<PAGE>
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 September 30, 1999
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 11,532,574 as of November 1, 1999.
<PAGE>
ONYX PHARMACEUTICALS, INC.
INDEX
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1. Financial Statements
Condensed Balance Sheets - September 30, 1999 and
December 31, 1998 3
Condensed Statements of Operations - Three and Nine Months
Ended September 30, 1999 and 1998 4
Condensed Statements of Cash Flows - Nine Months ended
September 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
</TABLE>
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>
September 30, December 31,
1999 1998
----------------- ----------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,780 $ 21,368
Short-term investments 3,061 10,792
Other current assets 705 609
----------------- ----------------
Total current assets 15,546 32,769
Property and equipment, net 3,163 3,730
Notes receivable from related parties 427 649
Other assets 32 59
----------------- ----------------
$ 19,168 $ 37,207
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,644 $ 2,371
Accrued liabilities 1,867 2,456
Accrued clinical trials and related expenses 999 2,176
Accrued compensation 764 658
Deferred revenue 2,085 3,318
Long-term debt, current portion 2,199 2,199
----------------- ----------------
Total current liabilities 9,558 13,178
Long-term debt, noncurrent portion 732 2,382
Deferred rent - 28
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;
11,532,574 and 11,452,457 shares issued and outstanding as of
September 30, 1999 and December 31, 1998, respectively 12 11
Additional paid-in capital 85,321 85,073
Deferred compensation (29) (194)
Accumulated deficit (76,426) (63,271)
----------------- ----------------
Total stockholders' equity 8,878 21,619
----------------- ----------------
$ 19,168 $ 37,207
================= ================
</TABLE>
See accompanying notes.
3
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ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Revenue:
Contract and other revenue $ 290 $ 479 $ 1,292 $ 1,274
Contract revenue from related parties 1,406 2,183 5,431 7,301
------------- ------------- ------------- ---------------
Total revenue 1,696 2,662 6,723 8,575
Operating expenses:
Research and development 5,422 6,625 16,548 19,309
General and administrative 1,240 1,331 4,001 3,941
------------- ------------- ------------- ---------------
Total operating expenses 6,662 7,956 20,549 23,250
------------- ------------- ------------- ---------------
Loss from operations (4,966) (5,294) (13,826) (14,675)
Interest income, net 168 408 671 1,342
------------- ------------- ------------- ---------------
Net loss $(4,798) $(4,886) $(13,155) $(13,333)
============= ============= ============= ===============
Basic and diluted net loss per share $ (0.42) $ (0.43) $ (1.14) $ (1.19)
============= ============= ============= ===============
Shares used in computing basic and diluted net loss per
share 11,525 11,372 11,492 11,243
============= ============= ============= ===============
</TABLE>
See accompanying notes.
4
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ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,155) $ (13,333)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,601 1,295
Forgiveness of notes receivable 72 89
Amortization of deferred compensation 165 164
Loss on disposals of fixed assets 23 -
Changes in assets and liabilities:
Other current assets (96) 42
Other assets 27 (28)
Accounts payable (727) (43)
Accrued clinical trials and related expenses (1,177) 648
Accrued liabilities (589) 1,267
Accrued compensation 106 230
Deferred revenue (1,233) 892
Deferred rent (28) (62)
-------------- --------------
Net cash used in operating activities (15,011) (8,839)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (2,045) (11,308)
Sales and maturities of short-term investments 9,776 15,344
Capital expenditures (1,106) (544)
Notes receivable from related parties 150 (16)
Proceeds from sale of fixed assets 49 35
-------------- --------------
Net cash provided by investing activities 6,824 3,511
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,650) (1,335)
Net proceeds from issuances of common stock, net of repurchases 249 10,098
-------------- --------------
Net cash provided by (used in) financing activities (1,401) 8,763
-------------- --------------
Net increase (decrease) in cash and cash equivalents (9,588) 3,435
Cash and cash equivalents at beginning of period 21,368 18,828
-------------- --------------
Cash and cash equivalents at end of period $11,780 $22,263
============== ==============
</TABLE>
See accompanying notes.
5
<PAGE>
ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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-month and nine-month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999, or for any other future operating periods.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles 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 for the year ended December 31, 1998.
NOTE 2. 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 the period,
less shares subject to repurchase. Common stock equivalents have been excluded
because they would be antidilutive for the periods presented. For the
three-month and nine-month periods ended September 30, 1999, total comprehensive
loss approximated net loss.
NOTE 3. SUBSEQUENT EVENTS
On October 18, 1999, the Company announced the signing of a collaboration
agreement with Warner-Lambert Company ("Warner-Lambert") to jointly develop
and commercialize ONYX-015 plus two new armed anticancer viruses. As part of
that agreement, Warner-Lambert will make an up-front payment and equity
investments in the Company over the next two years totaling $15,000,000.
