|
(67
|
)%
|
|
|
(161
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
1
|
%
|
|
|
7
|
%
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets and liabilities as of
December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
107,435
|
|
|
$
|
182,228
|
|
Tax credit carryforwards
|
|
|
76,986
|
|
|
|
52,431
|
|
Capitalized research and development
|
|
|
84
|
|
|
|
160
|
|
Accrued expenses
|
|
|
3,721
|
|
|
|
5,238
|
|
Stock options
|
|
|
12,874
|
|
|
|
9,753
|
|
Property and equipment
|
|
|
609
|
|
|
|
1,192
|
|
Intangible assets
|
|
|
61,751
|
|
|
|
11,964
|
|
Other long-term assets
|
|
|
2,521
|
|
|
|
2,991
|
|
Contingent consideration
|
|
|
14,406
|
|
|
|
11,518
|
|
Capitalized costs
|
|
|
9,791
|
|
|
|
11,870
|
|
Other
|
|
|
17
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
290,195
|
|
|
|
289,345
|
|
Valuation allowance
|
|
|
(250,662
|
)
|
|
|
(258,439
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets after valuation allowance
|
|
|
39,533
|
|
|
|
30,906
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Discount on debt offering
|
|
|
(27,673
|
)
|
|
|
(30,906
|
)
|
Intangible assets in-process research and development
|
|
|
(157,090
|
)
|
|
|
(157,090
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(184,763
|
)
|
|
|
(187,996
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(145,230
|
)
|
|
$
|
(157,090
|
)
|
|
|
|
|
|
|
|
|
|
As part of accounting for the acquisition of Proteolix, the
Company recorded goodwill and intangible assets. Amortization
expenses associated with acquired intangible assets are
generally not tax deductible. Intangible assets acquired for use
in a particular research and development project are considered
indefinite-lived intangible assets until the completion or
abandonment of the associated research and development efforts.
Deferred taxes will continue to be recognized for the difference
between the book and tax bases of indefinite-lived intangible
assets as well as amortizable intangible assets. As a result, a
deferred tax liability was established for the IPR&D of
$157.1 million as a part of the business combination
accounting.
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and the amount of which are
uncertain. Accordingly, the net deferred tax assets, not
including the deferred tax liability related to IPR&D, have
been fully offset by a valuation allowance. The valuation
allowance decreased by $7.8 million in 2010, increased by
$45.3 million in 2009 and decreased by $6.8 million in
2008. The Company continues to maintain a full valuation
allowance against most of its net operating loss carryforwards
and other deferred tax assets because the Company does not
believe it is more likely than not that they will be realized.
On a quarterly basis, the Company reassesses its valuation
allowance for deferred income taxes. The Company will consider
reducing the valuation allowance when it becomes more likely
than not the benefit of those assets will be realized.
At December 31, 2010, the Company has net operating loss
carryforwards for federal and state income tax purposes of
approximately $271.2 million and $434.6 million,
respectively. These net operating losses may be available to
reduce future taxable income, if any. Approximately
$28.8 million of the federal and $27.1 million of the
state valuation allowance for deferred tax assets related to net
operating loss carryforwards represents the stock option
deduction arising from activity under the Companys stock
option plan, the benefit of which will increase additional paid
in capital when realized. The federal net operating loss
carryforwards expire beginning in 2025 through 2029,
109
and the state net operating loss carryforwards begin to expire
in 2014 through 2031 and may be subject to certain limitations.
As of December 31, 2010, the Company has research and
development credit and orphan drug credit carryforwards of
approximately $68.8 million for federal income tax purposes
that expire beginning in 2011 through 2030, and
$12.1 million for California income tax purposes, which do
not expire.
Utilization of the net operating loss and tax credit
carryforwards may be subject to substantial annual limitations
due to ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions.
The annual limitations may result in the expiration of net
operating loss and tax credit carryforwards before utilization.
