<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) 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)
Delaware 94-3154463
- -------- ----------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
3031 Research Drive
Richmond, California 94806
(Address of principal executive offices)
(510) 222-9700
(Registrant's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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.
(XX) Yes ( ) No
The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 11,312,105 as of July 31, 1998.
<PAGE>
ONYX PHARMACEUTICALS, INC.
INDEX
PART I: FINANCIAL INFORMATION
- ------------------------------
PAGE
Item 1. Financial Statements
Condensed balance sheets - June 30, 1998 and
December 31, 1997 3
Condensed statements of operations - three and six months
ended June 30, 1998 and 1997 4
Condensed statements of cash flows - six months ended
June 30, 1998 and 1997 5
Notes to condensed financial statements 6
Item 2. Management's discussion and analysis of financial
condition and results of operations 7
PART II: OTHER INFORMATION
- ---------------------------
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
2
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ONYX PHARMACEUTICALS, INC.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,135 $ 18,828
Short-term investments 12,289 16,644
Other current assets 738 1,002
--------- ---------
Total current assets 39,162 36,474
Property and equipment, net 3,994 4,562
Notes receivable from related parties 810 812
Other assets 24 10
--------- ---------
TOTAL ASSETS $ 43,990 $ 41,858
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 625 $ 1,319
Accrued liabilities 2,153 1,731
Accrued clinical trials and related expenses 2,905 1,704
Accrued compensation 584 496
Deferred revenue 1,500 1,209
Long-term debt, current portion 2,199 2,130
--------- ---------
Total current liabilities 9,966 8,589
Long-term debt, noncurrent portion 3,481 4,336
Deferred rent 71 112
Stockholders' equity:
Preferred stock, $0.001 par value: 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.001 par value: 25,000,000 shares
authorized, 11,312,105 and 9,850,518 shares issued and
outstanding as of June 30, 1998 and December 31, 1997,
respectively 11 10
Additional paid-in capital 84,823 74,836
Deferred compensation (303) (413)
Accumulated deficit (54,059) (45,612)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 30,472 28,821
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 43,990 $ 41,858
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
3
<PAGE>
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Contract and other revenue $ 397 $ 303 $ 795 $ 610
Contract revenue from related parties 2,184 1,845 5,118 3,690
--------- --------- --------- ---------
Total revenue 2,581 2,148 5,913 4,300
Operating expenses:
Research and development 6,619 5,103 12,684 8,980
General and administrative 1,320 1,327 2,610 2,593
--------- --------- --------- ---------
Total operating expenses 7,939 6,430 15,294 11,573
--------- --------- --------- ---------
Loss from operations (5,358) (4,282) (9,381) (7,273)
Interest income, net 450 524 934 1,022
--------- --------- --------- ---------
Net loss $ (4,908) $ (3,758) $ (8,447) $ (6,251)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net loss per share $ (0.44) $ (0.39) $ (0.76) $ (0.65)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing basic and diluted net loss
per share 11,283 9,680 11,178 9,602
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
4
<PAGE>
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,447) $ (6,251)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 1,019 865
Forgiveness of note receivable 60 -
Amortization of deferred compensation 110 110
Changes in assets and liabilities:
Other current assets 264 20
Other assets (14) 11
Accounts payable (694) 93
Accrued clinical trials and related expenses 1,201 417
Accrued liabilities 422 652
Accrued compensation 88 37
Deferred revenue 291 (785)
Deferred rent (41) (119)
------- ------
Net cash used in operating activities (5,741) (4,950)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (10,289) (30,370)
Sales and maturities of short-term investments 14,644 4,071
Capital expenditures (451) (730)
Notes receivable from related parties (58) (404)
Proceeds from sale of fixed assets - -
------- ------
Net cash provided by (used in) investing activities 3,846 (27,433)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (786) (273)
Net proceeds from issuance of common stock 9,988 3,550
Repurchase of common stock - -
------- ------
Net cash provided by financing activities 9,202 3,277
------- ------
Net increase (decrease) in cash and cash equivalents 7,307 (29,106)
Cash and cash equivalents at beginning of the period 18,828 36,258
------- ------
Cash and cash equivalents at end of the period $ 26,135 $ 7,152
------- ------
------- ------
</TABLE>
See accompanying notes.
5
<PAGE>
ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles 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, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1997
included in the Onyx Pharmaceuticals, Inc. (the "Company" or "Onyx") Annual
Report on Form 10-K.
NOTE 2. NEW ACCOUNTING STANDARDS
As of January 1, 1998, the Company adopted Statement 130 (SFAS 130),
"Reporting Comprehensive Income." SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however,
the adoption of SFAS 130 had no impact on the Company's net loss or
stockholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were
reported separately in stockholders' equity, to be included in other
comprehensive income.
During the quarter and six months ended June 30, 1998 and 1997, total
comprehensive income approximates net loss.
6
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ONYX PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS OVERVIEW AND THE
FOLLOWING DISCUSSION CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997.
