<PAGE>
Filed pursuant to Rule 424(b)(4)
on Registration No. 333-46366
3,000,000 SHARES
ONYX PHARMACEUTICALS, INC.
COMMON STOCK
[LOGO]
$15.00 PER SHARE
----------------------------------------------------------------------
<TABLE>
<S> <C>
- Onyx Pharmaceuticals, Inc. is offering - Trading symbol: Nasdaq National Market--
3,000,000 shares of common stock. ONXX
- On October 11, 2000, the last reported sale
price on the Nasdaq National Market was
$17.06.
</TABLE>
------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public offering price....................................... $ 15.00 $ 45,000,000
Underwriting discount....................................... $ 0.90 $ 2,700,000
Proceeds to Onyx Pharmaceuticals............................ $ 14.10 $ 42,300,000
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE UNDERWRITERS HAVE A 30-DAY OPTION TO PURCHASE UP TO 450,000 ADDITIONAL
SHARES OF COMMON STOCK FROM US TO COVER OVERALLOTMENTS, IF ANY. THE UNDERWRITERS
EXPECT TO DELIVER THE SHARES TO PURCHASERS ON OR ABOUT OCTOBER 17, 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY CIBC WORLD MARKETS
THE DATE OF THIS PROSPECTUS IS OCTOBER 11, 2000.
<PAGE>
INSIDE COVER ARTWORK
PANEL ONE
Artwork depicting the effects of CI-1042 in a normal cell versus a cancer cell
with the caption: "Selectively-Replicating Therapeutic Viruses"
Graphic of therapeutic virus, with caption "Therapeutic Virus (CI-1042)", with
two arrows, one pointing to top half of panel and one pointing to bottom half of
panel.
Top half of Panel One shows CI-1042 entering normal cell:
First picture: Graphic of therapeutic virus CI-1042 inside normal cell, with
following caption:
"Our engineered viruses cannot inactivate tumor suppressors."
Arrow pointing from first picture to second picture.
Second picture: There is no interaction between CI-1042 and tumor suppressor,
with following caption:
"The therapeutic virus is unable to reproduce efficiently in normal cells."
Arrow pointing from second picture to third picture.
Third picture: CI-1042 is unable to reproduce itself within the normal cell and
harm healthy tissue, with following caption:
"Healthy tissue remains unaffected."
Bottom half of Panel One shows CI-1042 entering cancer cell:
First picture: CI-1042 enters cancer cell, with following caption:
"Cancer cells lack p53 and RB tumor suppressor functions."
Arrow pointing form first picture to second picture.
Second picture: CI-1042 replicates within the cancerous cell, with following
caption:
"Our therapeutic viruses selectively replicate in cancer cells."
Arrow pointing from second picture to third picture.
Third picture: The cancer cell is killed, thereby releasing the newly replicated
CI-1042, with following caption:
"Cancer cell is killed and new virus progeny are released."
PANEL TWO
Artwork describing armed therapeutic viruses and depicting the effects on cancer
cells, with the caption:
"Armed Therapeutic Viruses"
Graphic of therapeutic virus armed with anticancer gene, with caption "Armed
virus," with arrow pointing to first picture of cancer cell:
First picture: A therapeutic virus armed with anticancer gene enters a cancer
cell, with following caption:
"Our armed viruses carry anticancer genes and selectively replicate."
Arrow pointing from first picture to second picture.
Second picture: Armed therapeutic virus replicates itself, along with anticancer
agents, with following caption:
"They replicate and also produce anticancer agent in cancer cells."
Arrow pointing from second picture to third picture.
Third picture: The cancer cell is killed, thereby releasing the newly replicated
armed therapeutic virus and anticancer agent, with following caption:
"Cancer cell is killed, new virus progeny and anticancer agent spread to kill
neighboring cancer cells."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 3
Risk Factors................................................ 7
Special Note Regarding Forward-Looking Statements........... 20
Use of Proceeds............................................. 21
Dividend Policy............................................. 21
Price Range of Common Stock................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 30
Management.................................................. 46
Principal Stockholders...................................... 49
Description of Capital Stock................................ 52
Shares Eligible for Future Sale............................. 55
Underwriting................................................ 56
Legal Matters............................................... 58
Experts..................................................... 58
Where You Can Find More Information......................... 58
</TABLE>
------------------------
You should rely only on the information contained in this prospectus and
information incorporated by reference into this prospectus. We have not, and the
underwriters have not, authorized anyone to provide you with different
information. This prospectus is not an offer to sell, nor is it seeking an offer
to buy, these securities in any state where the offer or sale is not permitted.
The information contained in this prospectus is complete and accurate only as of
the date on the front cover, but the information may have changed since that
date.
<PAGE>
SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL LATER IN THIS
PROSPECTUS. THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION AND DOES
NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER. THEREFORE, YOU SHOULD ALSO
READ THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS
CONTAINED IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
OVERVIEW
We are engaged in the discovery and development of novel cancer therapies. Based
on our proprietary virus technology, we are developing our lead product,
CI-1042, formerly known as ONYX-015. CI-1042 is a human virus genetically
engineered to selectively replicate in and kill cancer cells based on a specific
genetic abnormality in those cells.
We have completed two Phase II human, or clinical, trials evaluating CI-1042 as
a treatment for head and neck cancer. Based on the results from these trials and
in collaboration with Warner-Lambert Company, a wholly-owned subsidiary of
Pfizer, Inc., we have recently initiated a 300-patient, multi-center Phase III
clinical trial of CI-1042 for head and neck cancer. We are also evaluating
CI-1042 in clinical trials for a number of additional cancer indications.
Further, in collaboration with Bayer Corporation, we have initiated a Phase I
clinical trial for a small molecule anticancer compound that inhibits a specific
enzyme, raf kinase, a contributor to tumor growth.
MARKET OPPORTUNITY
Cancer is a group of diseases characterized by uncontrolled growth and
proliferation of abnormal cells. Cancer accounts for approximately 25% of all
deaths in the United States, ranking second only to cardiovascular disease. The
American Cancer Society expects that in the year 2000 approximately 1.2 million
new cancer cases will be diagnosed and over 550,000 cancer related deaths will
occur. We believe that the limited effectiveness of conventional treatments,
such as chemotherapy and radiation, combined with the high public awareness of
the disease, provides an attractive market opportunity.
CI-1042
CI-1042 is a human virus genetically engineered to selectively replicate in and
kill cancer cells based on the mutation or loss of function of a specific tumor
suppressor gene, the p53 gene. We believe that the mutation or loss of function
of the p53 gene is present in the majority of human cancers.
We have completed Phase II clinical trials of CI-1042 for head and neck cancer,
both as a single agent and in combination with chemotherapy. In the trial
involving CI-1042 in combination with chemotherapy, of 30 evaluable patients, 19
experienced tumor regressions of 50% or greater in injected tumors, which
corresponds to an overall response rate of 63%. We believe that this response
rate compares favorably to an average historical response rate of approximately
35% using chemotherapy alone.
Based on data from these trials, we recently initiated a multi-center,
Phase III clinical trial together with Warner-Lambert to determine if CI-1042 is
an effective treatment for head and neck cancer that has progressed following
initial treatment with surgery and/or radiation, or recurrent disease. In this
trial, we will compare treatment by direct injection into tumors, or
intratumoral injection, of CI-1042 plus standard chemotherapy against treatment
with standard chemotherapy alone. We expect that this trial will take place at
numerous centers in the United States and Europe and will include approximately
300 patients. In addition, we plan to initiate a Phase II/III clinical trial of
CI-1042 in combination with chemotherapy for patients who have head and neck
cancer that is resistant to all therapies, or refractory disease.