The Company adopted authoritative guidance under ASC 740 on
January 1, 2007, which clarifies the accounting for
uncertainty in tax positions recognized in the financial
statements. As of December 31, 2010, the Company recognized
$11.9 million of unrecognized tax benefits. The Company had
no unrecognized income tax benefits during the years ended
December 31, 2009 and 2008. The Company is in process of
completing an analysis of its tax credit carryforwards. Any
uncertain tax positions identified in the course of this
analysis will not impact the consolidated financial statements
due to the full valuation allowance.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance at January 1
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions based on tax positions related to the current year
|
|
|
11,860
|
|
|
|
-
|
|
|
|
-
|
|
Additions/ Reductions for tax positions of prior years
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Reductions for tax positions of prior years
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
11,860
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, all unrecognized tax benefits are
subject to full valuation allowance and, if recognized, will not
affect the annual effective tax rate.
The Companys policy for classifying interest and penalties
associated with unrecognized income tax benefits is to include
such items as tax expense. No interest or penalties have been
recorded during the years ended December 31, 2010, 2009 and
2008.
The Company does not expect to have any significant changes to
unrecognized tax benefits over the next twelve months other than
potentially an adjustment resulting from our tax credit analysis
mentioned above. The tax years from 1993 and forward remain open
to examination by federal and California authorities due to net
operating loss and credit carryforwards. The Company is
currently not under examination by the Internal Revenue Service
or any other taxing authorities.
|
|
Note 18.
|
Guarantees,
Indemnifications and Contingencies
|
Guarantees
and Indemnifications
The Company has entered into indemnity agreements with certain
of its officers and directors, which provide for indemnification
to the fullest extent authorized and permitted by Delaware law
and the Companys Bylaws. The agreements also provide that
the Company will indemnify, subject to certain limitations, the
officer or director for expenses, damages, judgments, fines and
settlements he or she may be required to pay in actions or
proceedings to which he or she is or may be a party to because
such person is or was a director, officer or other agent of the
Company. The term of the indemnification is for so long as the
officer or director is subject to any possible claim, or
threatened, pending or completed action or proceeding, by reason
of the fact that such officer or director was serving the
Company as a director, officer or other agent. The rights
conferred on the officer or director shall continue after such
person has ceased to be an officer or director as provided in
the indemnity agreement. The maximum amount of potential future
indemnification is unlimited; however, the Company has a
director and officer insurance policy
110
that limits its exposure and may enable it to recover a portion
of any future amounts paid under the indemnity agreements. The
Company has not recorded any amounts as liabilities as of
December 31, 2010 or 2009 as the value of the
indemnification obligations, if any, are not estimable.
Contingencies
From time to time, the Company may become involved in claims and
other legal matters arising in the ordinary course of business.
Management is not currently aware of any matters that could have
a material adverse affect on the financial position, results of
operations or cash flows of the Company.
|
|
Note 19.
