e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2005
or
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o |
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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
Commission File Number: 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
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(I.R.S. Employer ID Number) |
incorporation or organization) |
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2100 Powell Street
Emeryville, California 94608
(Address of principal executive offices)
(510) 597-6500
(Registrants telephone number, including area code)
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 proceeding 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.
þ Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
þ Yes o No
Indicate the number of shares outstanding of each of the issuers classes of Common Stock, as
of the latest practicable date. The number of outstanding shares of the registrants Common Stock,
$0.001 par value, was 35,359,280 as of August 3, 2005.
ONYX PHARMACEUTICALS, INC.
INDEX
2
ONYX PHARMACEUTICALS, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
CONDENSED BALANCE SHEETS
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June 30, |
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December 31, |
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2005 |
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2004 |
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(Unaudited) |
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(Note 1) |
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(In thousands) |
ASSETS |
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Current assets: |
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Cash and cash equivalents |
|
$ |
18,071 |
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$ |
74,243 |
|
Marketable securities |
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159,281 |
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|
135,381 |
|
Receivable from collaboration partner |
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3,411 |
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|
1,029 |
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Other current assets |
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4,107 |
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|
2,778 |
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|
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Total current assets |
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184,870 |
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|
213,431 |
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Property and equipment, net |
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1,577 |
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|
1,623 |
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Other assets |
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90 |
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|
492 |
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$ |
186,537 |
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$ |
215,546 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
850 |
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$ |
1,038 |
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Payable to collaboration partner |
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13,736 |
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|
11,520 |
|
Accrued liabilities |
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|
4,287 |
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|
1,895 |
|
Accrued compensation |
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|
906 |
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|
910 |
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Accrued restructuring |
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195 |
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Total current liabilities |
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19,779 |
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15,558 |
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Advance from collaboration partner |
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20,000 |
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20,000 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock |
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35 |
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35 |
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Additional paid-in capital |
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432,134 |
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430,966 |
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Accumulated other comprehensive loss |
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(534 |
) |
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|
(377 |
) |
Accumulated deficit |
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|
(284,877 |
) |
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(250,636 |
) |
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Total stockholders equity |
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146,758 |
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179,988 |
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$ |
186,537 |
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$ |
215,546 |
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See accompanying notes.
3
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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(In thousands, except per share amounts) |
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Revenue: |
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License fee |
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$ |
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$ |
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$ |
1,000 |
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$ |
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Operating expenses: |
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Research and development |
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12,079 |
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9,795 |
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25,611 |
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16,410 |
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Marketing |
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5,362 |
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1,471 |
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7,316 |
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1,760 |
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General and administrative |
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2,478 |
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2,278 |
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5,324 |
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4,079 |
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Restructuring |
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258 |
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258 |
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Total operating expenses |
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19,919 |
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13,802 |
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38,251 |
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22,507 |
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Loss from operations |
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(19,919 |
) |
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(13,802 |
) |
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(37,251 |
) |
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(22,507 |
) |
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Interest income and (expense), net |
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1,403 |
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|
696 |
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2,635 |
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|
1,220 |
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Other income |
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375 |
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375 |
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Net loss |
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$ |
(18,141 |
) |
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$ |
(13,106 |
) |
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$ |
(34,241 |
) |
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$ |
(21,287 |
) |
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Basic and diluted net loss per share |
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$ |
(0.51 |
) |
|
$ |
(0.38 |
) |
|
$ |
(0.97 |
) |
|
$ |
(0.63 |
) |
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Shares used in computing basic and
diluted net loss per share |
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35,313 |
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34,723 |
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35,293 |
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33,639 |
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See accompanying notes.
4
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended |
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June 30, |
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2005 |
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2004 |
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( In thousands) |
Cash flows from operating activities: |
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|
|
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Net loss |
|
$ |
(34,241 |
) |
|
$ |
(21,287 |
) |
Adjustments to reconcile net loss to net cash used
in operating activities: |
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Depreciation and amortization |
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278 |
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|
85 |
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Gain on sale of investment |
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(375 |
) |
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Noncash restructuring charges |
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258 |
|
Gain on sale of fixed assets |
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(6 |
) |
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Forgiveness of note receivable |
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|
8 |
|
Stock-based compensation to consultants |
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355 |
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|
1,037 |
|
Changes in assets and liabilities: |
|
|
|
|
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Receivable from collaboration partner |
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|
(2,382 |
) |
|
|
(638 |
) |
Other current assets |
|
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(954 |
) |
|
|
(1,166 |
) |
Other assets |
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|
402 |
|
|
|
(3 |
) |
Accounts payable |
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|
(188 |
) |
|
|
151 |
|
Accrued liabilities |
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|
2,197 |
|
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|
(235 |
) |
Payable to collaboration partner |
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|
2,216 |
|
|
|
1,600 |
|
Accrued compensation |
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(4 |
) |
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(177 |
) |
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Net cash used in operating activities |
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(32,702 |
) |
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(20,367 |
) |
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Cash flows from investing activities: |
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Purchases of marketable securities |
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(160,261 |
) |
|
|
(98,386 |
) |
Maturities of marketable securities |
|
|
136,204 |
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|
|
21,954 |
|
Capital expenditures |
|
|
(232 |
) |
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|
(68 |
) |
Proceeds from sale of fixed assets |
|
|
6 |
|
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|
451 |
|
|
|
|
|
|
|
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Net cash used in investing activities |
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|
(24,283 |
) |
|
|
(76,049 |
) |
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Cash flows from financing activities: |
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Net proceeds from issuances of common stock |
|
|
813 |
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|
152,182 |
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|
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Net cash provided by financing activities |
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|
813 |
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|
|
152,182 |
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|
|
|
|
|
|
|
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|
Net increase (decrease) in cash and cash equivalents |
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|
(56,172 |
) |
|
|
55,766 |
|
Cash and cash equivalents at beginning of period |
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|
74,243 |
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|
|
55,312 |
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|
|
|
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Cash and cash equivalents at end of period |
|
$ |
18,071 |
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$ |
111,078 |
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|
|
|
|
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|
See accompanying notes.
5
ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (GAAP) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the three and six
months ended June 30, 2005 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2005, or for any other future operating periods.
The condensed balance sheet at December 31, 2004 has been derived from the audited financial
statements at that date, but does not include all of the information and footnotes required by
GAAP for complete financial statements.
For further information, refer to the financial statements and footnotes thereto included in
the Onyx Pharmaceuticals, Inc. (the Company or Onyx) Annual Report on Form 10-K, as amended,
for the year ended December 31, 2004.
Note 2. Stock-Based Compensation
The Company has elected to continue to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), to account for employee stock options, because
the alternative fair value method of accounting prescribed by Statement of Financial Accounting
Standards (SFAS) 123, Accounting for Stock-Based Compensation, requires the use of option
valuation models that were not developed for use in valuing employee stock options. Under APB 25,
no compensation expense is recognized when the exercise price of employee stock options equals the
market price of the underlying stock on the date of grant.
The pro forma information regarding net loss and loss per share prepared in accordance with
SFAS 123, as amended, has been determined as if the Company had accounted for its employee stock
options and employee stock purchase plan under the fair value method prescribed by SFAS 123. The
fair value of options was estimated at the date of grant using the Black-Scholes option-valuation
model with the following weighted-average assumptions:
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|
|
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Three Months Ended |
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Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Risk-free interest rate |
|
|
3.92 |
% |
|
|
3.24 |
% |
|
|
3.61 |
% |
|
|
2.83 |
% |
Expected life |
|
3.9 years |
|
3.8 years |
|
3.8 years |
|
3.7 years |
Expected volatility |
|
|
0.73 |
|
|
|
0.58 |
|
|
|
0.76 |
|
|
|
0.59 |
|
Expected dividends |
|
None |
|
None |
|
None |
|
None |
Weighted average option fair value |
|
$ |
16.88 |
|
|
$ |
18.12 |
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|
$ |
15.36 |
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|
$ |
17.60 |
|
6
ONYX PHARMACEUTICALS, INC.