3
<PAGE>
We are also conducting two separate Phase I/II clinical trials evaluating
CI-1042 in patients with colon cancer that has spread to the liver, or liver
metastases of colorectal cancer, and in patients with pancreatic cancer. In
addition, a Phase I clinical trial has been completed evaluating CI-1042 in
patients who have advanced cancers with tumors in the lung. Based on the interim
results from these trials, we plan to initiate additional Phase II clinical
trials evaluating CI-1042 in patients with liver metastases of colorectal cancer
and non-small cell lung cancer.
In October 1999, we entered into a collaborative agreement with Warner-Lambert
to develop and commercialize CI-1042 as well as two additional product
candidates. Pfizer subsequently acquired Warner-Lambert. Under the terms of this
collaborative agreement, we have the right to co-promote CI-1042 and the two
additional product candidates in the United States and Canada, and to share
equally in the profits or losses. Moreover, Warner-Lambert is responsible for
commercializing the products in the rest of the world and is obligated to pay us
royalties based on net sales in these markets.
OTHER PRODUCT OPPORTUNITIES
In addition to developing CI-1042, we are also conducting a number of research
and development programs based on our virus technology as well as our small
molecule drug discovery efforts:
RAF KINASE INHIBITOR. Together with Bayer Corporation, we recently initiated a
Phase I clinical trial in Germany of a compound that blocks inappropriate growth
signals in tumor cells by inhibiting the raf kinase enzyme. Bayer has filed an
investigational new drug application, or IND, for this compound in the United
States, and Phase I trials are also planned for Canada and Belgium. Our
collaboration with Bayer offers us co-promotion and profit-sharing rights in the
United States for any co-developed product.
RB-SELECTIVE THERAPEUTIC VIRUSES. We are developing human viruses that
selectively replicate in and kill cancer cells based on mutations or loss of
function of the retinoblastoma tumor suppressor gene, or the RB gene. To date,
we have shown that RB-selective viruses produce significant tumor shrinkage in
animal models. Pending the final results of these ongoing preclinical studies,
we plan to file an IND for a product candidate from this program in late 2001.
We currently maintain all of our commercial rights with respect to this class of
viruses.
ARMED THERAPEUTIC VIRUSES. We are developing human viruses that incorporate
anticancer genes. We refer to this incorporation as arming. We believe that
viruses armed with anticancer genes can selectively produce anticancer agents at
the site of a tumor. We are currently developing two armed virus product
candidates under our collaborative agreement with Warner-Lambert.
BUSINESS OBJECTIVES
Our objective is to be a leading developer of novel cancer therapies. We intend
to develop and commercialize a broad portfolio of products based primarily on
our core virus technology. Our specific goals are to:
- obtain regulatory and marketing approvals of CI-1042 for head and neck
cancer;
- develop CI-1042 for treatment of other cancer types;
- identify and develop additional therapeutic virus products;
- retain substantial co-promotion rights to our products; and
- acquire technologies and products that complement our existing business.
4
<PAGE>
OFFICE LOCATION
Our principal executive offices are located at 3031 Research Drive, Richmond, CA
94806 and our telephone number is (510) 222-9700. We maintain an Internet
homepage at www.onyx-pharm.com. The contents of our homepage are not
incorporated by reference into our prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered........................................ 3,000,000 shares
Common stock outstanding after this offering................ 17,442,084 shares
Use of proceeds............................................. For research and development
activities; the potential
commercialization of CI-1042; the
clinical development of our other
product candidates; operating
costs; capital expenditures,
including a small scale
manufacturing facility; potential
acquisitions of technologies or
products; and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol............................... ONXX
</TABLE>
The number of shares of our common stock to be outstanding after this offering
is based on our outstanding shares of common stock as of August 31, 2000 and
excludes:
- 1,704,010 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of approximately
$8.92 per share;
- 454,583 shares available for future issuance under our stock option plans;
and
- 103,322 shares available for sale under our employee stock purchase plan.
This prospectus contains our trademarks. All other trademarks, trade names or
service marks appearing in this prospectus are the trademarks, trade names or
service marks of the companies that use them.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes the financial data for our business during the
periods indicated. The financial data set forth below is qualified by reference
to, and should be read in conjunction with, the sections of this prospectus
entitled "Selected Financial Data," "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............... $ 6,945 $ 8,302 $ 7,799 $ 11,314 $ 13,324 $ 5,027 $14,847
Operating expenses:
Research and development... 13,290 14,767 20,715 25,383 23,627 11,126 12,370
General and
administrative........... 2,807 3,527 5,089 5,275 5,341 2,761 3,660
------- ------- -------- -------- -------- ------- -------
Loss from operations......... (9,152) (9,992) (18,005) (19,344) (15,644) (8,860) (1,183)
Interest income, net......... 725 1,575 1,980 1,685 842 503 941
------- ------- -------- -------- -------- ------- -------
Net loss..................... $(8,427) $(8,417) $(16,025) $(17,659) $(14,802) $(8,357) $ (242)
======= ======= ======== ======== ======== ======= =======
Basic and diluted net loss
per share.................. $ (8.92) $ (1.31) $ (1.65) $ (1.56) $ (1.29) $ (0.73) $ (0.02)
======= ======= ======== ======== ======== ======= =======
Shares used in computing
basic and diluted net loss
per share.................. 945 6,401 9,707 11,289 11,503 11,475 13,852
======= ======= ======== ======== ======== ======= =======
</TABLE>
The pro forma balance sheet information set forth below reflects the net
proceeds from the sale of 3,000,000 shares of common stock offered by us in this
offering at a public offering price of $15.00 per share, after deducting the
underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
---------------------
ACTUAL PRO FORMA
--------- ---------
(in thousands)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 39,758 $ 81,158
Total assets................................................ 46,361 87,761
Working capital............................................. 31,638 73,038
Accumulated deficit......................................... (78,315) (78,315)
Total stockholders' equity.................................. $ 33,811 $ 75,211
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION IN THIS
PROSPECTUS. IN ADDITION, THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING US BECAUSE WE ARE ALSO SUBJECT TO ADDITIONAL RISKS AND
UNCERTAINTIES NOT PRESENTLY KNOWN TO US. IF ANY OF THESE RISKS ACTUALLY OCCUR,
OUR BUSINESS, FINANCIAL CONDITION, OPERATING RESULTS OR CASH FLOWS, COULD BE
SERIOUSLY HARMED. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO
DECLINE, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
IF WE ARE NOT ABLE TO DEMONSTRATE THE EFFECTIVENESS OF CI-1042 IN OUR CLINICAL
TRIALS OR IF OUR CLINICAL TRIALS ARE DELAYED, WE MAY BE UNABLE TO COMMERCIALIZE
CI-1042.
We have completed Phase II clinical trials designed to obtain safety and
effectiveness trend information for CI-1042 for the treatment of head and neck
cancer, both as a single agent and in combination with chemotherapy. Based on
data from these Phase II clinical trials, we, together with Warner-Lambert, have
recently initiated a Phase III clinical trial designed to obtain effectiveness
information for CI-1042 for the treatment of head and neck cancer that has
progressed following initial treatment with surgery and/or radiation, or
recurrent disease. Historically, many companies have failed to demonstrate the
effectiveness of pharmaceutical products in Phase III clinical trials
notwithstanding favorable results in Phase II clinical trials. We may fail to
demonstrate desired effectiveness levels in our Phase III clinical trial of
CI-1042. In addition, we may observe previously unforeseen side effects. We may
fail to extend the findings of previous clinical trials in our Phase III
clinical trial of CI-1042, including similar tumor response rates, duration of
tumor response or safety.
The process of obtaining Food and Drug Administration, or FDA, and other
required regulatory approvals, including foreign approvals, often takes many
years and can vary substantially based upon the type, complexity and novelty of
the products involved. We have had only limited experience in filing and
pursuing applications necessary to gain regulatory approvals. The FDA may not
accept the results of our Phase III clinical trial, or accept as sufficient for
market approval other elements of the application that we may file for CI-1042.
The FDA may require additional clinical trials, which may be extensive,
expensive and time-consuming. We cannot market CI-1042 unless we receive
regulatory approval.