OVERVIEW
Since its inception, Onyx Pharmaceuticals, Inc. (the "Company" or "Onyx") has
been engaged in the discovery and development of novel therapeutics including
both small molecule drugs and therapeutic viruses which are based upon the
genetics of human disease. The Company has initially chosen to focus its
research in the area of cancer. The Company intends to pursue its therapeutic
discovery programs independently and in collaboration with pharmaceutical
companies, and to collaborate with such companies on the development and
commercialization of any products which may result from the Company's
discovery programs. The Company has entered into collaborative agreements
with Bayer Corporation ("Bayer") in the area of ras oncogenes and Eli Lilly
and Company ("Eli Lilly") on the function of the BRCA1 gene in breast cancer.
The Company has also entered into two separate collaborative agreements with
Warner-Lambert Company ("Warner-Lambert"), one in cell cycle mutations in
cancer and a second pertaining to inflammation and autoimmunity.
The Company has not been profitable since inception and expects to incur
substantial and increasing losses for the foreseeable future, primarily due
to the expansion of its research and development programs, including
preclinical studies and clinical trials to develop ONYX-015, the lead product
in the Company's p53 therapeutic virus program. The Company
expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. As of June 30, 1998, the Company's
accumulated deficit was approximately $54.1 million.
The Company's business is subject to significant risks, including the risks
inherent in its research and development efforts, the results of the ONYX-015
clinical trials, uncertainties associated with obtaining and enforcing
patents, the lengthy and expensive regulatory approval process and
competition from other products. The Company does not expect to generate
revenues from the sale of proposed products in the foreseeable future.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
REVENUES
The Company's revenues increased 20% to $2,581,000 and 38% to $5,913,000 for
the three and six months ended June 30,1998, respectively, as compared to the
same periods in 1997. Revenues for the 1997 periods were $2,148,000 and
$4,300,000 respectively. Revenues for the three and six months ended June
30, 1998 and 1997 were primarily attributable to amounts earned for research
performed under the Company's collaborations with Bayer, Warner-Lambert and
Eli Lilly. The increase in revenues for the three and six months ended June
30, 1998 as compared to the same periods in 1997 is primarily due to the
collaborative agreement with Warner-Lambert for the inflammation program
which was effective as of July 31, 1997.
7
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ONYX PHARMACEUTICALS, INC.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 30% to $6,619,000 and 41% to
$12,684,000 for the three and six months ended June 30, 1998, respectively,
as compared to the same periods in 1997. The increase was primarily due to
additional clinical costs associated with Phase I and Phase II clinical
trials of ONYX-015. The Company expects to continue to expand the scope of
its research and development programs in future periods, which may result in
substantial increases in research and development expenses, including costs
associated with clinical development of ONYX-015. These research and
development expenses may not be funded by collaborative partners.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses remained relatively flat at $1,320,000
and $2,610,000 for the three and six months ended June 30, 1998,
respectively, as compared with $1,327,000 and $2,593,000 for the same periods
in 1997. General and administrative expenses are expected to increase
moderately to support the Company's research and development efforts.
NET INTEREST INCOME
The Company had net interest income of $450,000 and $934,000 for the three
and six months ended June 30, 1998, respectively, as compared with $524,000
and $1,022,000 for the same periods in 1997. The decrease in net interest
income was due primarily to increased interest expense on the Company's line
of credit arrangement.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have substantially exceeded
its revenues and the Company has relied primarily on the proceeds from the
sale of equity securities, revenue from collaborative research and
development agreements and bank loans to fund its operations.
The Company's cash, cash equivalents and short-term investments were
$38,424,000 at June 30, 1998, compared with $35,472,000 at December 31, 1997.
Increasing levels of clinical research and product development associated
with ONYX-015 resulted in approximately $5,741,000 of cash used in operations
for the six months ended June 30, 1998. The increase in cash and investments
of $2,952,000 at June 30, 1998 compared with December 31, 1997 is due to the
private placement financing completed on January 12, 1998 which raised
approximately $10 million. The Company expects cash used in operations will
continue to increase as clinical development for ONYX-015 progresses.
Total capital expenditures for equipment and leasehold improvements for the
six-month period ended June 30, 1998 was $451,000. The Company expects to
make expenditures of approximately $1,100,000 for the remainder of 1998 for
capital equipment, including a laboratory expansion of approximately $250,000.
The Company believes that its existing capital resources and interest
thereon, and anticipated revenues from existing collaborations will be
sufficient to fund its current and planned operations through the end of
1999. There can be no assurance, however, that changes in the Company's
operating expenses will not result in the expenditure of such resources
before such time, and in any event, the Company will need to raise
substantial additional capital to fund its operations in future periods.
8
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ONYX PHARMACEUTICALS, INC.
BUSINESS RISKS
The Company is at an early stage of development. The development of the
Company's technology and proposed products will require a commitment of
substantial funds to conduct these costly and time-consuming activities. All
of the Company's potential products are in research or development and will
require significant additional research and development efforts prior to any
commercial use, including extensive preclinical and clinical testing as well
as lengthy regulatory approval. The development of new products is subject
to a number of significant risks. Potential products that appear to be
promising at an early stage of development may not reach the market for a
number of reasons. Such risks include the possibilities that the potential
products will be found ineffective or unduly toxic during clinical trials,
fail to receive necessary regulatory approvals, be difficult to manufacture
on a large scale, be uneconomical to market or be precluded from
commercialization by proprietary rights of third parties.