The following table illustrates the pro forma effects on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee
compensation:
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|
|
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|
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|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(In thousands, except per share amounts) |
Net loss as reported |
|
$ |
(18,141 |
) |
|
$ |
(13,106 |
) |
|
$ |
(34,241 |
) |
|
$ |
(21,287 |
) |
Deduct: Total stock-based employee compensation
determined under the fair value based method for
all awards, net of related tax effects |
|
|
(3,297 |
) |
|
|
(1,138 |
) |
|
|
(5,845 |
) |
|
|
(1,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(21,438 |
) |
|
$ |
(14,244 |
) |
|
$ |
(40,086 |
) |
|
$ |
(22,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share as reported |
|
$ |
(0.51 |
) |
|
$ |
(0.38 |
) |
|
$ |
(0.97 |
) |
|
$ |
(0.63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share pro forma |
|
$ |
(0.61 |
) |
|
$ |
(0.41 |
) |
|
$ |
(1.14 |
) |
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3. Revenue
Effective January 2005, the Company licensed exclusive rights to its p53-selective virus,
ONYX-015, to Shanghai Sunway Biotech Co., Ltd. headquartered in Shanghai, Peoples Republic of
China. Under this agreement, Shanghai Sunway is responsible for the research, development,
manufacture and commercialization of ONYX-015 worldwide. During the quarter ended March 31, 2005,
the Company received a cash payment of $1.0 million in exchange for the transfer to Shanghai Sunway
of the intellectual property and know-how to ONYX-015. As the Company has no further obligations
under the license agreement, the $1.0 million payment was recorded as license fee revenue in the
accompanying statement of operations.
Note 4. Net Loss Per Share
Basic and diluted net loss per share have been computed using the weighted-average number of
shares of common stock outstanding during each period. Potentially dilutive outstanding securities
consisting of 3,101,558 stock options and warrants as of June 30, 2005 and 2,655,994 stock options
and warrants as of June 30, 2004 were not included in the computation of diluted net loss per
share because their effect would have been antidilutive.
Note 5. Comprehensive Loss
Comprehensive loss is comprised of net 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 loss and reported separately in
stockholders equity. Comprehensive loss and its components are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Net loss as reported |
|
$ |
(18,141 |
) |
|
$ |
(13,106 |
) |
|
$ |
(34,241 |
) |
|
$ |
(21,287 |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
(loss) on
available-for-sale
securities |
|
|
218 |
|
|
|
(381 |
) |
|
|
(157 |
) |
|
|
(353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(17,923 |
) |
|
$ |
(13,487 |
) |
|
$ |
(34,398 |
) |
|
$ |
(21,640 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
ONYX PHARMACEUTICALS, INC.
Note 6. Restructuring
In June 2003, the Company restructured its operations and discontinued its therapeutic virus
program in order to place an increased priority on the development of sorafenib, Onyxs lead
product candidate that is being developed jointly with Bayer Pharmaceuticals Corporation. During
2003, the Company recorded an aggregate charge of $5.5 million associated with the restructuring.
In the second quarter of 2004, the Company recorded an additional restructuring charge of $258,000
due to a change in estimate related to the discontinued use and inability to sublet a portion of
the Companys former leased facility in Richmond, California. As of June 30, 2005, all
restructuring costs have been fully paid.
Note 7. Recent Accounting Development
In December 2004, the Financial Accounting Standards Board, (FASB) issued SFAS No. 123(R),
Share-Based Payment, (SFAS 123(R)), a revision to SFAS No. 123 Accounting for Stock-Based
Compensation, effective for reporting periods beginning after June 15, 2005. SFAS 123(R) supersedes
APB No. 25 and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R)
is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock options and employee stock purchase plans
to be recognized in the income statement based on their fair values. The pro forma disclosures
previously permitted under SFAS 123 no longer will be an alternative to financial statement
recognition. In April 2005, the Securities and Exchange Commission adopted a rule amendment that
delayed the compliance dates for SFAS 123(R) such that the Company is now allowed to adopt the new
standard no later than January 1, 2006. SFAS 123(R) permits public companies to adopt its
requirements using one of two methods:
1. A modified prospective method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments
granted after the effective date and (b) based on the requirements of SFAS 123 for all awards
granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the
effective date.
2. A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the amounts
previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year of adoption.
Although the Company has not determined whether the adoption of SFAS 123(R) will result in
amounts that are similar to the current pro forma disclosures under SFAS 123, the Company is
evaluating the requirements under SFAS 123(R) and expects the adoption to have a material impact
on the Companys consolidated statements of operations and net loss per share.
Note 8. Investment in Syrrx Inc.
In April 2005, the Company redeemed its investment in Syrrx Inc. as a result of the
acquisition of Syrrx by Takeda Pharmaceutical Company Limited. The Company received cash of
$750,000 as a result of the redemption, which resulted in a gain of $375,000, which was recorded as
other income in the quarter ended June 30, 2005.
Note 9. Subsequent Event
In August 2005, the Company received the third milestone advance from Bayer for $10 million
in connection with the filing of the New Drug Application, or NDA, for sorafenib.
8
ONYX PHARMACEUTICALS, INC.
Item 2. 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 Form 10-Q 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 Form 10-Q. Our actual
results could differ materially from those anticipated in these forward-looking statements for many
reasons, including those set forth under Business Risks.
Overview
We are a biopharmaceutical company dedicated to developing innovative therapies that target
the molecular mechanisms that cause cancer. With our collaborators, we are developing small
molecule, orally available drugs with the goal of changing the way cancer is treated.TM
Our lead drug candidate, sorafenib (formerly known as BAY 43-9006), is currently in Phase III
clinical development with our collaborator, Bayer Pharmaceuticals Corporation. Together with Bayer,
we are conducting multiple clinical trials of sorafenib. To date, we have treated more than 2,000
patients. In October 2003, we initiated a pivotal Phase III clinical trial after reaching written
agreement via a Special Protocol Assessment, or SPA, with the Food and Drug Administration, or FDA,
in patients with advanced renal cell carcinoma, also known as kidney cancer. Patients participating
in the study had one previous systemic cancer treatment prior to enrolling in the study.
In March 2005, we and Bayer announced that an independent data monitoring committee, or DMC,
had reviewed the safety and efficacy data from the Phase III kidney cancer trial. Based on its
analysis, the DMC concluded that the trial met its surrogate endpoint resulting in statistically
significant longer progression-free survival in those patients administered sorafenib versus those
patients administered placebo. Progression-free survival, or PFS, is a measure of the time that a
patient lives without significant tumor growth.
In April 2005, we and Bayer announced that the companies were recommending that all patients
in this Phase III kidney cancer trial be offered access to sorafenib. In May 2005, we and Bayer
announced the availability of sorafenib in the United States through a treatment protocol for
eligible individuals with advanced kidney cancer. These decisions followed further review of data
from the analysis of PFS, as well as additional discussions with the principal investigators, the
DMC, and the FDA.
In May 2005, we and Bayer announced that sorafenib has been accepted into the FDA Pilot 1
Program for continuous marketing applications. The Pilot 1 Program was designed for therapies that
have been granted Fast Track status by the FDA and that have the potential to provide important
therapeutic benefit over available therapy. Sorafenib was granted Fast Track status for kidney
cancer in March 2004. In July 2005, we and Bayer completed the submission of a New Drug
Application, or NDA, seeking approval to market sorafenib in the United States to treat advanced
kidney cancer. If we receive FDA approval for sorafenib, we would anticipate a United States
commercial launch as early as the first half of 2006.
In March 2005, we and Bayer announced the initiation of a Phase III clinical trial of
sorafenib in patients with advanced hepatocellular carcinoma, or liver cancer. In May 2005, we and
Bayer also initiated an additional Phase III clinical trial of sorafenib in patients with malignant
melanoma. We and Bayer are sponsoring multiple Phase II clinical trials of sorafenib for the
treatment of breast, non-small cell lung, melanoma and other cancers, as well as several Phase Ib
trials evaluating its use in combination with other anticancer agents. Two single-agent Phase II
trials of sorafenib in patients with kidney cancer and in patients with liver cancer were completed
in 2004. There are also multiple studies underway being conducted by the Cancer Therapy Evaluation
Program, or CTEP, of the National Cancer Institute, or NCI, as well as under the sponsorship of the
Eastern Cooperative Oncology Group, or ECOG.
9
ONYX PHARMACEUTICALS, INC.
In a previous collaboration with Warner-Lambert Company, now a subsidiary of Pfizer Inc, we
identified a number of lead compounds that modulate the activity of key enzymes that regulate the
process whereby a single cell replicates itself and divides into two identical new cells, a process
known as the cell cycle. Mutations in genes that regulate the cell cycle are present in a majority
of human cancers. Warner-Lambert is currently advancing a lead candidate from that collaboration,
PD 332991, a small molecule cell cycle inhibitor targeting a cyclin-dependent kinase, or CDK. In
September 2004, we announced that Pfizer initiated Phase I clinical testing of this CDK4 inhibitor.