In addition, 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 that may be unrelated to CI-1042. These adverse effects may impact
the interpretation of clinical trial results.
WE MAY FAIL TO DEMONSTRATE THAT CI-1042 IS EFFECTIVE FOR THE TREATMENT OF OTHER
TYPES OF CANCER EVEN IF CI-1042 IS PROVEN EFFECTIVE FOR THE TREATMENT OF HEAD
AND NECK CANCER.
We are initially developing CI-1042 for treatment of head and neck cancer, using
intratumoral injection. Even if we are successful in developing CI-1042 for this
type of cancer, we may not demonstrate that CI-1042 is effective in the
treatment of a broader array of cancer types. We are currently conducting a
Phase I/II clinical trial for treatment of liver metatases of colorectal cancer
with CI-1042 administered through an artery leading to the liver, or
intrahepatic artery infusion. In addition, we are in the process of completing
Phase I/II clinical trials for CI-1042 for treatment of pancreatic cancer. The
Phase I/II clinical trial in liver metastases of colorectal cancer is based on a
small number of patients and we may not reproduce the results from these
clinical trials in future clinical trials with additional patients. In addition,
we may not succeed in our efforts to deliver CI-1042 to tumors through routes
other than intratumoral injection and intrahepatic artery infusion. If we are
not successful in developing additional routes of administration for CI-1042, or
establishing its effectiveness in a broad range of cancer types, CI-1042 may not
have a broad commercial use.
7
<PAGE>
WE DO NOT FULLY UNDERSTAND THE BIOLOGICAL CHARACTERISTICS OF OUR THERAPEUTIC
VIRUSES, AND THEIR INTERACTIONS WITH OTHER DRUGS AND THE HUMAN IMMUNE AND OTHER
DEFENSE SYSTEMS, WHICH MAY CAUSE US TO FAIL TO DEMONSTRATE THE SAFETY AND
EFFECTIVENESS OF OUR PRODUCTS IN CLINICAL TRIALS.
Therapeutic viruses are novel and we are still determining the biological
characteristics of these viruses. For example, in our clinical trials to date,
we have achieved the best results when CI-1042 is used in combination with
standard chemotherapy drugs, but we are uncertain as to the reasons for and the
nature of the interaction of the virus with these drugs. In addition, we are
still investigating the response of the human immune system to our therapeutic
viruses, and the immune system may play a role in limiting the tumor-killing
effect of our therapeutic viruses. We also do not know the extent the human body
may clear our therapeutic viruses from circulation in the bloodstream and limit
the tumor-killing activity of our therapeutic viruses. Further, we are uncertain
as to whether the killing activity of CI-1042 is specific to cells having the
abnormal function involving the p53 gene. Moreover, we do not understand all of
the many factors that contribute to the formation of each individual patient's
cancer. These factors include not only the cancer type, but also the pressures
within the tumor and the presence of normal cells and fibrous tissue within the
tumor. These factors make each tumor unique. Because of the variety of factors,
some cancer patients respond to a particular type of cancer therapy while others
do not, even among patients with the same cancer type. The novelty and
scientific uncertainties regarding our therapeutic viruses and the uniqueness of
human cancers from patient-to-patient increase the risk that we will not
successfully develop our product candidates or prove their safety and
effectiveness in clinical trials. Even if we succeed in developing our product
candidates, our product candidates may not have a therapeutic effect in a broad
patient population.
WE ARE DEPENDENT UPON COLLABORATIVE RELATIONSHIPS TO DEVELOP, MANUFACTURE AND
COMMERCIALIZE OUR PRODUCTS AND TO OBTAIN REGULATORY APPROVAL, WHICH COULD DELAY
THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS.
Our strategy for developing, manufacturing and commercializing our products and
obtaining regulatory approval depends in large part upon maintaining and
entering into collaborative agreements with pharmaceutical companies or other
collaborators. We have entered into a number of collaborative agreements with
different parties, including research, development and marketing agreements with
Warner-Lambert and Bayer. If we fail to maintain these collaborative
relationships or to establish new collaborative relationships, we would need to
undertake these research, development and marketing activities at our own
expense, which would significantly increase our capital requirements and limit
the programs we are able to pursue. Further, we would incur significant delays
with the development, manufacture or sale of our products.
We are subject to a number of risks associated with our dependence upon
collaborative relationships, including:
- the amount and timing of expenditure of resources can vary for reasons
outside our control;
- business combinations and changes in a collaborator's business strategy
may adversely affect the party's willingness or ability to complete its
obligations under the collaboration agreement with us;
- the right of the collaborator to terminate its collaboration agreement
with us on limited notice and for reasons outside our control;
- loss of significant rights to our collaborative parties if we fail to meet
our obligations under these agreements;
- disagreements as to ownership of clinical trial results or regulatory
approvals, and the refusal of the FDA to recognize us as holding the
regulatory approvals necessary to commercialize our products;
8
<PAGE>
- withdrawal of support by a collaborator following the development or
acquisition by the collaborator of competing products; and
- disagreements with a collaborator regarding the collaboration agreement or
ownership of proprietary rights.
Due to these factors and other possible disagreements with collaborators, we
could suffer delays in the research, development or commercialization of our
products or we may become involved in litigation or arbitration, which would be
time consuming and expensive.
CHIRON MAY HAVE PREFERENTIAL RIGHTS TO ESTABLISH COLLABORATIONS WITH US, WHICH
MAY COMPLICATE OUR FUTURE COLLABORATIVE ARRANGEMENTS.
We were established in April 1992 by means of a transfer from Chiron Corporation
to us of the drug discovery program conducted at Chiron by Dr. Frank McCormick,
our scientific founder, and his research team. Under the agreement executed at
that time, we granted Chiron preferential rights to receive product licenses in
the fields of diagnostics and vaccines, and also established a mechanism for our
making proposals to Chiron for future collaborations. Chiron has advised us that
it believes this mechanism requires us to offer gene therapy programs to Chiron
before licensing any of these programs to a third party. We and Chiron have
different interpretations of this agreement as it relates to the scope of
Chiron's rights. We executed our agreement with Warner-Lambert for the
development of CI-1042 and two other virus products pursuant to a waiver letter
from Chiron. If Chiron does not grant us further waivers and asserts rights
under the April 1992 agreement, or if disputes arise, we may encounter
difficulties or delays in entering into future collaborations for other product
candidates.
PFIZER HAS ACQUIRED WARNER-LAMBERT, WHICH COULD RESULT IN THE MODIFICATION,
DISRUPTION OR TERMINATION OF OUR COLLABORATIVE RELATIONSHIP WITH WARNER-LAMBERT.
In June, 2000, Pfizer acquired Warner-Lambert. As the parent of Warner-Lambert,
Pfizer may not be interested in continuing the multiple research and development
and marketing collaboration agreements we have with Warner-Lambert, including
the collaboration agreement related to CI-1042, in part because these
collaborations may address smaller markets than Pfizer generally seeks to
address. Pfizer may have no interest in commercializing CI-1042 for tumor types
where CI-1042 is administered by intratumoral injections or intrahepatic artery
infusions. In addition, Pfizer may have no interest in the development of
therapeutic viruses. As the parent of Warner-Lambert, Pfizer could cause Warner-
Lambert to modify, disrupt or terminate the collaborative agreements we
originally entered into with Warner-Lambert, subject to the terms of these
agreements. Under the agreement relating to CI-1042, Warner-Lambert has the
right to terminate the agreement for any reason with 90 days notice, in which
case Warner-Lambert is required to return all rights to CI-1042 to us
royalty-free.