|
Quarterly
Financial Data (Unaudited)
|
The following table presents unaudited quarterly financial data
of the Company. The Companys quarterly results of
operations for these periods are not necessarily indicative of
future results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarter Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
69,978
|
|
|
$
|
63,696
|
|
|
$
|
68,773
|
|
|
$
|
62,903
|
|
License revenue
|
|
|
-
|
|
|
|
59,165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
69,978
|
|
|
|
122,861
|
|
|
|
68,773
|
|
|
|
62,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
54,346
|
|
|
|
44,568
|
|
|
|
43,251
|
|
|
|
43,575
|
|
Selling, general and administrative expenses
|
|
|
36,875
|
|
|
|
25,924
|
|
|
|
26,647
|
|
|
|
24,721
|
|
Contingent consideration
|
|
|
(8,177
|
)
|
|
|
5,622
|
|
|
|
92,037
|
|
|
|
3,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(13,066
|
)
|
|
|
46,747
|
|
|
|
(93,162
|
)
|
|
|
(8,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
632
|
|
|
|
628
|
|
|
|
780
|
|
|
|
789
|
|
Interest expense
|
|
|
(4,933
|
)
|
|
|
(4,943
|
)
|
|
|
(4,800
|
)
|
|
|
(4,724
|
)
|
Other income (expense)
|
|
|
89
|
|
|
|
(862
|
)
|
|
|
-
|
|
|
|
-
|
|
Provision (benefit) for income taxes
|
|
|
(157
|
)
|
|
|
70
|
|
|
|
-
|
|
|
|
(732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,121
|
)
|
|
$
|
41,500
|
|
|
$
|
(97,182
|
)
|
|
$
|
(12,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.27
|
)
|
|
$
|
0.66
|
|
|
$
|
(1.55
|
)
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(0.27
|
)
|
|
$
|
0.66
|
|
|
$
|
(1.55
|
)
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
67,317
|
|
|
$
|
69,137
|
|
|
$
|
60,219
|
|
|
$
|
53,717
|
|
Contract revenue
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
68,317
|
|
|
|
69,137
|
|
|
|
60,219
|
|
|
|
53,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
36,028
|
|
|
|
35,635
|
|
|
|
28,022
|
|
|
|
28,820
|
|
Selling, general and administrative expenses
|
|
|
32,232
|
|
|
|
23,440
|
|
|
|
23,507
|
|
|
|
21,953
|
|
Contingent consideration
|
|
|
1,528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,471
|
)
|
|
|
10,062
|
|
|
|
8,690
|
|
|
|
2,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
920
|
|
|
|
1,015
|
|
|
|
972
|
|
|
|
1,121
|
|
Interest expense
|
|
|
(4,603
|
)
|
|
|
(2,255
|
)
|
|
|
-
|
|
|
|
-
|
|
Provision for income taxes
|
|
|
(355
|
)
|
|
|
(589
|
)
|
|
|
(288
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,509
|
)
|
|
$
|
8,233
|
|
|
$
|
9,374
|
|
|
$
|
4,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(0.09
|
)
|
|
$
|
0.14
|
|
|
$
|
0.16
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(0.09
|
)
|
|
$
|
0.14
|
|
|
$
|
0.16
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 20.
|
Subsequent
Events
|
In January 2011, the Company entered into an Amendment
No. 1 to the Agreement and Plan of Merger, or the
Amendment, with Shareholder Representative Services LLC (SRS).
The Amendment amended the Merger Agreement entered into in
October 2009 among the Company, Proteolix, SRS, and Profiterole
Acquisition Corp., pursuant to which the Company had acquired
Proteolix in November 2009.
Under the original Merger Agreement, the aggregate cash
consideration paid to former Proteolix stockholders at closing
was $276.0 million and an additional $40.0 million
earn-out payment was made in April 2010. The Company may be
required to pay up to an additional $535.0 million in up to
four earn-out payments, upon the achievement of regulatory
approvals for carfilzomib in the United States and Europe within
pre-specified timeframes. Under the original Merger Agreement,
the first of these additional earn-out payments would be in the
amount of $170.0 million (the Accelerated Approval
Earn-Out), if achieved by the date originally
contemplated, and would be triggered by accelerated marketing
approval for carfilzomib in the United States for
relapsed/refractory multiple myeloma (the Accelerated
Approval Milestone). This obligation is unchanged in the
Amendment.
The Amendment modifies the amount of the Accelerated Approval
Earn-Out if the Accelerated Approval Milestone is not achieved
by the date originally contemplated on a sliding scale basis, as
follows:
|
|
|
|
|
if the Accelerated Approval Milestone is achieved after the date
originally contemplated, but within six months of the original
date, subject to extension under certain circumstances, then the
amount payable will be reduced to $130.0 million; and
|
|
|
|
if the Accelerated Approval Milestone is achieved more than six
months after the date originally contemplated, but within twelve
months of the original date, subject to extension under certain
circumstances, then the amount payable will be reduced to
$80.0 million.
|
In addition, funds held in the escrow account to secure the
indemnification rights of the Company and other indemnitees with
respect to certain matters, including breaches of
representations, warranties and covenants of Proteolix under the
Merger Agreement were paid to former Proteolix stockholders in
February 2011.