In 2003, we restructured our operations and discontinued our therapeutic virus program in
order to place an increased priority on the development of sorafenib. Effective January 2005, Onyx
licensed exclusive rights to our p53-selective virus, ONYX-015, to Shanghai Sunway Biotech Co.,
Ltd. headquartered in Shanghai, Peoples Republic of China. Under this agreement, Shanghai Sunway
is responsible for the research, development, manufacture and commercialization of ONYX-015
worldwide. We received an upfront payment of $1.0 million that we recorded as license fee revenue.
We may receive additional payments if Shanghai Sunway achieves certain clinical, regulatory and
commercial events. We will also receive royalties on net sales of ONYX-015, if any.
We have not been profitable since inception and expect to incur substantial and increasing
losses for the foreseeable future, due to expenses associated with the development and
commercialization of sorafenib. We expect that losses will fluctuate from quarter to quarter and
that such fluctuations may be substantial. As of June 30, 2005, our accumulated deficit was
approximately $284.9 million.
Our business is subject to significant risks, including the risks inherent in our development
and commercialization efforts, the lengthy, expensive and uncertain regulatory approval process,
the results of the sorafenib clinical trials, our dependence on collaborative parties,
uncertainties associated with obtaining and enforcing patents and competition from other products.
For a discussion of these and some of the other risks and uncertainties affecting our business, see
Business Risks. We currently have no products that have received marketing approval, and we have
generated no revenues from the sale of products. We do not expect to generate revenues, if any,
from the sale of proposed products until at least 2006 and expect that until that time all
of our revenues, if any, will be generated from collaboration agreements.
Critical Accounting Policies and the Use of Estimates
Critical accounting policies are those that require significant estimates, assumptions and
judgments by management about matters that are inherently uncertain at the time that the financial
statements are prepared such that materially different results might have been reported if other
assumptions had been made. These estimates form the basis for making judgments about the carrying
values of assets and liabilities. We base our estimates and judgments on historical experience and
on various other assumptions that we believe to be reasonable under the circumstances. We consider
certain accounting policies related to research and development expenses and use of estimates to be
critical policies. Significant estimations used in 2005 included assumptions used in the
determination of stock-based compensation related to stock options granted to non-employees. Actual
results could differ materially from these estimates. There have been no changes to our critical
accounting policies since we filed our 2004 Annual Report on Form 10-K, as amended, for the year
ended December 31, 2004, with the Securities and Exchange Commission, or SEC. For a description of
our critical accounting policies, please refer to our 2004 Annual Report on Form 10-K, as amended.
Recent Accounting Development
In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS 123(R),
Share-Based Payment, a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation,
or SFAS 123, effective for reporting periods beginning after June 15, 2005. SFAS 123(R) supersedes
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and amends
SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the
approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to
employees, including grants of employee stock options and employee stock purchase plans to be
recognized in the income statement based on their fair values. The pro forma disclosures previously
permitted under SFAS 123 no longer will be an alternative to financial statement recognition. In
April 2005, the SEC adopted a rule amendment that delayed the
10
ONYX PHARMACEUTICALS, INC.
compliance dates for
SFAS 123(R) such that we are now allowed to adopt the new standard no later than January 1,
2006. SFAS 123(R) permits public companies to adopt its requirements using one of two methods:
|
1. |
|
A modified prospective method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments
granted after the effective date and (b) based on the requirements of SFAS 123 for all
awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested
on the effective date. |
|
|
2. |
|
A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either
(a) all prior periods presented or (b) prior interim periods of the year of adoption. |
Although we have not determined whether the adoption of SFAS 123(R) will result in amounts
that are similar to the current pro forma disclosures under SFAS 123, we are evaluating the
requirements under SFAS 123(R) and expect the adoption to have a material impact on our
consolidated statements of operations and net loss per share.
Results of Operations
Three and six months ended June 30, 2005 and 2004
Revenue
We recorded no product revenue for the three month periods ended June 30, 2005 and 2004.
Effective January 2005, we licensed exclusive rights to our p53-selective virus, ONYX-015, to
Shanghai Sunway Biotech Co., Ltd. headquartered in Shanghai, Peoples Republic of China. Under this
agreement, Shanghai Sunway is responsible for the research, development, manufacture and
commercialization of ONYX-015 worldwide. We received a payment of $1.0 million, which was recorded
as license fee revenue during the six months ended June 30, 2005. We may receive additional
payments if Shanghai Sunway achieves certain clinical, regulatory and commercial events and may
also receive royalties on net sales of ONYX-015, if any. We recorded no revenue for the six months
ended June 30, 2004.
Research and Development Expenses
Research and development expenses were $12.1 million for the three months ended June 30,
2005, a net increase of $2.3 million, or 23 percent, from $9.8 million in the same period in 2004.
In the three months ended June 30, 2005, expenses related to Onyxs share of the codevelopment
costs with Bayer for sorafenib increased by $2.8 million as compared to the same period in 2004.
Sorafenib development costs reflect the pivotal Phase III kidney cancer trial, a Phase III trial
in liver cancer initiated in the first quarter of 2005 and a Phase III trial in metastatic
melanoma initiated in May 2005, as well as multiple on going Phase Ib and II clinical trials. The
increase in expenses related to Onyxs share of the codevelopment costs with Bayer for sorafenib
was partially offset by a $500,000 decrease in expenses related to our therapeutic virus program
which was discontinued in 2003.
Research and development expenses were $25.6 million for the six months ended June 30, 2005,
a net increase of $9.2 million, or 56 percent, from $16.4 million in the same period in 2004. In
the six months ended June 30, 2005, expenses for Onyxs share of the codevelopment costs with
Bayer for sorafenib increased by $10.4 million as compared to the same period in 2004 due to the
ongoing codevelopment costs associated with sorafenib as well as the new liver and metastatic
melanoma Phase III trials initiated in the first half of 2005. The increase in sorafenib program
expenses was partially offset by a $1.2 million decrease in expenses for the therapeutic virus
program which was terminated in 2003. It is anticipated that research and development expenses
will continue to increase in future periods as the clinical trial program of sorafenib advances
and additional trials are initiated.
The major components of research and development costs include clinical manufacturing costs,
clinical trial expenses, consulting and other third-party costs, salaries and employee benefits,
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
11
ONYX PHARMACEUTICALS, INC.
includes proof of concept in animals and Phase I, II and
III 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 our Business Risks section below.
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses |
|
|
|
|
|
|
|
|
For the Three Months |
|
For the Six Months |
|
|
|
|
|
|
|
|
Ended June 30, |
|
Ended June 30, |
|
|
|
|
|
|
Phase of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
Collabo- |
|
Estimated |
|
|
|
|
|
|
|
|
Product |
Description |
|
|
rator |
|
Completion |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Sorafenib
|
Small molecule
multi-kinase
inhibitor of tumor
cell proliferation
and angiogenesis,
targeting RAF
kinase, VEGFR-2,
PDGFR-ß, KIT, and
FLT-3
|
|
|
Bayer
|
|
Phase I 2004
Phase IIUnknown
Phase IIIUnknown
|
|
$ |
12,032 |
|
|
$ |
9,197 |
|
|
$ |
25,164 |
|
|
$ |
14,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Therapeutic Virus
Programs
|
Programs
discontinued during
the second quarter
of 2003.
|
|
|
|
|
|
|
|
47 |
|
|
|
598 |
|
|
|
447 |
|
|
|
1,618 |
|
|
|
|
|
|
|
|
|
|
|
Total Research and Development Costs |
|
|
|
|
$ |
12,079 |
|
|
$ |
9,795 |
|
|
$ |
25,611 |
|
|
$ |
16,410 |
|
|
|
|
|
|
|
|
|
|
Marketing Expenses
Marketing expenses consist primarily of salaries and employee benefits, consulting and other
third-party costs, and allocations for overhead and occupancy costs. Marketing expenses were $5.4
million for the three months ended June 30, 2005, a net increase of $3.9 million, from $1.5
million in the same period in 2004. Marketing expenses were $7.3 million for the six months ended
June 30, 2005, a net increase of $5.6 million, from $1.8 million in the same period in 2004. The
increase was due to employee related costs for additional marketing personnel as well as
third-party costs incurred by Onyx and Bayer as we establish a commercial infrastructure in
anticipation of our product launch of sorafenib in the first half of 2006. It is anticipated that
sales and marketing expenses will increase in future periods as we develop our commercial
capabilities in order for us to copromote sorafenib with Bayer in the United States should
sorafenib receive FDA approval.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and employee benefits, and
corporate functional expenses. General and administrative expenses were $2.5 million for the three
months ended June 30, 2005, a net increase of $200,000, or 9 percent, from $2.3 million in the same
period in 2004. General and administrative expenses were $5.3 million for the six months ended
June 30, 2005, a net increase of $1.2 million, or 31 percent, from $4.1 million in the same period
in 2004. The increase was due primarily to the fact that the first half of 2004 benefited from
lower occupancy costs in our former
facility related to the discontinuance of our therapeutic virus program. We anticipate that
general and administrative expenses may continue to increase in future periods to support the
continued infrastructure growth.