Warner-Lambert is also providing the first $40,000,000 in funding for Phase
III clinical studies of ONYX-015 and is additionally funding research and
development of the two new armed viruses. In addition to the committed
funding, over $100,000,000 could be payable to Onyx on the achievement of
milestones for the products.
6
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ONYX PHARMACEUTICALS, INC.
ITEM 2. 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, 1998.
OVERVIEW
Onyx Pharmaceuticals Inc. (the "Company" or "Onyx") is discovering, developing
and commercializing novel cancer therapies based on the genetic mutations that
cause the disease. The Company pursues a strategy of establishing corporate
partnerships that provide complementary skills in chemistry, drug development,
and marketing and sales.
The Company is engaged in an ongoing collaboration with Bayer Corporation
("Bayer") in the area of ras oncogenes, in which a clinical development
candidate has been named. The focus of the collaboration is now on
co-development of this clinical candidate. The Company has also entered into
separate collaborative agreements with Warner-Lambert Company
("Warner-Lambert"), one in cell cycle mutations in cancer and a second
pertaining to inflammatory and autoimmune diseases. Subsequent to the quarter
ended September 30, 1999, the Company announced the signing of a third
collaboration agreement with Warmer-Lambert to jointly develop and
commercialize ONYX-015 plus two new armed anticancer viruses.
The Company has not been profitable since inception and expects to incur
substantial losses for the foreseeable future, primarily due to its self-funded
virus research program. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. As of
September 30, 1999, the Company's accumulated deficit was $76,426,000.
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.
REVENUES
The Company's revenues decreased 36 percent to $1,696,000 and 22 percent to
$6,723,000 for the three and nine months ended September 30, 1999, respectively,
as compared to the same periods in 1998. Revenues for the 1998 periods were
$2,662,000 and $8,575,000 respectively. Revenues for the three and nine months
ended September 30, 1999 were primarily attributable to amounts earned for
research performed under the Company's collaborations with Warner-Lambert for
the cell cycle and inflammation programs. The decrease in revenues for the three
and nine months ended September 30, 1999 as compared to the same periods in 1998
is due primarily to the transition of the ras program with Bayer from research
funding to co-development of a clinical candidate, effective February 1, 1999.
7
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ONYX PHARMACEUTICALS, INC.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 18 percent to $5,422,000 and 14
percent to $16,548,000 for the three and nine months ended September 30, 1999,
respectively, as compared with $6,625,000 and $19,309,000 for the same periods
in 1998. The decrease in expenses for the three and nine months ended September
30, 1999 as compared to the same periods in 1998 was primarily due to a reduced
level of research activities associated with the transition of the ras program.
The decrease was also due to the fact that the Company has reduced the number of
patients treated in clinical trials of ONYX-015, the lead product in the p53
program, while it prepares for Phase III clinical studies for the product. The
Company may expand the scope of its research and development programs in future
periods, which may result in increased research and development expenses. These
research and development expenses may not be funded by collaborative partners.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased seven percent to $1,240,000 and
increased two percent to $4,001,000 for the three and nine months ended
September 30, 1999, respectively, as compared with $1,331,000 and $3,941,000 for
the same periods in 1998. Although general and administrative expenses remained
relatively stable as compared to the prior periods, they may increase moderately
in future periods to support the Company's research and development efforts.
NET INTEREST INCOME
The Company had net interest income of $168,000 and $671,000 for the three and
nine months ended September 30, 1999, respectively, as compared with $408,000
and $1,342,000 for the same periods in 1998. The decrease in net interest income
was principally due to lower cash and investment balances resulting in less
interest income for the current period.
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 $14,841,000
at September 30, 1999, compared with $32,160,000 at December 31, 1998. The
decrease in cash and investments of $17,319,000 at September 30, 1999, compared
with December 31, 1998, is principally due to cash used in operations of
$15,011,000 as well as the repayment of debt of $1,650,000. The Company expects
that cash used in operations will be approximately one-half the current rate
because of funds provided by the new Warner-Lambert collaboration.
Total capital expenditures for equipment and leasehold improvements for the
nine-month period ended September 30, 1999 were $1,106,000. The Company expects
to make expenditures of approximately $275,000 for the remainder of 1999 for
capital equipment.
The Company believes that its existing capital resources, interest thereon, and
anticipated revenues from existing collaborations, including the new
Warner-Lambert collaboration, will be sufficient to fund its current and planned
operations to the end of 2001. 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
<PAGE>
ONYX PHARMACEUTICALS, INC.
IMPACT OF THE YEAR 2000
Computer programs using two rather than four digits to identify the year in a
date field may cause computer systems to malfunction in the year 2000. Any
computer programs that have time-related software may determine a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to engage in specific business activities.