The Company is currently engaged in three self-funded Phase II clinical
trials of ONYX-015 for the treatment of head and neck cancer. The ability of
the Company to obtain a corporate partner for ONYX-015 and to continue its
development as a potential product will depend materially on the results of
these trials. There is no assurance that such results will be positive or,
even if they are positive, that they will be sufficiently strong to support
the Company's corporate partnering or product development objectives.
In addition, many of the Company's potential products are subject to
development and licensing arrangements with the Company's collaborators.
Therefore, the Company is dependent on the research and development efforts
of these collaborators. Moreover, the Company is entitled to only a portion
of the revenues, if any, realized from the commercial sale of any of the
potential products covered by the collaborations. Should the Company or its
collaborators fail to perform in accordance with the terms of any of their
agreements or terminate such agreements without cause, any consequent loss of
revenue under the agreements could have a material adverse effect on the
Company's results of operations.
There can be no assurance that the Company will be able to maintain existing
collaborative agreements, negotiate collaborative arrangements in the future
on acceptable terms, if at all, or that any such collaborative arrangements
will be successful. To the extent that the Company is not able to maintain
or establish such arrangements, the Company would be required to undertake
such activities at its own expense.
The proposed products under development by the Company have never been
manufactured on a commercial scale, and there can be no assurance that such
products can be manufactured at a cost or in quantities necessary to make
them commercially viable. The Company has no sales, marketing or
distribution capability. If any of its products subject to collaborative
agreements are successfully developed, the Company must rely on its
collaborators to market such products. If the Company develops any products
which are not subject to collaborative agreements, it must either rely on
other large pharmaceutical companies to market such products or must develop
a marketing and sales force with technical expertise and supporting
distribution capability in order to market such products directly.
The Company intends to seek additional funding through collaborative
arrangements, public or private equity or debt financings, capital lease
transactions or other financing sources that may be available. However,
there can be no assurance that additional financing will be available on
acceptable terms or at all. If additional funds are raised by issuing equity
securities, substantial dilution to existing stockholders may result. If
adequate funds are not available, the Company may be required to delay,
reduce the scope of, or eliminate one or more of its research or development
programs or to obtain funds through collaborative arrangements with others
that are on unfavorable terms or that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that
the Company would otherwise seek to develop itself.
9
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ONYX PHARMACEUTICALS, INC.
The foregoing risks reflect the Company's early stage of development and the
nature of its industry and proposed product. Also inherent in the Company's
stage of development is a range of additional risks, including competition,
uncertainties regarding protection of patents and proprietary rights,
government regulation and uncertainties regarding health care reform.
10
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ONYX PHARMACEUTICALS, INC.
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was held on May 28,
1998.
(b) Each of management's nominees to the Board of Directors was elected to
serve until the Company's annual meeting of stockholders in 2001. The
nominees were: Michael J. Berendt, Ph.D., 9,034,316 common shares for
and 270,941 withheld; Edward Penhoet, Ph.D., 9,032,716 common shares
for and 272,541 withheld; and Nicole Vitullo, 9,031,362 common shares
for and 273,895 withheld.
(c) The stockholders ratified the selection of Ernst & Young LLP as
independent auditors of Onyx for the fiscal year ending December 31,
1998: 9,283,483 common shares for, 13,431 against, and 8,343 abstain.
(d) Onyx also solicited the approval of the stockholders on the following
matters:
A. An increase of 300,000 shares to the aggregate number
of shares of Common Stock authorized for issuance under
the 1996 Equity Incentive Plan, as amended.
8,295,391 common shares for, 976,871 against, and
32,995 abstain.
B. An increase of 75,000 shares to the aggregate number
of shares of Common Stock authorized for issuance under
the Company's Employee Stock Purchase Plan.
9,229,130 common shares for, 55,186 against, and
20,941 abstain.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27.1 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this
report.
11
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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.
ONYX PHARMACEUTICALS, INC.
Date: August 14, 1998 By: /s/ Hollings C. Renton
-----------------------------
Hollings C. Renton
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ Douglas L. Blankenship
-----------------------------
Douglas L. Blankenship
Treasurer
(Principal Financial and Accounting Officer)
12
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ONYX PHARMACEUTICALS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Number Description of Exhibits Page
- -------------- ----------------------- -------
<C> <S> <C>
27.1 Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 26,135
<SECURITIES> 12,289
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,162
<PP&E> 11,221
<DEPRECIATION> (7,227)
<TOTAL-ASSETS> 43,990
<CURRENT-LIABILITIES> 9,966
<BONDS> 5,680
0
0
<COMMON> 11
<OTHER-SE> 30,461
<TOTAL-LIABILITY-AND-EQUITY> 43,990
<SALES> 0
<TOTAL-REVENUES> 5,913
<CGS> 0
<TOTAL-COSTS> 15,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298
<INCOME-PRETAX> (8,447)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,447)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