Restructuring
12
ONYX PHARMACEUTICALS, INC.
In June 2003, we restructured our operations and discontinued our therapeutic virus program
in order to place an increased priority on the development of sorafenib, our lead product
candidate that is being developed jointly with Bayer. During 2003, the Company recorded an
aggregate charge of $5.5 million associated with the restructuring. In the second quarter of 2004,
the Company recorded an additional restructuring charge of $258,000 due to a change in estimate
related to the discontinued use and inability to sublet a portion of our former leased facility in
Richmond, California. As of June 30, 2005, all restructuring costs have been fully paid. We did
not record any restructuring charges during the three and six months ended June 30, 2005.
Interest Income and (Expense), net
We had net interest income of $1.4 million for the three months ended June 30, 2005, an
increase of $700,000 from $700,000 in the same period in 2004, and net interest income of $2.6
million for the six months ended June 30, 2005, an increase of $1.4 million, from $1.2 million, in
the same period in 2004.The increases were primarily due to higher interest rates as well as
higher average investment balances in the first half of 2005 resulting from our February 2004 sale
of equity securities from which we received $148.3 million in net cash proceeds.
Other Income
In April 2005, we redeemed our investment in Syrrx Inc. as a result of the acquisition of
Syrrx by Takeda Pharmaceutical Company Limited. We received cash of $750,000 as a result of the
redemption, which resulted in a gain of $375,000, which was recorded as other income for the three
and six months ended June 30, 2005. No other income was recorded for the three months and six
months ended June 30, 2004.
Liquidity and Capital Resources
Since our inception, we have incurred losses, and we have relied primarily on the proceeds
from the sale of equity securities to fund our operations.
At June 30, 2005, we had cash, cash equivalents and marketable securities of $177.4 million,
compared to $209.6 million at December 31, 2004. The decrease of $32.3 million was attributable to
net cash used in operations of $32.7 million. The cash was used primarily for cofunding the
clinical development program for sorafenib and the development of a commercial infrastructure with
Bayer. In August 2005, we received the third milestone advance from Bayer for $10 million in
connection with the filing of the NDA, for sorafenib. The final milestone payment of $10 million
will be triggered by the approval of sorafenib in the United States.
Total capital expenditures for equipment and leasehold improvements for the six-month period
ended June 30, 2005, were $232,000. We currently expect to make expenditures for capital equipment
and leasehold improvements of approximately $700,000 for the remainder of 2005.
We believe that our existing capital resources and interest thereon will be sufficient to fund
our current and planned operations into 2007. However, if we change our development plans, we may
need additional funds sooner than we expect. In addition, we anticipate that our codevelopment
costs for the sorafenib program will increase over the next several years as the Phase III clinical
trial program advances and we build out our commercial capability. While these costs are unknown at
the current time, we may need to raise additional capital to continue the cofunding of the program
in future periods beyond 2007. 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 research or 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.
Business Risks
13
ONYX PHARMACEUTICALS, INC.
Sorafenib (formerly known as BAY 43-9006) is our only product candidate currently in Phase II and
Phase III clinical development, and our ability to promote additional candidates to clinical
development is constrained. If sorafenib is not successfully commercialized, we may be unable to
identify and promote alternative product candidates and our business would fail.
Sorafenib is our only product candidate in Phase II and Phase III clinical development. In
June 2003, following an unsuccessful search for new collaboration partners for our therapeutic
virus product candidates, including ONYX-015 and ONYX-411, we announced that we were discontinuing
the development of all therapeutic virus product candidates, eliminating all employee positions
related to these candidates and terminating all related research and manufacturing capabilities. As
a result, we do not have internal research and preclinical development capabilities. Our scientific
and administrative employees are dedicated to managing our relationship with Bayer, and the
development of sorafenib, but are not actively discovering or developing new product candidates. As
a result of the termination of our therapeutic virus program and drug discovery programs, we do not
have a clinical development pipeline beyond sorafenib. If sorafenib is not successful in clinical
trials, does not receive marketing approval or is not successfully commercialized, we may be unable
to identify and promote alternative product candidates to later stage clinical development, which
would cause our business to fail.
Our clinical trial of sorafenib in kidney cancer may not yield statistically significant overall
survival data, which may negatively impact the commercialization of sorafenib.
In March 2005, an independent data monitoring committee reviewed the safety and efficacy data
from our ongoing Phase III trial of sorafenib in kidney cancer and concluded that the trial met its
surrogate endpoint, resulting in statistically significant longer progression-free survival in
those patients administered sorafenib versus those patients administered placebo. As a result, in
July 2005, we and Bayer filed a New Drug Application, or NDA, seeking approval of sorafenib to
treat patients with kidney cancer in the United States. We are also in discussion with regulators
about possible approval in other territories.
In April 2005, we and Bayer recommended that all patients in the companies ongoing Phase III
kidney cancer trial be offered access to sorafenib. This decision followed further review of the
progression-free survival data, as well as additional discussions with the principal investigators,
an independent data monitoring committee, and the Food and Drug Administration, or FDA. As a
result, patients who were previously administered placebo in the trial may now elect to receive
sorafenib. This action has reduced the number of patients in the trial receiving placebo and may
negatively impact our ability to obtain statistically significant data on overall survival of
patients with kidney cancer participating in this clinical trial.
In July 2005, we and Bayer filed for approval of sorafenib based on the progression-free
survival data. We and Bayer do not know whether regulatory authorities, including the FDA and its foreign counterparts, will grant full approval to sorafenib as a
treatment for kidney cancer on the basis of the progression-free survival endpoint and without
statistically significant overall survival data. It is possible that in the absence of
statistically significant overall survival data, sorafenib will not receive full marketing
approval, or will not receive approval in some countries. Lack of marketing approval in a
particular country would prevent us from selling sorafenib in that country, which could harm our
business. If sorafenib is approved as a treatment for advanced kidney cancer based on
statistically significant longer progression-free survival data, it may be at a competitive
disadvantage to third parties drugs if they are approved based on overall patient survival, which
could impair our ability to successfully market sorafenib.
We expect the number of therapies available for the treatment of kidney cancer could rapidly
increase, which could harm the prospects for sorafenib in this indication.
Currently, the most commonly used therapeutic agents for patients suffering from metastatic kidney
cancer are interleukin-2 (IL-2) and interferon-alpha (IFN). With the development and approval of
new anticancer therapies, it is anticipated that the initial, or first-line, treatment for many of
these patients could shift to the new therapeutic products.
For example, Genentechs Avastin has been reported to have activity in kidney cancer, and Genentech
has indicated that Avastin is now being used off-label for treatment of some kidney cancer
patients. In addition, Avastin is currently in a Phase III trial for kidney cancer, which, if
successful, could result in marketing approval in this indication.
14
ONYX PHARMACEUTICALS, INC.
Pfizer recently announced that its investigational drug, Sutent, a multi-kinase inhibitor, has
proven effective in treating Gleevec-resistant gastrointestinal stromal tumors, or GIST. Sutent is
also being tested to treat other tumor types, including Phase II and Phase III trials in kidney
cancer patients, some of whom are second-line patients, or have been previously treated, and some
of whom are first-line patients. It is possible that Sutent will receive FDA marketing approval for
treatment of GIST and/or kidney cancer before sorafenib receives FDA marketing approval in any
indication. Pfizer recently announced that it intends, in August 2005, to file an NDA for Sutent in
both GIST and kidney cancer. Even if only approved for treatment of GIST, medical practitioners may
use Sutent off-label to treat other tumor types, including kidney cancer, even if the compound has
not yet received marketing approval for use in these other indications. In addition, Wyeth is
conducting a Phase III study of CCI-779, an mTOR inhibitor, in patients with advanced kidney
cancer. Pfizer also has an earlier stage compound, AG-013736, a multi-kinase inhibitor, which is
being evaluated in kidney cancer patients, in clinical development.