The Company has appointed a task force comprised of certain members of
management to initiate and monitor a Year 2000 ("Y2K") program. The Company's
plan to resolve the Y2K issue involves the following three phases: assessment,
implementation of action plans and testing of systems to ensure compliance. The
Company has completed its assessment phase and has determined that the financial
and information technology systems of the Company are Y2K compliant. The Company
has also identified certain scientific research and development systems
applications that need to be upgraded or replaced in order to be Y2K compliant.
The Company believes it has upgraded or replaced the computer systems, software
and instrumentation that it deems critical to its operation. There can be no
assurance that the Company will be able to upgrade any or all of its systems in
accordance with its Y2K program or, once upgraded, that the systems will be Y2K
compliant.
The Company is gathering information about the Y2K compliance status of its
significant suppliers and other third parties with which it has relationships.
The Company is requesting that its outside suppliers and other third parties
notify the Company in writing of the status of their Y2K compliance programs. To
date, the Company is not aware of any outside supplier or other third party with
a Y2K issue that would materially impact the Company's business operations.
However, there can be no assurance that the Company's outside suppliers and
other third parties will be successful in their Y2K compliance efforts.
The Company believes that its costs associated with the upgrade and/or
conversion of existing computer software and hardware relating to the Y2K issue
will be less than $400,000 based on modifications to date as well as the amount
of scientific research and development equipment that may have to be upgraded.
In the event that the Company does not upgrade its systems in a timely manner,
the Company may encounter problems with the completion of certain scientific
research and development experiments. The Company does not currently have a
contingency plan in the event that the Company's or its significant suppliers'
systems are not Y2K compliant.
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.
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
9
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ONYX PHARMACEUTICALS, INC.
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.
In addition, the Company would be required to undertake such research and
development activities at its own expense. 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.
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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. By policy, the
Company places its investments with high quality debt security issuers, limits
the amount of credit exposure to any one issuer, limits duration by restricting
the term, and holds investments to maturity except under rare circumstances. The
Company classifies its cash equivalents or short-term investments as fixed rate
if the rate of return on an instrument remains fixed over its term. As of
September 30, 1999, all of the Company's cash equivalents and short-term
investments are classified as fixed rate. There were no significant changes in
the Company's market risk exposures during the nine months ended September 30,
1999. For further discussion of the Company's market risk exposures, refer to
Part II, Item 7A., "Quantitative and Qualitative Disclosures About Market Risk"
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
10
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ONYX PHARMACEUTICALS, INC.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 10.25 Scientific Advisory Board Consulting Agreement
effective September 10, 1999 between Allan Balmain
and the Company including the First Amendment to
Deed of Trust and Second Amended and Restated
Promissory Note
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: November 15, 1999 By: /S/ HOLLINGS C. RENTON
--------------------------------
Hollings C. Renton
President, Chief Executive Officer and Director
(Principal Executive and Financial Officer)
Date: November 15, 1999 By: /S/ MARILYN E. WORTZMAN
---------------------------------
Marilyn E. Wortzman
Controller
(Principal Accounting Officer)
12
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ONYX PHARMACEUTICALS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
<S> <C>
10.25 Scientific Advisory Board Consulting Agreement effective
September 10, 1999 between Allan Balmain and the Company
including the First Amendment to Deed of Trust and Second
Amended and Restated Promissory Note
27.1 Financial Data Schedule
</TABLE>
13
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EXHIBIT 10.25
[ONYX PHARMACEUTICALS LETTERHEAD]
SCIENTIFIC ADVISORY BOARD
CONSULTING AGREEMENT
THIS SCIENTIFIC ADVISORY BOARD CONSULTING AGREEMENT (the "Agreement") is made
and effective as of September 10, 1999 by and between Allan Balmain, an
individual residing at 105 Reed Ranch Road, Tiburon, California 94920
("Advisor") and ONYX Pharmaceuticals, Inc., a corporation organized under the
laws of the State of California (the "Company").
WHEREAS, the Company wishes to retain the Advisor in a consulting capacity as
a member of the Company's Scientific Advisory Board, and the Advisor desires
to perform such consulting services for the Company; and
WHEREAS, the Company has previously retained the Advisor as a consultant
pursuant to a consulting agreement, which the Company and the Advisor wish to
supersede and terminate by this Agreement;
NOW, THEREFORE, Advisor and Company agree as follows:
1. DESCRIPTION OF SERVICES. Company hereby retains Advisor as a member of the
Scientific Advisory Board of and as a consultant to Company, and Advisor
hereby agrees (i) to act as a member of the Scientific Advisory Board, and
(ii) to perform the following services for Company.
Advisor's consultation with the Company will be in the field of cancer and in
particular, animal models, involving viruses and p53 mechanisms of affecting
cell growth ("Field"). Advisor may from time to time be unavailable to
attend Advisory Board meetings or perform other consulting duties, due to
other prior obligations including, but not limited to teaching and other
academic duties and attending scientific conferences, and such unavailability
shall not be considered a breach of this Agreement.