If Warner-Lambert terminates our agreement relating to CI-1042, we would lose a
significant portion of the $40 million of funding for the development of
CI-1042, including the cost of clinical trials, which Warner-Lambert had agreed
to provide under the agreement. In addition, we would not have access to
Warner-Lambert's sales and marketing capabilities and expertise to
commericialize CI-1042 as provided in the agreement. We currently intend to rely
on the sales and marketing services provided to us under the agreement. Further,
if Warner-Lambert terminates our agreement relating to CI-1042 and does not
agree to manufacture CI-1042 for commercial use, we would have to establish an
alternative manufacturing source for CI-1042. If we need to establish an
alternative manufacturing source for CI-1042, we will experience a delay in
completing our Phase III trials and submitting applications for regulatory
approval.
9
<PAGE>
WE DO NOT HAVE MANUFACTURING EXPERTISE OR CAPABILITIES AND ARE DEPENDENT ON
THIRD PARTIES TO FULFILL OUR MANUFACTURING NEEDS, WHICH COULD RESULT IN THE
DELAY OF CLINICAL TRIALS OR REGULATORY APPROVAL.
We lack the resources, experience and capabilities to manufacture our products
on our own. We would require substantial funds to establish these capabilities.
Consequently, we are dependent on third parties, including collaborative parties
and contract manufacturers, to manufacture our products and product candidates.
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 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 our products or to develop our own manufacturing
capabilities.
WE CURRENTLY RELY ON A SOLE SOURCE OR LIMITED NUMBER OF SOURCES FOR THE
MANUFACTURING OF CI-1042, AND IF THESE SOURCES ARE UNABLE OR UNWILLING TO
DELIVER THE REQUIRED QUANTITIES, WE MAY NOT BE ABLE TO FIND REPLACEMENT
MANUFACTURERS, WHICH COULD RESULT IN A DELAY IN CLINICAL TRIALS OR IN REGULATORY
APPROVAL.
We currently rely on a sole source contract manufacturer for the supply of
CI-1042 for Phase III clinical trials. This contract manufacturer has produced
multiple batches of material for our Phase III clinical trials. However, we and
Warner-Lambert have held up final release of some of this material until the
manufacturer completes documentation that complies with Warner-Lambert's and our
manufacturing standards. We will limit the number of clinical sites that are
enrolling patients for the Phase III clinical trial until product release is
occurring on a routine basis. If our contract manufacturer is unable or
unwilling to deliver the required quantities of CI-1042 on a regular basis or
terminates our relationship, we will need to find a replacement manufacturer and
we may not find a replacement manufacturer within a reasonable amount of time or
at commercially reasonable rates. This could delay our clinical trials and our
applications for regulatory approval. If this third party fails to supply us
with sufficient materials, we may be forced to incur additional expenses to pay
for the manufacture of materials, if we can find a replacement manufacturer, or
to develop our own manufacturing capabilities.
WE OR WARNER-LAMBERT MAY NOT BE ABLE TO PRODUCE COMMERCIAL QUANTITIES OF
CI-1042, WHICH COULD DELAY REGULATORY APPROVAL.
To obtain regulatory approval for CI-1042, we will need to treat patients in our
Phase III clinical trial using CI-1042 produced from the same manufacturing
process and in the same manufacturing facility that we intend to use following
FDA approval. In conjunction with Warner-Lambert or alone, we will need to
modify the manufacturing process to produce large quantities of CI-1042 and to
lower the cost by improving the efficiency of the process. To modify the
manufacturing process and to meet our quality standards for CI-1042, in
conjunction with Warner-Lambert or alone, we will need to spend a significant
amount of time and capital and complete a substantial amount of experimentation.
In conjunction with Warner-Lambert or alone, we will need to expand or modify an
existing manufacturing facility to produce commercial quantities of CI-1042.
Warner-Lambert is reviewing the manufacturing process for CI-1042 and the
related facility requirements but has not yet commenced facility expansion or
modification or put in place a specific plan to do so. If we do not treat
patients in our Phase III clinical trial with product from the new process
manufactured at the new facility, the FDA will most likely require a bridging
study to show that the CI-1042 produced from the new process is comparable to
CI-1042 produced from our existing manufacturing process at our contract
manufacturer's existing facility. Filing of our applications for regulatory
approval may be delayed if we:
- encounter difficulties in modifying the manufacturing process;
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<PAGE>
- fail to treat patients in our Phase III clinical trial with product from
the new manufacturing process; or
- fail to conduct a bridging study prior to FDA review of our Phase III
clinical trial.
EVEN IF OUR PRODUCTS ARE APPROVED, THE MARKET MAY NOT ACCEPT OUR PRODUCTS.
Even if our product development efforts are successful and even if the requisite
regulatory approvals are obtained, our products may not gain market acceptance
among physicians, patients, healthcare payers and the medical community. A
number of additional factors may limit the market acceptance of products
including the following:
- rate of adoption by healthcare practitioners;
- types of cancer for which the product is approved;
- rate of the products' acceptance by the target population;
- timing of market entry relative to competitive products;
- availability of alternative therapies;
- price of our product relative to alternative therapies;
- availability of third-party reimbursement;
- extent of marketing efforts by us and third-party distributors or agents
retained by us; and
- side effects or unfavorable publicity concerning our products or similar
products.
If any of our products do not achieve market acceptance, we may lose our
investment in that product which may cause our stock price to decline.
WE DO NOT HAVE MARKETING OR SALES EXPERIENCE OR CAPABILITIES AND ARE DEPENDENT
ON THE EFFORTS OF OTHERS, WHICH COULD LIMIT OUR ABILITY TO COMMERCIALIZE OUR
PRODUCTS.
We intend to enter into agreements with third parties to market and sell most of
our products if we receive regulatory approval for a product. We may not be able
to enter into marketing and sales agreements with others on acceptable terms, if
at all. To the extent that we enter into marketing and sales agreements with
other companies, our revenues, if any, will depend on the efforts of others. We
also have the right under our collaboration agreements to co-promote our
products in conjuction with our collaborators. If we are unable to enter into
third-party agreements or if we are exercising our rights to co-promote a
product, then we will be required to develop marketing and sales capabilities.
We may not successfully establish marketing and sales capabilities or have
sufficient resources to do so. If we do not develop marketing and sales
capabilities, we may not meet our co-promotion obligations under our
collaboration agreements, which could result in our losing these co-promotion
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.
ADVERSE EVENTS IN THE FIELD OF VIRAL GENE THERAPY MAY NEGATIVELY AFFECT
REGULATORY APPROVAL OR PUBLIC PERCEPTION OF OUR PRODUCTS, WHICH COULD DELAY OUR
CLINICAL TRIALS.
We depend in part on public acceptance of the use of viruses as therapeutics or
as delivery vehicles for gene therapy for the prevention or treatment of human
diseases. Public attitudes may be influenced by claims that these therapies are
unsafe, and these therapies may not gain acceptance by the public or the media.
As a result of negative public reaction to these therapies, the FDA may impose
greater regulation, stricter clinical trial oversight and stricter commercial
product labeling requirements.
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The media has widely publicized the recent death of a patient at the University
of Pennsylvania undergoing viral gene therapy. As a result of this death, the
United States Senate held hearings to determine whether additional legislation
is required to protect volunteers and patients who participate in gene therapy
clinical trials. The Recombinant DNA Advisory Committee, or RAC, which acts as
an advisory body to the National Institutes of Health, has extensively discussed
gene therapy clinical trials. This death and any other adverse events in the
field of gene therapy that may occur in the future may result in greater
governmental regulation of our product candidates and potential regulatory
delays relating to the testing or approval of our product candidates.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO CONTINUE TO INCUR LOSSES.
As of June 30, 2000, we had an accumulated deficit of approximately
$78.3 million. We have incurred these losses principally from costs incurred in
our research and development programs and from our general and administrative
costs. We have derived no significant revenues from product sales or royalties.
We expect to incur significant and increasing operating losses over the next
several years as we expand our research and development efforts and preclinical
testing and clinical trial activities. We expect that the amount of operating
losses will fluctuate significantly from quarter to quarter as a result of
increases or decreases in our research and development efforts, the
establishment or termination of collaborations, the timing and amount of
collaboration payments under the terms of our collaborative agreements, or the
initiation, success or failure of clinical trials.