As a result of these and other developments, a number of new therapeutic products may become
available to treat metastatic kidney cancer, either on an off-label or approved basis, within a
short period of time. With the potential availability of multiple
drugs, the price and usage of these agents maybe impacted, which could affect our potential revenues and profits. In addition, it is not currently
known which of these potential new kidney cancer products will be used as first-line therapy. The
use of any first-line agent may limit the use of an agent with a similar mechanism of action in
second line patients. While sorafenib has not been approved as either a first or second-line
therapy, our Phase III trial of sorafenib in kidney cancer was for the treatment of patients having
previously received systemic therapy. If sorafenib is approved only as a second-line therapy for
kidney cancer, the successful introduction of new first-line therapies could significantly reduce
the potential market for sorafenib in this indication. Decreased demand or price for sorafenib
would harm our ability to realize revenue from sorafenib, should it be approved, which could cause
our stock price to fall.
If our clinical trials fail to demonstrate that sorafenib is safe and effective for cancer types
other than kidney cancer, we will be unable to broadly commercialize sorafenib as a treatment for
cancer, and our business may fail.
In collaboration with Bayer, we are conducting multiple clinical trials of sorafenib. We have
completed Phase I single-agent clinical trials of sorafenib. We are currently conducting a number
of Phase Ib clinical trials of sorafenib in combination with other anticancer agents. Phase I
trials are not designed to test the efficacy of a drug candidate but rather to test safety; to
study pharmacokinetics, or how drug concentrations in the body change over time; to study
pharmacodynamics, or how the drug candidate acts on the body over a period of time; and to
understand the drug candidates side effects at various doses and schedules.
With Bayer, we have completed Phase II clinical trials of sorafenib in kidney and liver cancer
and are currently conducting Phase II clinical trials in breast, non-small cell lung, melanoma and
other cancers. Phase II trials are designed to explore the efficacy of a product candidate in
several different types of cancers and may be randomized and double-blinded to ensure that the
results are due to the effects of the drug. In October 2003 we and Bayer initiated a Phase III
clinical trial to treat patients with advanced kidney cancer. In addition, in March 2005, we and
Bayer initiated a Phase III clinical trial of sorafenib in patients with liver cancer. In May 2005,
we and Bayer initiated a Phase III clinical trial of sorafenib in combination with the
chemotherapeutic agents carboplatin and pactitaxel in patients with malignant melanoma. Phase III
trials are designed to more rigorously test the efficacy of a product candidate and are normally
randomized and double-blinded.
Although we believe we have demonstrated the efficacy and tolerability of sorafenib in
patients with advanced kidney cancer, in other types of cancer the efficacy of sorafenib has not
been proven. Historically, many companies have failed to demonstrate the effectiveness of
pharmaceutical product candidates in Phase III clinical trials notwithstanding favorable results in
Phase I or Phase II clinical trials. In addition, if previously unforeseen and unacceptable side
effects are observed, we may not proceed with further clinical trials of sorafenib. In our
clinical trials, we treat patients who have failed conventional treatments and who are in advanced
stages of cancer. During the course of treatment, these patients may die or suffer adverse medical
effects for reasons unrelated to sorafenib. These adverse effects may impact the interpretation of
clinical trial results, which could lead to an erroneous conclusion regarding the toxicity or
efficacy of sorafenib.
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Our clinical trials may fail to demonstrate that sorafenib is safe and effective as a
treatment for types of cancer other than kidney cancer, which would prevent us from marketing
sorafenib as a treatment for those other types of cancer, limiting the potential market for the
product, which may cause our business to fail.
We are dependent upon our collaborative relationship with Bayer to develop, manufacture and
commercialize sorafenib and to obtain regulatory approval. There may be circumstances that delay or
prevent the development and commercialization of sorafenib.
Our strategy for developing, manufacturing and commercializing sorafenib and obtaining
regulatory approval depends in large part upon our relationship with Bayer. If we are unable to
maintain our collaborative relationship with Bayer, we would need to undertake development,
manufacturing and marketing activities at our own expense, which would significantly increase our
capital requirements and limit the indications we are able to pursue and could prevent us from
commercializing sorafenib.
Under the terms of the collaboration agreement, we and Bayer are conducting multiple clinical
trials of sorafenib. We and Bayer must agree on the development plan for sorafenib. If we and Bayer
cannot agree, clinical trial progress could be significantly delayed or halted.
Under our agreement with Bayer, we have the opportunity to fund 50 percent of clinical
development costs worldwide except in Japan, where Bayer will fund 100 percent of development costs
and pay us a royalty on net sales. We are currently funding 50 percent of development costs for
sorafenib and depend on Bayer to fund the balance of these costs. Our collaboration agreement with
Bayer does not, however, create an obligation for either us or Bayer to fund the development of
sorafenib, or any other product candidate. If a party declines to fund development or ceases to
fund development of a product candidate under the collaboration agreement, then that party will be
entitled to receive a royalty on any product that is ultimately commercialized, but not to share in
profits. Bayer could, upon 60 days notice, elect at any time to terminate its cofunding of the
development of sorafenib. If Bayer terminates its cofunding of sorafenib development, we may be
unable to fund the development costs on our own and may be unable to find a new collaborator, which
could cause our business to fail.
Bayer has been the sponsor for all regulatory filings with the FDA. As a result, we have been
dependent on Bayers experience in filing and pursuing applications necessary to gain regulatory
approvals. Bayer has limited experience in developing drugs for the treatment of cancer.
Our collaboration agreement with Bayer calls for Bayer to advance us creditable
milestone-based payments. To date, Bayer has advanced us $30 million for achievement of specific
milestones. Any funds advanced under the agreement are repayable out of a portion of our future
profits and royalties, if any, from any of our products.
Our collaboration agreement with Bayer terminates when patents expire that were issued in
connection with product candidates discovered under that agreement, or upon the time when neither
we nor Bayer are entitled to profit sharing under that agreement, whichever is later. Bayer holds
the global patent applications related to sorafenib. At present, it is anticipated that, if issued,
the United States patent related to sorafenib will expire in 2022, subject to possible patent-term
extension, the entitlement to which and the term of which cannot presently be calculated.
We are subject to a number of additional risks associated with our dependence on our
collaborative relationship with Bayer, including:
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the amount and timing of expenditure of resources can vary because of decisions by Bayer; |
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possible disagreements as to development plans, including clinical trials or regulatory approval strategy; |
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the right of Bayer to terminate its collaboration agreement with us on limited notice and
for reasons outside our control; |
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loss of significant rights if we fail to meet our obligations under the collaboration agreement; |
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withdrawal of support by Bayer following the development or acquisition by it of competing products; and |
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possible disagreements with Bayer regarding the collaboration agreement or ownership of proprietary rights. |
Due to these factors and other possible disagreements with Bayer, we may be delayed or
prevented from developing or commercializing sorafenib, or we may become involved in litigation or
arbitration, which would be time consuming and expensive.
If Bayers business strategy changes, it may adversely affect our collaborative relationship.
Bayer may change its business strategy. A change in Bayers business strategy may adversely
affect activities under its collaboration agreement with us, which could cause significant delays
and funding shortfalls impacting the activities under the collaboration and seriously harming our
business.
Provisions in our collaboration agreement with Bayer may prevent or delay a change in control.
Our collaboration agreement with Bayer provides that, if Onyx is acquired by another entity by
reason of merger, consolidation or sale of all or substantially all of our assets, and Bayer does
not consent to the transaction, then for 60 days following the transaction, Bayer may elect to
terminate Onyxs codevelopment and copromotion rights under the collaboration agreement. If Bayer
were to exercise this right, Bayer would gain exclusive development and marketing rights to the
product candidates being developed under the collaboration agreement, including sorafenib. If this
happened, Onyx, or the successor to Onyx, would receive a royalty based on any sales of sorafenib
and other collaboration products, rather than a share of any profits. In this case, Onyx or its
successor would be permitted to continue cofunding development, and the royalty rate would be
adjusted to reflect this continued risk-sharing by Onyx or its successor. These provisions of our
collaboration agreement with Bayer may have the effect of delaying or preventing a change in
control, or a sale of all or substantially all of our assets, or may reduce the number of companies
interested in acquiring Onyx.