1
<PAGE>
2. TERM AND EXPIRATION. This Agreement shall be for three (3) years from the
Effective Date unless terminated sooner as provided hereunder. The
Agreement may be terminated by either party by giving the other party
written notice of termination six (6) months prior to the date of
termination.
3. COMPENSATION. For all services provided hereunder, Company will pay
Advisor an annual fee of $25,000.00. The first year's annual fee will be
payable in advance and before Advisor ceases to be employed by Company as a
regular employee. The annual fee of $25,000.00 for years 2 and 3 will be
paid in quarterly installments. In addition, Advisor shall be paid
$1,200.00 for each full day to a maximum of 25 days of formal Scientific
Advisory Board meetings or other consultation days attended at the request
of the Company. Additionally, the Company hereby grants Advisor an option
to purchase up to 10,500 shares of Company's common stock at the market
value on the date these options are granted. These options shall be granted
in accordance with the Company's Equity Incentive Plan, and shall vest
monthly over a thirty-six (36) month period commencing on September 10,
1999.
In addition, Advisor's options, which have not vested, shall be canceled
pursuant to the Company's 1996 Equity Incentive Plan. However, options
vested as of the date of resignation shall be converted to Non-Qualified
Stock Options.
Furthermore, the Amended and Restated Promissory Note (Employee
Relocation Loan) (the "Note") dated September 3, 1998 which documents the
agreement entered into as of March 26, 1997, will be amended in a form
attached as Exhibit A effective on September 10, 1999 when Allan Balmain
ceases to be employed by the Company.
4. EXPENSES. Company will reimburse Advisor for any actual expenses incurred
by Advisor while rendering services under this Agreement so long as the
expenses are reasonable and necessary. Such expenses shall include
reasonable and necessary travel, lodging and meals in connection with
services performed under this Agreement in accordance with the Company's
Travel Policy. Requests for reimbursement shall be in a form reasonably
acceptable to Company.
5. PROPRIETARY INFORMATION AND PATENTS. Advisor understands and agrees that
the Company possesses and will continue to possess information that has
been created, discovered, or developed, or has otherwise become known to
the
2
<PAGE>
Company, including information made known to or created, discovered, or
developed by Advisor, arising out of his retention as an Advisor by the
Company, which information has commercial value in the business in which
the Company is engaged. All of the aforementioned information is
hereinafter called "Proprietary Information". By way of illustration, but
not limitation, Proprietary Information includes trade secrets, processes,
formulae, data and know-how, improvements, inventions, techniques, planned
products, research and development, marketing plans, business plans,
strategies, forecasts, customer lists, confidential information about
finances, marketing, pricing, costs or compensation.
a) All Proprietary Information shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole
owner of all patents and other rights in connection therewith. At all
times during his retention as an Advisor by the Company and at all
times after termination of such retention, Advisor will keep in
confidence and trust all Proprietary Information, and will not use for
his own account (or for the benefit of any person or entity), or
disclose any Proprietary Information or anything relating to it
without the written consent of the Company, except as may be necessary
in the ordinary course of performing his duties as an Advisor of the
Company.
b) All documents, data, records, apparatus, equipment and other physical
property, whether or not pertaining to Proprietary Information,
furnished to Advisor by the Company or produced by Advisor or others
in connection with Advisor's retention shall be and remain the sole
property of the Company and shall be returned promptly to the Company
as and when requested by the Company. In any event, Advisor shall
return and deliver all such property upon termination of his retention
as an Advisor for any reason, and Advisor will not retain any such
property or any reproduction of such property upon such termination.
c) Subject to the terms of paragraph 5(e), below, the Consultant hereby
assigns to the Company any right, title, and interest he may have in
any invention, discovery, improvement, or other intellectual property
which (i) the Consultant develops solely as a direct result of
performing consulting services for the Company under this Agreement
and (ii) is not generated in the course of the Consultant's activities
as a
3
<PAGE>
University faculty member and is not assignable to the University.
Any intellectual property assignable to the Company pursuant to the
preceding sentence is hereinafter referred to as "Company
Intellectual Property." Upon the request of the Company, the
Consultant shall execute such further assignments, documents, and
other instruments as may be necessary to assign Company
Intellectual Property to the Company and to assist the Company in
applying for, obtaining and enforcing patents or other rights in
the United States and in any foreign country with respect to any
Company Intellectual Property. The Company will bear the cost of
preparation of all patent or other applications and assignments,
and the cost of obtaining and enforcing all patents and other
rights to Company Intellectual Property.