We do not expect to generate revenues from the sale of products for the
foreseeable future. We expect that substantially all of our revenues for the
foreseeable future will result from payments under our collaborative agreements.
Our ability to achieve profitability depends upon our success in completing
development of our potential products, obtaining required regulatory approvals
and manufacturing and marketing our products.
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 research, preclinical testing and clinical trials necessary to
develop our technology and proposed products, and to establish or maintain
relationships with collaborative parties. Our future capital requirements will
depend upon a number of factors, including:
- continued scientific progress in the research and development of our
technology programs;
- the size and complexity of these programs;
- our ability to establish and maintain collaboration agreements;
- progress with preclinical testing and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the cost involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
- competing technological and market developments; and
- 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 delay or terminate clinical
trials, 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.
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IF WE LOSE OUR KEY EMPLOYEES AND CONSULTANTS OR ARE UNABLE TO ATTRACT OR RETAIN
QUALIFIED PERSONNEL, OUR BUSINESS COULD SUFFER.
The loss of the services of one or more of our 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. We depend on our continued ability to attract, retain and
motivate highly qualified management and scientific personnel. We face
competition for qualified individuals from numerous pharmaceutical and
biotechnology companies, universities, and other research institutions. Because
of the scientific nature of our business, we are highly dependent on principal
members of our scientific and management staff. To pursue our product
development plans, we will need to hire additional management personnel and
additional qualified scientific personnel to perform research and development,
as well as personnel with expertise in clinical testing, government regulation
and manufacturing. We may not be successful in hiring or retaining qualified
personnel.
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 products 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 products are in clinical trials. In
particular, among other trials, Schering-Plough Corporation is conducting a
Phase II clinical trial in liver metastases of colorectal cancer for a product
which targets the abnormality in cells involving the p53 gene.
Aventis, Inc./Introgen Therapeutics, Inc. have initiated a Phase III clinical
trial in head and neck cancer with their product which targets the abnormality
in cells involving the p53 gene. If approved, the products of these and other
competitors now in clinical trials will compete directly with CI-1042. Other
companies are developing drugs targeting other abnormal functions in cancer
cells that may compete with our other product candidates.
Many of our competitors, either alone or together with collaborators, have
substantially greater financial resources and larger research and development
staffs than we do. In addition, many of these competitors, either alone or
together with their collaborators, have significantly greater experience than we
do in:
- developing products;
- undertaking preclinical testing and human clinical trials;
- obtaining FDA and other regulatory approvals of products; and
- manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing products before we do. If we 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 products to treat each of the diseases for which we are
seeking to develop therapeutic products. In addition, our product candidates
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 or technologies
obsolete or noncompetitive. We face and will continue to face intense
competition from other companies for
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<PAGE>
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 our products receive regulatory
approval but cannot compete effectively in the marketplace, our business would
suffer.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, WHICH CAN BE COSTLY, TIME
CONSUMING AND SUBJECT US TO UNANTICIPATED DELAYS; EVEN IF WE OBTAIN REGULATORY
APPROVAL FOR SOME OF OUR PRODUCTS, THOSE PRODUCTS MAY STILL FACE REGULATORY
DIFFICULTIES.
Our product 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 any of our product candidates.
We expect to rely on collaborative parties to file investigational new drug
applications and generally direct the regulatory approval process for many of
our product candidates. These collaborative parties may not obtain necessary
approvals from the FDA or other regulatory authorities for any product
candidates. If we fail to obtain required governmental approvals, we or our
collaborative parties will experience delays in or be precluded from marketing
products developed through our research. In addition, the commercial use of our
products will be limited. 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 products, we may experience delays in or be precluded from
marketing products developed through our research.
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 our or a collaborator's product candidates. Delays in obtaining
regulatory approvals may:
- adversely affect the successful commercialization of any products that we
or our collaborators develop;
- impose costly procedures on us or our collaborators;
- diminish any competitive advantages that we or our collaborators may
attain; and
- adversely affect our receipt of revenues or royalties.
In addition, problems or failures with the products of others, including our
competitors, could have an adverse effect on our ability to obtain or maintain
regulatory approval for any of our product candidates or products.
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, the actual timing of these events may be subject
to significant delays relating to various causes, including scheduling conflicts
with participating clinicians and clinical institutions, and difficulties in
identifying and enrolling patients who meet trial eligibility criteria. We may
not commence clinical trials involving any of our products or complete them as
projected.
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We have limited experience in conducting clinical trials. We rely on academic
institutions or clinical research organizations to conduct, supervise or monitor
some or all aspects of clinical trials involving our products. We will have less
control over the timing and other aspects of these clinical trials than if we
conducted them entirely on our own. Failure to commence or complete, or delays
in, any of our planned clinical trials would adversely affect our stock price
and prevent us from commercializing our products.
IF TESTING OF A PARTICULAR PRODUCT DOES NOT YIELD SUCCESSFUL RESULTS, THEN WE
WILL BE UNABLE TO COMMERCIALIZE THAT PRODUCT.
If preclinical or clinical testing of one or more of our products does not yield
successful results, the product will fail. To achieve the results we need, we
must demonstrate our products' safety and effectiveness in humans through
extensive preclinical and clinical testing. Numerous unforeseen events may arise
during, or as a result of, the testing process, including the following:
- safety and effectiveness results attained in early human clinical trials
may not be indicative of results that are obtained in later clinical
trials;
- the results of preclinical studies may be inconclusive, or they may not be
indicative of results that will be obtained in human clinical trials;
- after reviewing test results, we or our collaborators may abandon projects
that we previously believed to be promising;
- we, our collaborators or regulators, may suspend or terminate clinical
trials if the participating subjects or patients are being exposed to
unacceptable health risks; and
- potential products may not have the desired effect or may have undesirable
side effects or other characteristics that preclude regulatory approval or
limit their commercial use if approved.
Clinical testing is very expensive and can take many years. The failure to
adequately demonstrate the safety and effectiveness of a product would delay or
prevent regulatory approval of the product.
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:
- obtain patents;
- license technology rights from others;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
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 such 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
products. We may not acquire such required licenses on acceptable terms, if at
all. If we do not obtain such licenses,
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<PAGE>
we may need to design around other parties' patents, or we may not be able to
proceed with the development, manufacture or sale of our products. 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.
Specifically, we are aware of patent applications filed in the United States and
abroad that, if they were to issue, would cover CI-1042 and other viruses that
selectively replicate. We are also aware of patent applications that claim
enzymes for converting drugs to their active forms for treating disease,
including cancers, and claim methods of delivering the enzymes using a virus. We
may be unable to commercialize our products affected by these patents, if any of
these patents are issued and we are unable to:
- successfully challenge any claims asserting that our product candidates or
products infringe the patent;
- design around the patent; or
- negotiate a reasonable license under the patent.
WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE
INSURANCE.
The use of any of our product candidates in clinical trials, and the sale of any
approved products, exposes us to liability claims resulting from the use or sale
of our products. We have obtained limited product liability insurance coverage
for our clinical trials. We intend to expand our insurance coverage to include
the sale of commercial products if marketing approval is obtained for product
candidates in development. However, insurance coverage is becoming increasingly
expensive. We may not be able to maintain insurance coverage at a reasonable
cost. We may not be able to obtain insurance coverage that will be adequate to
satisfy any liability that may arise. Regardless of merit or eventual outcome,
product liability claims may result in:
- decreased demand for a product;
- injury to our reputation;
- withdrawal of clinical trial volunteers; and
- 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.
WE DEAL WITH HAZARDOUS MATERIALS AND MUST COMPLY WITH ENVIRONMENTAL LAWS AND
REGULATIONS, WHICH CAN BE EXPENSIVE AND RESTRICT HOW WE DO BUSINESS.