Our clinical trials could take longer to complete than we project or may not be completed at all.
Although for planning purposes we project the commencement, continuation and completion of
clinical trials for sorafenib, the actual timing of these events may be subject to significant
delays relating to various causes, including actions by Bayer, 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. We may not
complete clinical trials involving sorafenib as projected or at all.
We rely on Bayer, academic institutions and clinical research organizations to conduct,
supervise or monitor clinical trials involving sorafenib. We will have less control over the timing
and other aspects of these clinical trials than if we conducted them entirely on our own.
In
addition, we are directly supervising and monitoring certain
Phase II and Phase III clinical trials of sorafenib for the treatment of malignant melanoma. Onyx has not conducted a
clinical trial that has led to an NDA filing. Consequently, we may not have the necessary
capabilities to successfully execute and complete these planned clinical trials in a way that leads
to approval of sorafenib for the target indication. Failure to commence or complete, or delays in,
any of our planned clinical trials would prevent us from commercializing sorafenib in melanoma, and
thus seriously harm our business.
We face intense competition and rapid technological change, and many of our competitors have
substantially greater managerial resources than we have.
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 are actively seeking to develop products that
have disease targets similar to those we are pursuing. Some of these competitive product candidates
are in clinical trials, and others are approved. Competitors that target the same tumor types as
our sorafenib program and that have commercial products or product candidates in clinical
development include Pfizer,
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Novartis International AG, AstraZeneca PLC, OSI Pharmaceuticals, Inc., Genentech, Inc., Chiron
Corporation, and Abgenix, Inc., among others. A number of companies have small molecules targeting
Vascular Endothelial Growth Factor, or VEGF; VEGF receptors; Epidermal Growth Factor, or EGF; EGF
receptors; and other enzymes. These agents include antibodies and small molecules. OSI
Pharmaceuticals with
TarcevaTM, a small molecule inhibitor of the EGF receptor tyrosine
kinase has been approved in the United States for treatment of non-small cell lung cancer.
Companies working on developing antibody approaches include ImClone
Systems, Inc., which has developed, Erbitux and
Abgenix, each of which is an antibody targeting EGF receptors. Erbitux has been approved in the United States and
the European Union for treatment of colorectal cancer. Genentech has
developed AvastinTM, an
antibody targeting VEGF, which has received approvals in the United States and the European Union
for treatment of colorectal cancer. In addition, many other pharmaceutical companies are
developing novel cancer therapies that, if successful, would also provide competition for
sorafenib.
Our trial was conducted to treat patients who have been treated with prior therapy
(second-line patients). Our competitors may seek approval of their drugs to treat patients who have
not received prior therapy (first-line patients), as well as second-line patients. If our
competitors are successful and succeed in obtaining approval to treat first-line patients this
could put us at a competitive disadvantage.
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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developing products; |
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undertaking preclinical testing and human clinical trials; |
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obtaining FDA and other regulatory approvals of products; and |
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manufacturing and marketing products. |
Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA
approval or commercializing product candidates before we do. If we receive FDA approval and
commence commercial product sales, we will compete against companies with greater marketing and
manufacturing capabilities, areas in which we have limited or no experience.
We also face, and will continue to face, competition from academic institutions, government
agencies and research institutions. Further, we face numerous competitors working on product
candidates to treat each of the diseases for which we are seeking to develop therapeutic products.
In addition, our product candidates, if approved, will compete with existing therapies that have
long histories of safe and effective use. We may also face competition from other drug development
technologies and methods of preventing or reducing the incidence of disease and other classes of
therapeutic agents.
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. These competitors, either alone
or with collaborative parties, may succeed with technologies or products that are more effective
than ours.
We anticipate that we will face increased competition in the future as new companies enter our
markets and as scientific developments surrounding other cancer therapies continue to accelerate.
If sorafenib receives regulatory approval but cannot compete effectively in the marketplace, our
business will suffer.
We will need substantial additional funds, and our future access to capital is uncertain.
We will require substantial additional funds to conduct the costly and time-consuming clinical
trials necessary to develop sorafenib, pursue regulatory approval and commercialize this product
candidate. Our future capital requirements will depend upon a number of factors, including:
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the size and complexity of our sorafenib program; |
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decisions made by Bayer and Onyx to alter the size, scope and schedule of clinical development; |
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our receipt of milestone-based payments; |
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the ability to manufacture sufficient drug supply to complete clinical trials; |
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progress with clinical trials; |
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the time and costs involved in obtaining regulatory approvals; |
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the cost involved in enforcing patent claims against third parties and defending claims
by third parties (both of which are shared with Bayer); |
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the costs associated with acquisitions or licenses of additional products; |
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competing technological and market developments; and |
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product commercialization activities. |
We may not be able to raise additional financing on favorable terms, or at all. If we are
unable to obtain additional funds, we may not be able to fund our share of 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 that are
unfavorable to us.
We believe that our existing capital resources and interest thereon will be sufficient to fund
our current development plans into 2007. However, if we change our development plans, we may need
additional funds sooner than we expect. In addition, we anticipate that our codevelopment costs for
the sorafenib program will increase over the next several years as the Phase III clinical trial
program advances and new trials are initiated. While these costs are unknown at the current time,
we expect that we will need to raise substantial additional capital to continue the cofunding of
the sorafenib program in future periods. We may have to curtail our funding of sorafenib if we
cannot raise sufficient capital. If we do not cofund development of sorafenib, we will receive a
royalty on future sales of any product that is ultimately commercialized, instead of a share of
profits.
We have a history of losses, and we expect to continue to incur losses.
Our net loss for the year ended December 31, 2002 was $45.8 million, for the year ended
December 31, 2003 was $45.0 million, and for the year ended December 31, 2004 was $46.8 million.
Our net loss for the six months ended June 30, 2005 was $34.2 million. As of June 30, 2005, we had
an accumulated deficit of approximately $284.9 million. We have incurred these losses principally
from costs incurred in our research and development programs and from our general and
administrative costs. In addition, we are incurring precommercial marketing expenses in
anticipation of our commercial launch. It is not unusual for patients to be offered access to
investigational compounds in late-stage clinical development. Such programs, if initiated, involve
substantial costs. We derived no revenues from product sales or royalties. We expect to incur
significant and increasing operating losses over the next several years as we expand our clinical
trial activities and establish our commercial infrastructure. We expect our operating losses to
increase with our cofunding of ongoing sorafenib clinical trial costs under our collaboration
agreement with Bayer.
We do not expect to generate revenues from the sale of proposed products until at least 2006,
and we must repay the milestone-based advances we receive from Bayer from our future profits and
royalties, if any. Our ability to achieve profitability depends upon success by us and Bayer in
completing development of sorafenib, obtaining required regulatory approvals and manufacturing and
marketing the approved product.
We do not have manufacturing expertise or capabilities and are dependent on Bayer to fulfill our
manufacturing needs, which could result in the delay of clinical trials or regulatory approval.
Under our collaboration agreement with Bayer, Bayer has the manufacturing responsibility to
supply sorafenib for clinical trials and to support any commercial requirements. However, should
Bayer give up its right to codevelop sorafenib,
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we would have to manufacture sorafenib, or contract with another third party to do so for us.
We lack the resources, experience and capabilities to manufacture sorafenib or any future product
candidates on our own and would require substantial funds to establish these capabilities.
Consequently, we are, and expect to remain, dependent on third parties to manufacture our product
candidates and products, if any. These parties may encounter difficulties in production scale-up,
including problems involving production yields, quality control and quality assurance and shortage
of qualified personnel. These third parties may not perform as agreed or may not continue to
manufacture our products for the time required by us to successfully market our products. These
third parties may fail to deliver the required quantities of our products, if any, or product
candidates on a timely basis and at commercially reasonable prices. Failure by these third parties
could delay our clinical trials and our 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.
We have the right to copromote sorafenib in the United States, but we do not have significant
marketing or sales experience or capabilities.
We have the right under our collaboration agreement with Bayer to copromote sorafenib in the
United States in conjunction with Bayer. In order to copromote sorafenib, we are in the process of
developing commercial capabilities and hiring sales and marketing personnel. We intend to invest in
our commercialization infrastructure through the end of 2005. However, we may not successfully
establish marketing and sales capabilities or have sufficient resources to do so.