112
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
2
|
.1(1)*
|
|
Agreement and Plan of Merger dated as of October 10, 2009
among the Company, Proteolix, Inc., Profiterole Acquisition
Corp., and Shareholder Representative Services LLC.
|
|
3
|
.1(2)
|
|
Restated Certificate of Incorporation of the Company.
|
|
3
|
.2(3)
|
|
Amended and Restated Bylaws of the Company.
|
|
3
|
.3(4)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
|
3
|
.4(5)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
|
4
|
.1
|
|
Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
|
|
4
|
.2(2)
|
|
Specimen Stock Certificate.
|
|
4
|
.3(6)
|
|
Indenture dated as of August 12, 2009 between the Company
and Wells Fargo Bank, National Association.
|
|
4
|
.4(6)
|
|
First Supplemental Indenture dated as of August 12, 2009
between the Company and Wells Fargo Bank, National Association.
|
|
4
|
.5(6)
|
|
Form of 4.00% Convertible Senior Note due 2016.
|
|
10
|
.1(i)(7)*
|
|
Collaboration Agreement between Bayer Corporation (formerly
Miles, Inc.) and the Company dated April 22, 1994.
|
|
10
|
.1(ii)(7)*
|
|
Amendment to Collaboration Agreement between Bayer Corporation
and the Company dated April 24, 1996.
|
|
10
|
.1(iii)(7)*
|
|
Amendment to Collaboration Agreement between Bayer Corporation
and the Company dated February 1, 1999.
|
|
10
|
.2(i)*
|
|
Amended and Restated Research, Development and Marketing
Collaboration Agreement effective as of May 2, 1995 between
the Company and Warner-Lambert Company.
|
|
10
|
.2(ii)(8)*
|
|
Research, Development and Marketing Collaboration Agreement
dated July 31, 1997 between the Company and Warner-Lambert
Company.
|
|
10
|
.2(iii)(8)*
|
|
Amendment to the Amended and Restated Research, Development and
Marketing Collaboration Agreement, dated December 15, 1997,
between the Company and Warner-Lambert Company.
|
|
10
|
.2(iv)(8)*
|
|
Second Amendment to the Amended and Restated Research,
Development and Marketing Agreement between Warner-Lambert and
the Company dated May 2, 1995.
|
|
10
|
.2(v)(8)*
|
|
Second Amendment to Research, Development and Marketing
Collaboration Agreement between Warner-Lambert and the Company
dated July 31, 1997.
|
|
10
|
.2(vi)(9)*
|
|
Amendment #3 to the Research, Development and Marketing
Collaboration Agreement between the Company and Warner-Lambert
dated August 6, 2001.
|
|
10
|
.2(vii)(10)*
|
|
Amendment #3 to the Amended and Restated Research, Development
and Marketing Collaboration Agreement between the Company and
Warner-Lambert dated August 6, 2001.
|
|
10
|
.3(11)*
|
|
Technology Transfer Agreement dated April 24, 1992 between
Chiron Corporation and the Company, as amended in the Chiron
Onyx HPV Addendum dated December 2, 1992, in the Amendment
dated February 1, 1994, in the Letter Agreement dated
May 20, 1994 and in the Letter Agreement dated
March 29, 1996.
|
|
10
|
.4(2)+
|
|
Letter Agreement between Dr. Gregory Giotta and the Company
dated May 26, 1995.