Our research and process development activities involve the controlled use of
hazardous materials. We cannot eliminate the risk of accidental contamination or
injury from these materials. In the event of an accident or environmental
discharge, we may be held liable for any resulting damages, which may exceed our
financial resources and may seriously harm our business. In addition, if we
develop a manufacturing capacity, we may incur substantial costs to comply with
environmental regulations and would be subject to the risk of accidental
contamination or injury from the use of hazardous materials in our manufacturing
process.
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OUR STOCK PRICE IS HIGHLY VOLATILE.
The market price of our common stock has been highly volatile and is likely to
continue to be volatile. Factors affecting our stock price include:
- results of clinical trials;
- ability to accrue patients;
- ability to manufacture sufficient supply of CI-1042;
- success or failure in obtaining regulatory approval by us or our
competitors;
- public concern as to the safety and efficacy of our products;
- developments concerning the business of collaborative parties or their
transactions with third parties;
- developments in our relationship with collaborative parties;
- developments in patent or other proprietary rights;
- additions or departures of key personnel;
- announcements by us or our competitors of technological innovations or new
commercial therapeutic products;
- published reports by securities analysts;
- fluctuations in stock market price and volume, which are particularly
common among securities of biotechnology companies;
- fluctuations in our operating results;
- statements of governmental officials; and
- changes in healthcare reimbursement policies.
EXISTING STOCKHOLDERS HAVE SIGNIFICANT INFLUENCE OVER US.
Upon completion of this offering, our executive officers, directors and 5%
stockholders will own, in the aggregate, approximately 23% 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 to have its nominee elected to our
board of directors as long as we continue to collaborate on the development of a
compound. In addition, International Biotechnology Trust plc has the right to
have its nominee elected to our board of directors as long as it continues to
own at least 66 2/3% of our common stock it purchased in January 1998. Because
of these rights and ownership and voting arrangements, our officers, directors
and principal stockholders may be able to effectively control the election of
all members of the board of directors and to determine all corporate actions.
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WE DO NOT INTEND TO PAY DIVIDENDS.
We intend to retain any future earnings to finance the growth and development of
our business and we do not plan to pay cash dividends in the foreseeable future.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The offering price is substantially higher than the book value per share of our
common stock. Investors purchasing common stock in this offering at a public
offering price of $15.00 per share will incur immediate dilution in net tangible
book value per share of common stock of $10.65 per share. Investors will incur
additional dilution upon the exercise of outstanding stock options. See
"Dilution."
SUBSTANTIAL SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD CAUSE OUR
STOCK PRICE TO FALL.
The market price of our common stock could decline as a result of sales by our
existing stockholders of shares of common stock in the market after this
offering or the perception that these sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate. Upon completion of this offering, based
on our outstanding common stock as of August 31, 2000, we will have 17,442,084
outstanding shares of common stock, 17,892,084 shares if the underwriters
exercise their over-allotment option in full. Of these shares, a total of
approximately 3,138,484 shares held by our directors, executive officers and 5%
stockholders are subject to lock-up agreements generally providing that these
stockholders will not sell or otherwise dispose of their shares for a period of
90 days following the date of the final prospectus for this offering without the
prior written consent of U.S. Bancorp Piper Jaffray.
In addition, options to purchase up to 1,704,010 shares of our common stock are
outstanding as of August 31, 2000 under our stock option plans.
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. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and divert management's attention and resources, and could seriously harm
our business, financial condition and results of operations.
PROVISIONS IN DELAWARE LAW AND OUR CHARTER 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 10% of its assets with any stockholder,
including all affiliates and associates of the stockholder, who owns 15% or more
of the corporation's outstanding voting stock, for three years following the
date that the stockholder acquired 15% or more of the corporation's stock
unless:
- the board of directors approved the transaction where the stockholder
acquired 15% or more of the corporation's stock;
- after the transaction where the stockholder acquired 15% or more of the
corporation's stock, the stockholder owned at least 85% of the
corporation's outstanding voting stock, excluding shares owned by
directors, officers and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held under the plan will be tendered in a tender or exchange offer;
or
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- on or after this date, the merger or sale is approved by the board of
directors and the holders of at least two-thirds of the outstanding voting
stock that is not owned by the stockholder.
As such, these laws could prohibit or delay mergers or a change of control of us
and may discourage attempts by other companies to acquire us.
Our certificate of incorporation and bylaws include a number of provisions that
may deter or impede hostile takeovers or changes of control or management. These
provisions include:
- our board is classified into three classes of directors as nearly equal in
size as possible with staggered three year-terms;
- 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;
- all stockholder actions must be effected at a duly called meeting of
stockholders and not by written consent;
- special meetings of the stockholders may be called only by the chairman of
the board, the chief executive officer or the board; and
- 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.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in the sections entitled "Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's results,
levels of activity, or achievements to differ significantly and materially from
that expressed or implied by such forward-looking statements. Such factors
include, among others, those listed under "Risk Factors" and elsewhere in this
prospectus.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "intend," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," or "continue," or the negative of such terms
or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance or achievements. We do not assume responsibility for the
accuracy and completeness of the forward-looking statements. We do not intend to
update any of the forward-looking statements after the date of this prospectus
to conform such statements to actual results.
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USE OF PROCEEDS
The net proceeds from the sale of the 3,000,000 shares of common stock that we
are offering at a public offering price of $15.00 per share will be
approximately $41.4 million after deducting the underwriting discounts and
estimated offering expenses payable by us. If the underwriters exercise their
over-allotment option in full, the net proceeds from this offering will be
approximately $47.7 million.
We intend to use the net proceeds of this offering, together with other
available funds, for:
- research and development activities;
- the potential commercialization of CI-1042;
- the clinical development of our other product candidates;
- operating costs;
- capital expenditures, including a small scale manufacturing facility; and
- other general corporate purposes.
In addition, proceeds of this offering may be used to acquire technologies or
products that complement our business, although we are not planning or
negotiating any such transactions as of the date of this prospectus. We may also
establish other manufacturing facilities, as appropriate.
We have not identified precisely the amounts we plan to spend on each of these
areas or the timing of such expenditures. The amounts actually expended for each
purpose may vary significantly depending upon numerous factors, including the
amount and timing of the proceeds from this offering, progress with the
regulatory approval, manufacturing and commercialization of CI-1042, and
progress with our other development programs. In addition, expenditures will
also depend upon the establishment of collaborative agreements with other
companies, the continuation of collaborations currently in effect, the
availability of other financings and other factors.
We anticipate that we will be required to raise substantial additional capital
to continue to fund the development and commercialization of CI-1042 and
development of our other product candidates. Additional capital may be raised
through additional public or private financing, as well as collaborative
relationships, borrowings and other available sources.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We presently intend to
retain earnings for use in the operation and expansion of our business and
therefore do not anticipate paying any cash dividends in the foreseeable future.
Pursuant to a loan agreement with a bank, we are restricted from paying cash
dividends without the bank's prior consent.
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PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"ONXX." We commenced trading on the Nasdaq National Market on May 9, 1996. The
following table presents the high and low per share sales prices of our common
stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1998
First Quarter........................................... $ 8.250 $ 6.688
Second Quarter.......................................... 11.500 5.875
Third Quarter........................................... 7.688 3.500
Fourth Quarter.......................................... 8.875 5.000
YEAR ENDED DECEMBER 31, 1999
First Quarter........................................... $ 7.969 $ 5.500
Second Quarter.......................................... 10.375 5.500
Third Quarter........................................... 9.750 7.750
Fourth Quarter.......................................... 10.219 7.563
YEAR ENDING DECEMBER 31, 2000
First Quarter........................................... $32.938 $ 9.625
Second Quarter.......................................... 15.500 7.000
Third Quarter........................................... 32.734 10.000
Fourth Quarter (through October 11, 2000)............... 24.688 17.063
</TABLE>
On October 11, 2000 the last reported sales price of our common stock on the
Nasdaq National Market was $17.06 per share. As of August 31, 2000 there were
approximately 325 record holders of our common stock.