If
we do not further develop marketing and sales capabilities, we will be unable to meet our
copromotion obligations under our collaboration agreement, which could result in the loss of our
copromotion rights. If we do develop such capabilities, we will compete with other companies that
have experienced and well-funded marketing and sales operations, and we will incur additional
expenses. We will receive no return on our investment in sales and marketing capabilities if
sorafenib does not receive marketing approval. If sorafenib is not
approved, none of the sales and
marketing capabilities we have developed will be utilized, and we will be unable to recoup the
expense of developing these capabilities.
If we lose our key employees and consultants or are unable to attract or retain qualified
personnel, our business could suffer.
Our future success will depend in large part on the continued services of our management
personnel, including Hollings C. Renton, our Chairman, President and Chief Executive Officer, and
each of our other executive officers. The loss of the services of one or more of these key
employees could have an adverse impact on our business. We do not maintain key person life
insurance on any of our officers, employees or consultants, other than for our chief executive
officer. 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 2003, we restructured our operations to reflect an increased priority on the development of
sorafenib and discontinued our therapeutic virus program. As a result of the restructuring, we
eliminated approximately 75 positions, including our entire scientific team associated with the
therapeutic virus program. Our remaining scientific and administrative employees are engaged in
managing our collaboration with Bayer to develop sorafenib, but are not actively involved in new
product candidate discovery. If we resume our research and development of other product candidates,
we will need to hire individuals with the appropriate scientific skills. If we cannot hire these
individuals in a timely fashion, we will be unable to engage in new product candidate discovery
activities.
We expect to significantly expand our sales and marketing capabilities, and any difficulties managing this growth could disrupt our operations.
We expect to significantly expand our sales and marketing capabilities by increasing expenditures in these areas,
hiring additional employees and expanding the scope of our current operations. Future growth will require us to continue to recruit and train additional qualified personnel, which may impose a strain on
our administrative and operational infrastructure. The competition for qualified personnel in the biopharmaceutical field is intense. We are highly dependent on our continued ability to attract, retain
and motivate highly-qualified management, sales and marketing and clinical and scientific personnel. Due to our limited resources, we may not be able to effectively manage the expansion of our operations
or recruit and train additional qualified personnel. If we are unable to manage our growth effectively, we may not be able to implement our business plan.
Even if our product candidates are approved, the market may not accept these products.
Even if our product development efforts are successful and even if the requisite regulatory
approvals are obtained, sorafenib or any future product candidates that we may develop may not gain
market acceptance among physicians, patients, healthcare payors and the medical community or the
market may not be as large as forecasted. One factor that may affect market acceptance of our
product candidates 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 payors, such as government and private health insurers and managed care organizations.
Third-party payors are increasingly challenging the pricing of medical products and services and
their reimbursement practices may affect the price levels for our product candidates. In addition,
the market for our product candidates may be limited by third-party payors who establish lists of
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approved products and do not provide reimbursement for products not listed. If our product
candidates are not on the approved lists, the sales of our product candidates may suffer.
A number of additional factors may limit the market acceptance of products including the
following:
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rate of adoption by healthcare practitioners; |
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rate of a products acceptance by the target 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; |
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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. |
If sorafenib or any future product candidates that we may develop do not achieve market
acceptance, we may lose our investment in that product candidate, which may cause our stock price
to decline.
We are subject to extensive government regulation, which can be costly, time consuming and subject
us to unanticipated delays.
Drug candidates under development are subject to extensive and rigorous domestic and foreign
regulation. We have not received regulatory approval in the United States or any foreign market for
sorafenib or any other product candidate.
We expect to rely on Bayer to manage communications with regulatory agencies, including filing
new drug applications and generally directing the regulatory approval process for sorafenib. We and
Bayer may not obtain necessary approvals from the FDA or other regulatory authorities. If we fail
to obtain required governmental approvals, we will experience delays in or be precluded from
marketing sorafenib. Even if sorafenib is approved, 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, and if overly restrictive may
limit our and Bayers ability to successfully market any approved product. If we have disagreements
as to ownership of clinical trial results or regulatory approvals, and the FDA refuses to recognize
us as holding, or having access to, the regulatory approvals necessary to commercialize our product
candidates, we may experience delays in or be precluded from marketing products.
The regulatory review and approval process takes many years, requires the expenditure of
substantial resources, involves post-marketing surveillance, and may involve ongoing requirements
for post-marketing studies. Additional or more rigorous governmental regulations may be promulgated
that could delay regulatory approval of sorafenib. Delays in obtaining regulatory approvals may:
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adversely affect the successful commercialization of sorafenib; |
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impose costly procedures on us; |
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diminish any competitive advantages that we may attain; and |
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adversely affect our receipt of revenues or royalties. |
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In addition, problems or failures with the products of others, before or after regulatory
approval, including our competitors, could have an adverse effect on our ability to obtain or
maintain regulatory approval for sorafenib.
We may not be able to protect our intellectual property or operate our business without
infringing upon 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 or effectively maintained as trade secrets.
As a result, 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. |
In the case of sorafenib, the global patent applications related to this product candidate are
held by Bayer, but licensed to us in conjunction with our collaboration agreement with Bayer. At
present, it is anticipated that, if issued, the United States patent related to sorafenib will
expire in 2022, subject to possible patent-term extension, the entitlement to which and the term of
which cannot presently be calculated. Patent applications for sorafenib are also pending throughout
the world. As of June 30, 2005, we owned or had licensed rights
to 52 United States patents and 34
United States patent applications and, generally, 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 Warner-Lambert or Bayer, or aspects
of our now discontinued virus program. Additionally, we have corresponding patents or patent
applications pending or granted in certain foreign jurisdictions.
Our existing patent rights may not have a deterrent effect on competitors who are conducting
or desire to commence competitive research programs with respect to the biological targets or
fields of inquiry that we are pursuing. Although third parties may challenge our rights to, or the
scope or validity of our patents, to date, we have not received any communications from third
parties challenging our patents or patent applications covering our product candidates.
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. Competitors may have independently developed technologies similar to ours. We may need
to license the right to use third-party patents and intellectual property to develop and market our
product candidates. We may not 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
declared by the United States Patent and Trademark Office to determine the priority of inventions
relating to our patent applications. These activities, and especially patent litigation, are
costly.
Bayer may have rights to publish data and information in which we have rights. In addition, we
sometimes engage individuals, entities or consultants to conduct research that may be relevant to
our business. The ability of these individuals, entities or consultants to publish or otherwise
publicly disclose data and other information generated during the course of
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their research is subject to certain contractual limitations. The nature of the limitations
depends on various factors, including the type of research being conducted, the ownership of the
data and information and the nature of the individual, entity or consultant. In most cases, these
individuals, entities or consultants are, at the least, precluded from publicly disclosing our
confidential information and are only allowed to disclose other data or information generated
during the course of the research after we have been afforded an opportunity to consider whether
patent and/or other proprietary protection should be sought. If we do not apply for patent
protection prior to publication or if we cannot otherwise maintain the confidentiality of our
technology and other confidential information, then our ability to receive patent protection or
protect our proprietary information will be harmed.
We face product liability risks and may not be able to obtain adequate insurance.
The use of sorafenib in clinical trials, and the sale of any approved products, exposes us to
liability claims. Although we are not aware of any historical or anticipated product liability
claims against us, if we cannot successfully defend ourselves against product liability claims, we
may incur substantial liabilities or be required to limit commercialization of sorafenib.
We believe that we have obtained reasonably adequate product liability insurance coverage for
our clinical trials. We intend to expand our insurance coverage to include the commercial sale of
sorafenib if marketing approval is obtained. However, the cost of insurance coverage is rising. We
may not be able to maintain insurance 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 one of our product candidates receive marketing approval. 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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withdrawal of clinical trial volunteers; and |
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loss of revenues. |
Thus, whether or not we are insured, a product liability claim or product recall may result in
losses that could be material.
Our stock price is volatile.
The market price of our common stock has been volatile and is likely to continue to be
volatile. For example, during the period beginning January 1, 2002 and ending June 30, 2005, the
closing sales price for one share of our common stock reached a high of $58.75 and a low of $3.59.
Factors affecting our stock price include:
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interim or final results of, or speculation about, clinical trials from sorafenib; |
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changes in the regulatory approval requirements; |
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ability to accrue patients into clinical trials; |
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success or failure in, or speculation about, obtaining regulatory approval by us or our competitors; |
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public concern as to the safety and efficacy of our product candidates; |
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developments in our relationship with Bayer; |
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developments in patent or other proprietary rights; |
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additions or departures of key personnel; |
23
ONYX PHARMACEUTICALS, INC.