d) Advisor may freely publish any results of his work covered under the
Agreement, provided that a prior U.S. patent application is made on
any potentially patentable aspects of his work. Advisor agrees to
provide Company with sufficient disclosure not less than sixty (60)
days prior to publication, to allow Company to have patent
applications prepared on inventions or other information made or
acquired under this Agreement of potential commercial values. Company
agrees to keep all such disclosures confidential prior to publication.
e) The Company shall have no rights by reason of this Agreement in any
publication, invention, discovery, improvement, or other intellectual
property whatsoever, whether or not publishable, patentable, or
copyrightable, which is developed as a result of a program of research
financed, in whole or in part, by funds provided by or under the
control of the University. The Company also acknowledges and agrees
that it will enjoy no priority or advantage as a result of the
consultancy created by this Agreement in gaining access, whether by
license or otherwise, to any proprietary information or intellectual
property that arises from any research undertaken by the Consultant in
his capacity as a member of the faculty of the University.
6. CONSULTING LIMITATION. During the term of this Agreement, Advisor agrees
that he will not consult to, advise, or participate in the ownership,
management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise with regard to any person, business or enterprise
which is in actual
4
<PAGE>
or potential competition with the Company or its affiliates, as
reasonably determined by the Company, without the express prior written
consent of the Company.
7. NO CONFLICT. Advisor represents that his performance of all the terms of
this Agreement and that his retention as an Advisor to the Company does not
and will not breach any agreement to keep in confidence proprietary
information acquired by consultant in confidence or in trust prior to his
retention as an Advisor by the Company. Advisor has not entered into, and
agrees he will not enter into, any agreement, either written or oral, in
conflict herewith. Advisor understands as part of the consideration for
the offer to retain him as an Advisor, and of his retention as an Advisor
and consultant by the Company, that he has not brought and will not bring
with him to the Company or use in the performance of his responsibility at
the Company any equipment, supplies, facility or trade secret information
of any current or former employer which are not generally available to the
public, unless he has obtained written authorization for their possession
and use. Advisor also understands that, in his retention as an Advisor of
the Company, he is not to breach any obligation of confidentiality that he
has to others, and he agrees that he shall fulfill all obligations during
his retention as an Advisor with the Company.
8. INDEPENDENT CONTRACTOR. In rendering services to Company, Advisor shall
act as an independent contractor and not as an employee or agent of Company
and as such will not have authority to bind the Company. The Advisor
recognizes that no amount will be withheld from his compensation for
payment of any Federal, State or local taxes, unless that Company is
required by law to withhold any amount, and that the Advisor has sole
responsibility to pay such taxes, if any, and file such returns as shall be
required by applicable regulations.
9. ASSIGNMENT. Due to the personal nature of the services to be rendered by
the Advisor, the Advisor may not assign this Agreement. The Company may
fully transfer all rights and liabilities under this Agreement (as a group
with other similar agreements with member of the Scientific Advisory Board)
to a subsidiary or an affiliate without the consent of the Advisor.
Subject to the foregoing, this Agreement will inure to the benefit of and
be binding upon each of the heirs, assigns, and successors of the
respective parties.
5
<PAGE>
10. SEVERABILITY. If any provision of this Agreement shall be declared
invalid, illegal or unenforceable, such provision shall be severed and the
remaining provisions continue in full force and effect.
11. INDEMNIFICATION. In the event of a lawsuit brought against the Advisor by
a third party as a result of the performance of his consulting duties for
Company, any costs, expenses or liabilities including legal and court fees
as well as any judgment against Advisor will be reimbursed to the Advisor
by Company.
12. REMEDIES. Advisor acknowledges that Company will have no adequate remedy
at law if Advisor violates the terms of Section 5 or 6 hereof. In such
event, Company shall have the right, in addition to any other rights it may
have, to obtain in any court of competent jurisdiction, injunctive or other
relief to restrain any breach of threatened breach of this Agreement.
13. SUCCESSORS. This Agreement shall be binding upon and shall inure to the
benefit of the Company's successors, transferees, and assigns.
14. GOVERNING LAW: ENTIRE AGREEMENT; AMENDMENT. This Agreement shall be
governed by the laws of the State of California applicable to agreements
made and to be performed within such State, represents the entire
understanding of the parties, and may only be waived or otherwise amended
in writing. All prior agreements and understandings between the parties
hereto are hereby terminated and superseded by this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ONYX PHARMACEUTICALS, INC. ADVISOR
/s/ Gregory Giotta /s/ Allan Balmain
- ------------------------- ----------------------------
Gregory Giotta, Ph.D. Allan Balmain
Vice-President and Chief Legal Counsel
6
<PAGE>
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Deborah L. Budach, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
- --------------------------------------------------------------------------------
SPACE ABOVE FOR RECORDER'S USE
FIRST AMENDMENT TO DEED OF TRUST
THIS FIRST AMENDMENT TO DEED OF TRUST is made and entered into as of
September 10, 1999 (this "AMENDMENT"), by ALLAN BALMAIN, PH.D. and
ROSEMARY AKHURST, PH.D. (collectively, "TRUSTOR"), whose address for notice
hereunder is 105 Reed Ranch Road, Tiburon, California 94920, and ONYX
PHARMACEUTICALS, INC., a Delaware corporation ("BENEFICIARY"), whose address
for notice hereunder is 3031 Research Drive, Richmond, California 94806.