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CAPITALIZATION
The following table presents our capitalization as of June 30, 2000 on:
- an actual basis; and
- a pro forma basis to reflect the sale of the shares of common stock in
this offering at a public offering price of $15.00 per share, after
deducting underwriting discounts and estimated offering expenses payable
by us.
<TABLE>
<CAPTION>
JUNE 30, 2000
--------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 39,758 $ 81,158
======== ========
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized, issuable in series; none issued and
outstanding
Common stock, $0.001 par value; 50,000,000 shares
authorized; 14,287,984 shares issued and outstanding,
actual; 17,287,984 shares issued and outstanding, pro
forma................................................... 14 17
Additional paid-in capital................................ 112,112 153,509
Accumulated deficit....................................... (78,315) (78,315)
-------- --------
Total stockholders' equity.............................. $ 33,811 $ 75,211
======== ========
Total capitalization.................................. $ 33,811 $ 75,211
======== ========
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of June 30, 2000 and excludes:
- 1,679,184 shares issuable upon exercise of outstanding options as of
June 30, 2000, at a weighted average exercise price of $8.66 per share;
- an aggregate of 668,386 shares of common stock available for future
issuance under our stock option plans as of June 30, 2000; and
- an aggregate of 103,322 shares of common stock available for future
issuance under our Employee Stock Purchase Plan as of June 30, 2000.
23
<PAGE>
DILUTION
As of June 30, 2000, we had a net tangible book value of $33,811,000, or $2.37
per share. Net tangible book value per share represents the amount of our
stockholders' equity, less intangible assets, divided by 14,287,984 shares of
common stock outstanding on June 30, 2000.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock outstanding immediately after completion of this offering at a
public offering price of $15.00 per share. After giving effect to the sale by us
of 3,000,000 shares of common stock in this offering, after deducting the
underwriting discounts and offering expenses, our pro forma net tangible book
value as of June 30, 2000 would have been $4.35 per share to existing
stockholders, an immediate dilution in net tangible book value of $10.65 per
share to purchasers of common stock in this offering, as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Public offering price per share........................... $ 15.00
-------
Net tangible book value per share
as of June 30, 2000................................... $ 2.37
Increase per share attributable to new investors........ 1.98
-------
Pro forma net tangible book value per share
after the offering...................................... 4.35
-------
Dilution per share to new investors....................... $ 10.65
=======
</TABLE>
The following tables shows the total consideration paid and the average price
per share paid by the existing stockholders and by new investors, at a public
offering price of $15.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 14,287,984 82.6% $110,470,000 71.1% $ 7.73
New investors.......................... 3,000,000 17.4 45,000,000 28.9% $ 15.00
----------- ----- ------------ -----
Total.............................. 17,287,984 100.0% $155,470,000 100.0%
=========== ===== ============ =====
</TABLE>
The foregoing discussion and tables are based on the total number of shares
outstanding on June 30, 2000 and excludes:
- 1,679,184 shares of common stock subject to outstanding stock options at
June 30, 2000, at a weighted average exercise price of $8.66 per share;
- an aggregate of 668,386 shares of common stock reserved for future
issuance under our stock option plans as of June 30, 2000; and
- an aggregate of 103,322 shares of common stock reserved for future
issuance under our Employee Stock Purchase Plan as of June 30, 2000.
24
<PAGE>
SELECTED FINANCIAL DATA
In the table below, we provide you with our summary historical financial data.
We have prepared this information using our financial statements for the five
years ended December 31, 1999 and the six-month periods ended June 30, 1999 and
2000. The financial statements for the five fiscal years ended December 31, 1999
have been audited by Ernst & Young LLP, independent auditors. The financial
statements for the six-month periods ended June 30, 1999 and 2000 have not been
audited.
When you read this summary historical financial data, it is important that you
read along with it the historical financial statements and related notes
included in our annual and quarterly reports filed with the Securities and
Exchange Commission and incorporated herein by reference, and the section
included elsewhere in this prospectus titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The interim results
presented below are not necessarily indicative of future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues............ $ 6,945 $ 8,302 $ 7,799 $ 11,314 $ 13,324 $ 5,027 $ 14,847
Operating expenses:
Research and
development........... 13,290 14,767 20,715 25,383 23,627 11,126 12,370
General and
administrative........ 2,807 3,527 5,089 5,275 5,341 2,761 3,660
------- ------- -------- -------- -------- -------- --------
Loss from operations...... (9,152) (9,992) (18,005) (19,344) (15,644) (8,860) (1,183)
Interest income, net...... 725 1,575 1,980 1,685 842 503 941
------- ------- -------- -------- -------- -------- --------
Net loss.................. $(8,427) $(8,417) $(16,025) $(17,659) $(14,802) $ (8,357) $ (242)
======= ======= ======== ======== ======== ======== ========
Basic and diluted net loss
per share............... $ (8.92) $ (1.31) $ (1.65) $ (1.56) $ (1.29) $ (0.73) $ (0.02)
======= ======= ======== ======== ======== ======== ========
Shares used in computing
basic and diluted net
loss per share.......... 945 6,401 9,707 11,289 11,503 11,475 13,852
======= ======= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short
term investments................ $ 12,483 $ 40,329 $ 35,472 $ 32,160 $ 14,463 $ 39,758
Total assets...................... 17,756 45,779 41,858 37,207 21,628 46,361
Working capital................... 9,447 36,483 27,885 19,591 6,773 31,638
Long term debt, non-current
portion......................... 544 99 4,336 2,382 183 --
Accumulated deficit............... (21,170) (29,587) (45,612) (63,271) (78,073) (78,315)
Total stockholders' equity........ $ 13,545 $ 40,923 $ 28,821 $ 21,619 $ 7,662 $ 33,811
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "MAY," "WILL," "EXPECTS,"
"ANTICIPATES," "ESTIMATES," "INTENDS," "PLANS," "PREDICTS," "POTENTIAL,"
"BELIEVE," "SHOULD" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS".
OVERVIEW
We are engaged in the discovery and development of novel cancer therapies. Based
on our proprietary virus technology, we are developing our lead product,
CI-1042. We have completed two Phase II clinical trials evaluating CI-1042 as a
treatment for head and neck cancer. Based on the results from these trials and
in collaboration with Warner-Lambert, we recently initiated a 300-patient,
multi-center Phase III clinical trial of CI-1042 for head and neck cancer. We
are also evaluating CI-1042 in clinical trials for a number of additional cancer
indications. Further, in collaboration with Bayer, we have initiated a Phase I
clinical trial for a small molecule anticancer compound.
We have not been profitable since inception and expect to incur substantial and
increasing losses for the foreseeable future, primarily due to expenses
associated with the expansion of our self-funded virus research and development
programs. We expect that losses will fluctuate from quarter to quarter and that
such fluctuations may be substantial. As of June 30, 2000, our accumulated
deficit was approximately $78.3 million.
Our business is subject to significant risks, including the risks inherent in
our research and development efforts, the results of the CI-1042 clinical
trials, uncertainties associated with obtaining and enforcing patents, the
lengthy and expensive regulatory approval process and competition from other
products. We do not expect to generate revenues from the sale of proposed
products in the foreseeable future. We expect that all of our revenues in the
foreseeable future will be generated from collaborative agreements.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
TOTAL REVENUES. Our total revenues increased 196 percent to $14.8 million for
the six months ended June 30, 2000 as compared to the same period in 1999. Total
revenues were $5.0 million for the six months ended June 30, 1999. Total
revenues for the six months ended June 30, 2000 and the same period in 1999 were
primarily attributable to amounts earned for research performed under our
collaborations with Warner-Lambert. The increase in total revenues for the six
months ended June 30, 2000 as compared to the same period in 1999 is due
primarily to revenues recognized from our agreement with Warner-Lambert to
develop and commercialize CI-1042 as well as two armed therapeutic viruses. We
did not have this agreement during the first six months of 1999. Total revenues
for the six months ended June 30, 2000 also included a $3.7 million milestone
payment related to this agreement.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 12
percent to $12.4 million for the six months ended June 30, 2000 as compared with
$11.1 million for the same period in 1999. The increase in expenses for the six
months ended June 30, 2000 as compared to the same period in 1999 was primarily
due to increased contract manufacturing expenses as we scale-up production to
provide CI-1042 for our Phase III clinical trials that commenced in June 2000.