|
|
10
|
.5(2)+
|
|
1996 Equity Incentive Plan.
|
|
10
|
.6(2)+
|
|
1996 Non-Employee Directors Stock Option Plan.
|
|
10
|
.7(12)+
|
|
1996 Employee Stock Purchase Plan.
|
|
10
|
.8(2)+
|
|
Form of Indemnity Agreement to be signed by executive officers
and directors of the Company.
|
|
10
|
.9(13)+
|
|
Form of Executive Change in Control Severance Benefits Agreement.
|
|
10
|
.10(i)(14)*
|
|
Collaboration Agreement between the Company and Warner-Lambert
Company dated October 13, 1999.
|
|
10
|
.10(ii)(9)*
|
|
Amendment #1 to the Collaboration Agreement between the Company
and Warner-Lambert dated August 6, 2001.
|
|
10
|
.10(ii)(15)*
|
|
Second Amendment to the Collaboration Agreement between the
Company and Warner-Lambert Company dated September 16,
2002.
|
113
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.11(16)
|
|
Stock and Warrant Purchase Agreement between the Company and the
investors dated May 6, 2002.
|
|
10
|
.12(i)(17)
|
|
Sublease between the Company and Siebel Systems dated
August 5, 2004.
|
|
10
|
.12(ii)(18)
|
|
First Amendment to Sublease between the Company and Oracle USA
Inc., dated November 3, 2006.
|
|
10
|
.13(i)(19)+
|
|
2005 Equity Incentive Plan.
|
|
10
|
.13(ii)(18)+
|
|
Form of Stock Option Agreement pursuant to the 2005 Equity
Incentive Plan.
|
|
10
|
.13(iii)(18)+
|
|
Form of Stock Option Agreement pursuant to the 2005 Equity
Incentive Plan and the Non-Discretionary Grant Program for
Directors.
|
|
10
|
.13(iv)(20)+
|
|
Form of Stock Bonus Award Grant Notice and Agreement between the
Company and certain award recipients.
|
|
10
|
.14(7)*
|
|
United States Co-Promotion Agreement by and between the Company
and Bayer Pharmaceuticals Corporation, dated March 6, 2006.
|
|
10
|
.15(21)+
|
|
Letter Agreement between Laura A. Brege and the Company, dated
May 19, 2006.
|
|
10
|
.16
|
|
Reserved.
|
|
10
|
.17(22)
|
|
Common Stock Purchase Agreement between the Company and Azimuth
Opportunity Ltd., dated September 29, 2006.
|
|
10
|
.18(32)+
|
|
Letter Agreement between Michael Kauffman, M.D., and the
Company, dated October 10, 2009.
|
|
10
|
.19(31)+
|
|
Base Salaries and Bonus Potential for Fiscal Year 2010, Cash
Bonuses for Fiscal Year 2009 and 2010 Equity Compensation Awards
for Named Executive Officers.
|
|
10
|
.20(i)(24)+
|
|
Employment Agreement between the Company and N. Anthony
Coles, M.D., dated as of February 22, 2008.
|
|
10
|
.20(ii)(23)
|
|
Amendment to Executive Employment Agreement between the Company
and N. Anthony Coles, M.D., effective as of March 12,
2009.
|
|
10
|
.21(24)+
|
|
Executive Change in Control Severance Benefits Agreement between
the Company and N. Anthony Coles, M.D., dated as of
February 22, 2008.
|
|
10
|
.22(32)**
|
|
License and Supply Agreement, dated October 12, 2005, by
and between CyDex, Inc. and Proteolix, Inc., as amended.
|
|
10
|
.23
|
|
Reserved.
|
|
10
|
.24
|
|
Reserved.
|
|
10
|
.25(3)+
|
|
Onyx Pharmaceuticals, Inc. Executive Severance Benefit Plan.
|
|
10
|
.26(26)+
|
|
Letter Agreement between the Company and Matthew K. Fust, dated
December 12, 2008.
|
|
10
|
.27(27)*
|
|
Development and License Agreement between the Company and BTG
International Limited, dated as of November 6, 2008.