RECITALS
A. Beneficiary is the current owner and holder of that certain Amended
and Restated Promissory Note dated as of September 3, 1998, in the original
principal amount of $300,000.00, made by Trustor and payable to the order of
Beneficiary ("ORIGINAL NOTE"). The Original Note is secured, in part, by
that certain Deed of Trust dated as of September 3, 1998 (the "DEED OF
TRUST"), executed by Trustor in favor of Beneficiary, which was recorded on
October 26, 1998, as Recorder's Series No. 1998-0078338, in the Official
Records of Marin County, California RECORDS"), and encumbers the real
property and improvements more particularly described on EXHIBIT A attached
hereto and incorporated herein by this reference.
B. Trustor has requested that Beneficiary extend the term of the loan
and make certain other amendments thereto. Consequently, the Original Note
is being amended and restated in its entirety by that certain Second Amended
and Restated Promissory Note dated as of the date hereof, made by Trustor and
payable to the order of Beneficiary in the maximum principal amount of
$275,000.00 (the "AMENDED AND RESTATED NOTE") to evidence the existing
indebtedness owing to Beneficiary under the Original Note, the extension of
the term of the loan until the fifth anniversary of the date hereof, the
increase in the interest rate applicable to the loan and certain other
amendments.
C. Beneficiary is willing to extend the term of the loan provided that
the obligations of Trustor under the Amended and Restated Note are secured by
the Deed of Trust and subject to
1.
<PAGE>
the terms and conditions as more fully set forth in the Amended and Restated
Note and as set forth herein.
D. This Amendment, the Amended and Restated Note, the Deed of Trust
and all other documents entered into or delivered pursuant to any of the
foregoing, in each case as originally executed or as the same may from time
to time be modified, amended, supplemented, restated or superseded are
hereinafter collectively referred to as the "LOAN DOCUMENTS."
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals which are
incorporated herein by this reference, and the mutual covenants herein set
forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally
bound, Trustor hereby agrees to the following amendments to the Deed of Trust:
1. AMENDMENTS TO DEED OF TRUST.
(a) The reference in the fourth paragraph on page 1 of the Deed of
Trust to "(1) payment of the sum of $300,000.00 with no interest thereon
according to the terms of a promissory note dated September 3, 1998, made by
Trustor, payable to order of Beneficiary, and extensions or renewals thereof"
shall hereafter be deemed to mean "(1) payment of the sum of $275,000.00 with
interest thereon according to the terms of a promissory note dated
September 10, 1999, made by Trustor, payable to order of Beneficiary, and
extensions or renewals thereof".
(b) Wherever the Deed of Trust may refer to the "note" such
reference shall hereafter be deemed to mean the Amended and Restated Note.
2. REPRESENTATIONS AND WARRANTIES. Trustor hereby represents and
warrants that no Event of Default (as defined in the Amended and Restated
Note), no breach or failure of condition has occurred (whether or not
existing on the date hereof), or would exist with notice or the lapse of time
or both, under the Deed of Trust, and that all warranties and representations
made in the Deed of Trust, continue to be true and complete in all material
respects as of the date hereof after giving effect to this Amendment.
3. REAFFIRMATION. Trustor hereby reaffirms its obligations under each
of the Loan Documents, as amended by the Amended and Restated Note and this
Amendment.
4. NON-IMPAIRMENT; ENTIRE AGREEMENT. Except as expressly provided
herein, nothing in this Amendment shall alter or affect any provision,
condition or covenant contained in the Deed of Trust or affect or impair any
rights, powers, or remedies of Beneficiary thereunder, it being the intent of
Trustor that the provisions of the Deed of Trust shall continue in full force
and effect, except as expressly modified hereby. This Amendment and the
other Loan Documents constitute and contain the entire agreement of the
parties hereto and supersede any and all prior agreements, negotiations,
correspondence, understandings and communications between the
2.
<PAGE>
parties, whether written or oral, respecting the subject matter hereof. The
parties hereto further agree that the Loan Documents, as amended, comprise
the entire agreement of the parties thereto and supersede any and all prior
agreements, negotiations, correspondence, understandings and other
communications between the parties thereto, whether written or oral
respecting the extension of credit by Beneficiary to Trustor.
5. GOVERNING LAW. This Amendment shall be governed by and shall be
construed and enforced in accordance with the laws of the State of California.
6. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. Trustor hereby
represents and warrants to Beneficiary that it has no knowledge of any facts
that would support a claim, counterclaim, defense or right of set-off.
7. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts, each of which when so delivered shall be deemed an
original, but all such counterparts taken together shall constitute but one
and the same instrument. Each such agreement shall become effective upon the
execution of a counterpart hereof or thereof by each of the parties hereto
and telephonic notification that such executed counterparts has been received
by Trustor and Beneficiary.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
TRUSTOR:
/s/ Allan Balmain
- --------------------------------
ALLAN BALMAIN, PH.D.
/s/ Rosemary Akhurst
- --------------------------------
ROSEMARY AKHURST, PH.D.
BENEFICIARY:
ONYX PHARMACEUTICALS, INC.
By: /s/ Gregory Giotta
-----------------------------------------
Name: GREGORY GIOTTA
---------------------------------------
Title: Vice President and Chief Legal Counsel
--------------------------------------
3.
<PAGE>
ONYX PHARMACEUTICALS, INC.
SECOND AMENDED AND RESTATED PROMISSORY NOTE
$275,000.00 Richmond, California
September 10, 1999
FOR VALUE RECEIVED, the undersigned, ALLAN BALMAIN ("CONSULTANT") and
ROSEMARY AKHURST (collectively "BORROWERS"), promise to pay to the order of
ONYX PHARMACEUTICALS, INC., a Delaware Corporation ("COMPANY"), or its
assigns, in lawful money of the United States at the address set forth below,
the principal sum of Two Hundred Seventy-Five Thousand and no/100 Dollars
($275,000.00) (the "LOAN").
1. REPLACEMENT NOTE. This Second Amended and Restated Promissory
Note (the "AMENDED NOTE") amends and restates in its entirety that certain
Amended and Restated Promissory Note dated as of September 3, 1998, in the
stated principal amount of Three Hundred Thousand and no/100 Dollars
($300,000.00) (the "PRIOR NOTE"). The Prior Note had amended and restated in
its entirety the agreement entered into as of March 26, 1997, by and between
the Company and Borrowers with respect to the Loan made by the Company in an
aggregate principal amount of Three Hundred Thousand and no/100 Dollars
($300,000.00). The Prior Note represented the consolidation of an original
loan evidenced by a Promissory Note dated March 25, 1997, in the stated
principal amount of One Hundred and Seventy Four Thousand and no/100 Dollars
($174,000.00) (the "ORIGINAL NOTE") with an additional loan in the principal
amount of One Hundred and Twenty Six Thousand and no/100 Dollars
($126,000.00) (the "ADDITIONAL LOAN"). Borrowers and the Company acknowledge
that the $25,000.00 principal payment due December 31, 1998 under the terms
of the Original Note has been forgiven by the Company and such amount does
not constitute a portion of the principal of this Amended Note. Borrowers
acknowledge that the Company is obligated at the time such principal is
forgiven to (i) report the amount forgiven and (ii) withhold all appropriate
or required federal, state and local insurance and employment taxes from
Consultant's salary payments with respect to the amount forgiven.
2. INTEREST RATE; FORGIVENESS. This Loan is secured by Borrowers'
principal residence, and bears interest at the rate of 5.98 % per annum, which
is the applicable federal rate for loans of this term and compounding period.
Interest shall be due and payable annually in arrears on each December 31 and
on the date the Loan is repaid in full, and shall be calculated on the basis
of a 365-day year for the actual number of days elapsed; PROVIDED, HOWEVER,
that so long as an Event of Default has not occurred, accrued interest will
be forgiven as of each interest payment date and the date the Loan is repaid
in full. Borrowers acknowledge that the Company is obligated at the time such
interest is forgiven to (i) report the amount forgiven and (ii) withhold all
appropriate or required federal, state and local insurance and employment
taxes from Consultant's salary payments with respect to the amount forgiven.
3. PAYMENTS; DUE DATE. The Loan shall be due and payable on the
fifth anniversary of the date hereof. This Amended Note may be prepaid, in
whole or in part, at any time without premium or penalty.
1.
<PAGE>
4. SECTION 217(c) OF IRC; USE OF LOAN PROCEEDS. Borrowers
represent, covenant and agree that the proceeds of the Loan were used solely
to purchase Borrowers' new principal residence in California acquired in
connection with the transfer of Allan Balmain to a new principal place of
work (within the meaning of Section 217(c) of the Internal Revenue Code of
1986, as amended). Borrowers hereby certify that they reasonably expect to
itemize deductions for federal income tax purposes in the tax returns for
each year that the Loan is unpaid. The right of Borrowers to request and
receive the Loan hereunder, as well as the benefits of the interest
arrangement under this Amended Note, shall not be assignable or otherwise
transferable by Borrowers.