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announcements by us or our competitors of technological innovations or new commercial therapeutic products; |
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published reports by securities analysts; |
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statements of governmental officials; and |
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changes in healthcare reimbursement policies. |
Existing stockholders have significant influence over us.
Our executive officers, directors and five-percent stockholders own, in the aggregate,
approximately 47 percent 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.
Bayer, a collaborative party, has the right, which it is not currently exercising to have its
nominee elected to our board of directors as long as we continue to collaborate on the development
of a compound. Because of these rights and ownership and voting arrangements, our officers,
directors, principal stockholders and collaborator may be able to effectively control the election
of all members of the board of directors and to determine all corporate actions.
We are at risk of securities class action litigation due to our expected stock price volatility.
In the past, stockholders have often brought securities class action litigation against a
company following a decline in the market price of its securities. This risk is especially acute
for us, because biotechnology companies have experienced greater than average stock price
volatility in recent years and, as a result, have been subject to, on average, a greater number of
securities class action claims than companies in other industries. Following our announcement in
October 2004 of Phase II clinical trial data in patients with advanced kidney cancer, our stock
price declined significantly. Our closing stock price on the last trading day before the
announcement was $40.81, and our closing stock price on the day of the announcement was $27.34. We
may in the future be the target of securities class action litigation. Securities litigation could
result in substantial costs, could divert managements attention and resources, and could seriously
harm our business, financial condition and results of operations.
Provisions in Delaware law, our charter and executive change of control agreements we have entered
into may prevent or delay a change of control.
We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These
anti-takeover laws prevent Delaware corporations from engaging in a merger or sale of more than ten
percent of its assets with any stockholder, including all affiliates and associates of the
stockholder, who owns 15 percent or more of the corporations outstanding voting stock, for three
years following the date that the stockholder acquired 15 percent or more of the corporations
stock unless:
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the board of directors approved the transaction where the stockholder acquired 15 percent
or more of the corporations stock; |
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after the transaction in which the stockholder acquired 15 percent or more of the
corporations stock, the stockholder owned at least 85 percent 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.
24
ONYX PHARMACEUTICALS, INC.
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 ten percent 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 of control, even at
stock prices higher than the then current stock price.
We have entered into change of 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 13 months of a
change of control of Onyx. These changes of control severance agreements may have the effect of
preventing a change of control.
Item 3. Quantitative and Qualitative Disclosures About 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. By 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 by 100 basis points, or 1%, as of
June 30, 2005, the fair value of our portfolio would decline by approximately $1.0 million.
The table below presents the amounts and related weighted interest rates of our cash
equivalents and marketable securities at:
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June 30, 2005 |
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December 31, 2004 |
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Average |
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Average |
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Fair Value |
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Interest |
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Fair Value |
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Interest |
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Maturity |
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(In millions) |
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Rate |
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Maturity |
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(In millions) |
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Rate |
Cash equivalents, fixed rate |
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0 2 months |
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$ |
18.1 |
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2.86 |
% |
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0 2 months |
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$ |
74.2 |
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2.09 |
% |
Marketable securities,
fixed rate |
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0 21 months |
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$ |
159.3 |
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3.03 |
% |
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0 16 months |
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$ |
135.4 |
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2.18 |
% |
We did not hold any derivative instruments as of June 30, 2005, and we have not held
derivative instruments in the past. However, our investment policy does allow us to use derivative
financial instruments for the purposes of hedging foreign currency denominated obligations. Our
cash flows are denominated in U.S. dollars.
25
ONYX PHARMACEUTICALS, INC.
Item 4. Controls and Procedures
Inherent Limitations on Effectiveness of Controls: Internal control over financial reporting
may not prevent or detect all errors and all fraud. 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.
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 as of June
30, 2005 to ensure the information required to be disclosed by the Company in this Quarterly Report
on Form 10-Q is recorded, processed, summarized and reported within the time periods specified in
the Securities and Exchange Commissions rules and forms.
Changes in Internal Control over Financial Reporting: There were no changes in the Companys
internal control over financial reporting during the quarter ended June 30, 2005 that have
materially affected, or are reasonably likely to materially affect the Companys internal control
over financial reporting.
26
ONYX PHARMACEUTICALS, INC.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Stockholders was held on June 1, 2005. The results of the matters voted upon
at the meeting were:
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(a) |
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Each of the nominees to the Board of Directors was elected to serve until our
annual meeting of stockholders in 2008. The nominees were: Magnus Lundberg; 27,291,723
common shares for, none against and 285,481 withheld; and Hollings C. Renton;
27,283,958 common shares for, none against and 293,246 withheld. The term of office of
directors Paul Goddard, Antonio J. Grillo-López and Wendell D. Wierenga continues until
our annual meeting of stockholders in 2006. The term of office of directors Nicole
Vitullo and Thomas G. Wiggans continues until our annual meeting of stockholders in
2007. |
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(b) |
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The stockholders approved the adoption of the 2005 Equity Incentive Plan. The
2005 Equity Incentive Plan is intended as the successor to, and a continuation of, our
1996 Equity Incentive Plan and our 1996 Non-Employee Directors Stock Option Plan:
14,888,065 common shares for, 1,510,520 against, 17,304 abstaining and 11,161,315
broker non-votes. |
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(c) |
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The stockholders ratified the selection of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2005:
27,503,887 common shares for, 62,926 against and 10,391 abstaining. |
Item 5. Other Information
Item 6. Exhibits
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3.1 |
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Restated Certificate of Incorporation of the Company. (1) |
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3.2 |
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Bylaws of the Company. (1) |
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3.3 |
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Certificate of Amendment to Amended and Restated Certificate of Incorporation. (2) |
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4.1 |
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Reference is made to Exhibits 3.1, 3.2 and 3.3. |
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4.2 |
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Specimen Stock Certificate. (1) |
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10.45 |
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Onyx Pharmaceuticals, Inc. 2005 Equity Incentive Plan. (3) |
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31.1 |
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Certification required by Rule 13a-14(a) or Rule 15d-14(a). |
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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). (4) |
27
ONYX PHARMACEUTICALS, INC.
|
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(1) |
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Filed as an exhibit to the registrants Registration Statement on Form SB-2 (No.
333-3176-LA). |
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(2) |
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Filed as an exhibit to the registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000. |
|
(3) |
|
Filed as an exhibit to the registrants Current Report
on Form 8-K filed on June 7, 2005. |
|
(4) |
|
This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is
not deemed filed with the Securities and Exchange Commission and is not to be incorporated by
reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as
amended or the Securities Exchange Act of 1934, as amended (whether made before or after the
date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation
language contained in such filing. |
28
ONYX PHARMACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ONYX PHARMACEUTICALS, INC.
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Date: August 9, 2005 |
By: |
/s/ Hollings C. Renton
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Hollings C. Renton |
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Chairman of the Board,
President and Chief Executive Officer
(Principal Executive and Financial Officer) |
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Date: August 9, 2005 |
By: |
/s/ Marilyn E. Wortzman
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Marilyn E. Wortzman |
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Vice President, Finance and Administration
(Principal Accounting Officer) |
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29
ONYX PHARMACEUTICALS, INC.
EXHIBIT INDEX
|
3.1 |
|
Restated Certificate of Incorporation of the Company. (1) |
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3.2 |
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Bylaws of the Company. (1) |
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3.3 |
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation. (2) |
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4.1 |
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Reference is made to Exhibits 3.1, 3.2 and 3.3. |
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4.2 |
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Specimen Stock Certificate. (1) |
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10.45 |
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Onyx Pharmaceuticals, Inc. 2005 Equity Incentive Plan. (3) |
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31.1 |
|
Certification required by Rule 13a-14(a) or Rule 15d-14(a). |
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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). (4) |
|
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(1) |
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Filed as an exhibit to the registrants Registration Statement on Form SB-2 (No.
333-3176-LA). |
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(2) |
|
Filed as an exhibit to the registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000. |
|
(3) |
|
Filed as an exhibit to the registrants Current Report
on Form 8-K filed on June 7,
2005. |
|
(4) |
|
This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is
not deemed filed with the Securities and Exchange Commission and is not to be incorporated by
reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as
amended or the Securities Exchange Act of 1934, as amended (whether made before or after the
date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation
language contained in such filing. |
30