|
|
10
|
.28(i)(23)+
|
|
Letter Agreement between the Company and Juergen
Lasowski, Ph.D., dated April 28, 2008.
|
|
10
|
.28(ii)(23)+
|
|
Amendment to Letter Agreement between the Company and Juergen
Lasowski, Ph.D., effective as of March 12, 2009.
|
|
10
|
.29(28)+
|
|
Executive Employment Agreement between the Company and Suzanne
M. Shema, effective as of August 31, 2009.
|
|
10
|
.30(29)+
|
|
Letter Agreement between the Company and Ted Love, M.D.,
effective as of January 28, 2010.
|
|
10
|
.31(29)+
|
|
Letter Agreement between the Company and Michael
Kauffman, M.D., effective as of April 1, 2010.
|
|
10
|
.32(30)+
|
|
Letter Agreement between the Company and Kaye Foster-Cheek,
effective as of September 30, 2010.
|
|
10
|
.33(30)+
|
|
Separation and Consulting Agreement between the Company and Judy
Batlin, effective as of September 30, 2010.
|
|
10
|
.34(30)
|
|
Lease Agreement between the Company and ARE-SAN FRANCISCO,
No. 12, LLC, dated as of July 9, 2010, as amended by
that certain Letter Agreement between the Company and ARE-SAN
FRANCISCO No. 12, dated as of July 9, 2010.
|
|
10
|
.35(30)
|
|
Sublease between the Company and Exelixis, Inc., dated as of
July 9, 2010.
|
114
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.36(30)*
|
|
License, Development and Commercialization Agreement between the
Company and Ono Pharmaceutical Co., Ltd., dated as of
September 7, 2010.
|
|
10
|
.37+
|
|
Separation and Consulting Agreement between the Company and
Michael Kauffman, effective as of December 31, 2010.
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney. Reference is made to the signature page.
|
|
31
|
.1
|
|
Certification of Principal Executive Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a).
|
|
31
|
.2
|
|
Certification of Principal Financial Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a).
|
|
32
|
.1
|
|
Certifications required by
Rule 13a-14(b)
or
Rule 15d-14(b)and
Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. 1350).
|
|
|
|
* |
|
Confidential treatment has been received for portions of this
document. |
|
** |
|
Confidential treatment has been sought for portions of this
document. |
|
+ |
|
Indicates management contract or compensatory plan or
arrangement. |
|
(1) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on October 13, 2009. |
|
(2) |
|
Filed as an exhibit to Onyxs Registration Statement on
Form SB-2
(No. 333-3176-LA). |
|
(3) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 5, 2008. |
|
(4) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2000. |
|
(5) |
|
Filed as an exhibit to Onyxs Registration Statement on
Form S-3
(No. 333-134565)
filed on May 30, 2006. |
|
(6) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on August 12, 2009. |
|
(7) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission. |
|
(8) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2002. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission. |
|
(9) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2001. |
|
(10) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission. |
|
(11) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2001. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission. |
|
(12) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on May 25, 2007. |
|
(13) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 10, 2008. |
|
(14) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on March 1, 2000. |
|
(15) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002. |
|
(16) |
|
Filed as an exhibit to Onyxs Registration Statement on
Form S-3
filed on June 5, 2002
(No. 333-89850). |
|
(17) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004. |
|
(18) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2006. |
115
|
|
|
(19) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on May 28, 2010. |
|
(20) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on July 12, 2006. |
|
(21) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 12, 2006. |
|
(22) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on September 29, 2006. |
|
(23) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009. |
|
(24) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on February 26, 2008. |
|
(25) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 23, 2008. |
|
(26) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 23, 2008. |
|
(27) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2008. |
|
(28) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009. |
|
(29) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010. |
|
(30) |
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2010. |
|
(31) |
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on February 19, 2010. |
|
(32) |
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2009. |
116