5. CANCELLATION UPON REPAYMENT. Upon payment in full of all
principal, this Amended Note shall be surrendered to Borrowers for
cancellation.
6. NOTE SECURED BY DEED OF TRUST. As security for the repayment of
the Loan, Borrowers executed a Deed of Trust and Assignment of Rent dated as
of September 3, 1998 ("DEED OF TRUST"), granting the Company a security
interest in and lien on Borrowers' property located at 105 Reed Ranch Road,
Tiburon, California 94920 and as fully described in the Deed of Trust (the
"PROPERTY"). Borrowers hereby represent and agree that they will take all
actions necessary to continue the Company's beneficial interest in the
Property, including, without limitation, the execution and recording of a
modification of the Deed of Trust evidencing the modifications evidenced by
this Amended Note.
7. ATTORNEY'S FEES. In the event that proceedings are brought to
enforce the repayment of the indebtedness evidenced by this Amended Note, or
to enforce any of the rights of the Company as holder of this Amended Note or
other obligations of the Borrowers hereunder, the Borrowers promise to pay to
the Company reasonable attorneys' fees and costs incurred in connection
therewith.
8. EVENTS OF DEFAULT; REMEDIES. At the option of the company, in
its sole discretion, all amounts due hereunder, including unpaid principal
and accrued interest, shall become immediately due and payable, upon the
occurrence of any of the following events ("EVENTS OF DEFAULT"), except to
the extent that, and in such circumstances where, such acceleration is
prohibited by law: (1) the commencement of proceedings under any bankruptcy
or insolvency law by or against one or more of the Borrowers; (2) breach by
the Borrowers of any terms of this Amended Note; or (3) any transfer,
conveyance, hypothecation, assignment or encumbrance, whether voluntary,
involuntary or by operation of law, of any beneficial interest in the
Property by the Borrowers after the date hereof. Borrowers shall notify the
Company promptly in writing of the occurrence of any Event of Default and
shall pay the Company all damages it may sustain by reason of Borrowers'
breach of this covenant of notice. Notwithstanding the foregoing, in the case
of an Event of Default pursuant to clause (1) above, all unpaid principal,
unpaid interest and other amounts owing hereunder shall automatically be
immediately due, payable and collectible by the Company pursuant to
applicable law.
Upon the occurrence of any of the foregoing Events of Default, the
Company shall have all of the rights and remedies prescribed or permitted by the
terms and provisions of
2.
<PAGE>
this Amended Note, together with any and all additional rights and remedies
as are then prescribed or permitted under the laws of the State of California.
9. WAIVERS. Borrowers waive presentment, protest and demand, and
notice of protest, demand, dishonor and nonpayment of this Amended Note and
diligence in taking any action to collect any amounts owing under this
Amended Note and in proceeding against any of the rights and interest in and
to the Property.
10. GOVERNING LAW. This Amended Note shall be governed by and
construed in accordance with the laws of the State of California.
11. NOTICE. Any notice or other communication (except payment)
required or permitted hereunder shall be in writing and shall be deemed to
have been given upon delivery if personally delivered or upon deposit if
deposited in the United States mail for mailing by certified mail, postage
prepaid, and addressed as follows:
If to Company: ONYX Pharmaceuticals, Inc.
3031 Research Drive
Richmond, CA 94806
Attention: Hollings C. Renton
President & Chief Executive Officer
If to Borrowers: Allan Balmain, Ph.D.
Rosemary Akhurst, Ph.D.
105 Reed Ranch Road
Tiburon, California 94920
Any payment shall be deemed made upon receipt by the Company. Each of
the above addressees may change its address for purposes of this paragraph by
giving to the other addressee notice in conformance with this paragraph of
such new address.
IN WITNESS WHEREOF, Borrowers have executed this Amended Note effective
as of the date first written above.
BORROWER BORROWER
/s/ Allan Balmain /s/ Rosemary Akhurst
- ----------------------- ---------------------------
ALLAN BALMAIN, PH.D. ROSEMARY AKHURST, PH.D.
3.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ONYX
PHARMACEUTICALS, INC.'S UNAUDITED CONDENSED BALANCE SHEET DATED SEPTEMBER 30,
1999, AND UNAUDITED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,780
<SECURITIES> 3,061
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,546
<PP&E> 12,360
<DEPRECIATION> 9,197
<TOTAL-ASSETS> 19,168
<CURRENT-LIABILITIES> 9,558
<BONDS> 2,931
0
0
<COMMON> 12
<OTHER-SE> 8,866
<TOTAL-LIABILITY-AND-EQUITY> 19,168
<SALES> 0
<TOTAL-REVENUES> 6,723
<CGS> 0
<TOTAL-COSTS> 20,549
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> (13,155)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,155)
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<EXTRAORDINARY> 0
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<NET-INCOME> (13,155)
<EPS-BASIC> (1.14)
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</TABLE>