We expect to continue to expand the scope of our self-funded virus research and
development programs in future periods,
26
<PAGE>
which may result in substantial increases in research and development expenses.
Collaborators may not fund these research and development expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 32
percent to $3.7 million for the six months ended June 30, 2000 as compared with
$2.8 million for the same period in 1999. The increase in expenses for the six
months ended June 30, 2000 as compared to the same period in 1999 was primarily
due to increased employee-related expenses for hiring of additional staff.
General and administrative expenses may continue to increase at comparable
levels in future periods to support our research and development efforts.
NET INTEREST INCOME. We had net interest income of $941,000 for the six months
ended June 30, 2000 as compared with $503,000 for the same period in 1999. The
increase in net interest income was principally due to increased cash and
investment balances from the $18.0 million private placement of common stock in
January 2000 and the $5.0 million common stock issuance to Warner-Lambert in
February 2000, resulting in more interest income for the six month periods ended
June 30, 2000.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
TOTAL REVENUES. Our total revenues in each of the last three years was derived
almost exclusively from collaborative research and development programs with
Warner-Lambert, Bayer and Eli Lilly & Company. The approximate revenue from each
of our programs, and other sources for each of the past three years was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Warner-Lambert:
CI-1042 and Armed Therapeutic Viruses..................... $ -- $ -- $ 4.0
Cell Cycle................................................ 1.8 2.8 2.7
Inflammation.............................................. -- 3.1 3.3
Bayer....................................................... 4.7 3.7 1.8
Eli Lilly & Company......................................... 1.2 1.2 0.5
----- ----- -----
Total contract revenues................................... 7.7 10.8 12.3
All other sources........................................... 0.1 0.5 1.0
----- ----- -----
Total revenues............................................ $ 7.8 $11.3 $13.3
===== ===== =====
</TABLE>
Total revenues increased by 45% from 1997 to 1998 and 18% from 1998 to 1999, in
each case primarily as a result of increased contract revenues. Total contract
revenues are expected to increase in 2000 from total contract revenues realized
in 1999 because we anticipate a full year of revenues under our collaboration
with Warner-Lambert relating to CI-1042, which was in effect for only four
months of 1999. In January 1999, our collaboration with Bayer transitioned from
a research program to the co-development of a product candidate and as a result,
we will not recognize any revenue in 2000 from this program. In June 1999, the
collaboration program with Eli Lilly & Company expired pursuant to the terms of
the agreement and as a result, we will not recognize any future revenues under
this program.
RESEARCH AND DEVELOPMENT. Research and development expenses were $20.7 million
in 1997, $25.4 million in 1998 and $23.6 million in 1999. The 1998 expense
increase of 23% was primarily due to additional costs associated with Phase I
and Phase II clinical trials of CI-1042 and, additionally, due to higher
research expenses in our self-funded virus program. The 1999 expense decrease of
7% was
27
<PAGE>
primarily due to a reduced level of research activities associated with the
transition of the ras program. Research under our collaborations with
Warner-Lambert is fully funded by them up to specified levels.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$5.1 million in 1997, $5.3 million in 1998 and $5.3 million in 1999. General and
administrative expenses for all three years remained at essentially the same
level.
NET INTEREST INCOME. We had net interest income of $2.0 million in 1997,
$1.7 million in 1998 and $0.8 million in 1999. Net interest income decreased by
15% in 1998 primarily due to higher interest expense on a line of credit
arrangement entered into in December 1997. Net interest income decreased by 53%
in 1999 primarily due to a lower average balance of cash, cash equivalents and
short-term investments.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, our cash expenditures have substantially exceeded our
revenues, and we have relied primarily on the proceeds from the sale of equity
securities and revenues from collaborative research and development agreements
to fund our operations.
At June 30, 2000, we had cash and investments of $39.8 million, compared to
$35.5 million at December 31, 1997, $32.2 million at December 31, 1998 and
$14.5 million at December 31, 1999. The decrease of $3.3 million in 1998 was
primarily due to cash used in operations of $10.5 million, repayment of debt of
$2.1 million and capital expenditures of $1.3 million primarily offset by the
issuance of common stock to two institutional investors. The decrease of
$17.7 million in 1999 was primarily due to cash used in operations of
$14.6 million, repayment of debt of $2.2 million and capital expenditures of
$1.4 million. The increase of $25.3 million in the first six months was
primarily due to the $18.0 million private placement of common stock completed
in January 2000 and the sale of $5.0 million of our common stock to
Warner-Lambert in February 2000.
We also have the right to cause Warner-Lambert to purchase an additional
$5.0 million of our common stock during calendar year 2001. If we exercise this
right, we would sell common stock to Warner-Lambert at the trailing average
closing price per share of our common stock over the twenty-day period
commencing two days prior to exercise.
Our cash used in operations was $11.8 million in 1997, $10.5 million in 1998 and
$14.6 million in 1999. This cash was used primarily to fund increasing levels of
research and development and the general and administrative expenses necessary
to support increased operations. Expenditures for capital equipment amounted to
$2.2 million in 1997, as compared to $1.3 million in 1998 and $1.4 million in
1999. We currently expect to make expenditures for capital equipment of
approximately $4.4 million in 2000. This includes $2.2 million for construction
and capital equipment for the facility leased in June 2000.
We recorded and amortized over the related vesting periods deferred compensation
representing the difference between the exercise price of options granted and
the deemed fair value of our common stock at the time of grant. Options
generally vest over four years. The amortization of deferred compensation was
$219,000 in both 1997 and 1998 and $194,000 in 1999. During 1999, deferred
compensation was fully amortized.
We believe that our existing capital resources and interest thereon including
equity placements of $23.0 million in early 2000 and anticipated revenues from
existing collaborations will be sufficient to fund our current and planned
operations through at least September 2001, before consideration of the proceeds
of this offering. There can be no assurance, however, that changes in our
research and development plans, revenues from collaborators or other changes
affecting our operating expenses will not result in the expenditure of such
resources before such time, and in any event, we will need to raise substantial
additional capital to fund our operations in future periods. We intend to seek
such
28
<PAGE>
additional funding through collaborations, public and 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, 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Reporting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," or SFAS
133. SFAS 133, as amended, requires that all derivative instruments be recorded
on the balance sheet at their fair value. Change in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction, and, if so, the type of hedge transaction. We must adopt SFAS 133,
as amended, on January 1, 2001. Management does not currently expect that
adoption of SFAS 133, as amended, will have a material impact on our financial
position or results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB 101 which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. We are currently evaluating the impact of
SAB 101 on our revenue recognition policy related to our collaborative research
and development agreements. Changes, if any, to our current revenue recognition
policy will be adopted in the fourth quarter of fiscal 2000 as a change in
accounting principle effective January 1, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. Our exposure to market rate risk for changes in interest
rates relates primarily to our investment portfolio. We do not use derivative
financial instruments in our investment portfolio. By policy, we place 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 classify our cash
equivalents or short-term investments as fixed rate if the rate of return on an
instrument remains fixed over its term. As of December 31, 1999, all of our cash
equivalents and short-term investments are classified as fixed rate.
The table below presents the amounts and related weighted interest rates of our
cash equivalents and short-term investments at December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE
FAIR VALUE INTEREST
MATURITY (IN $ MILLIONS) RATE
---------- --------------- ----------
<S> <C> <C> <C>
Cash equivalents, fixed rate............. Daily 12.7 5.29%
Short-term investments, fixed rate....... 0 - 1 year 1.8 5.56%
</TABLE>
29
<PAGE>
BUSINESS
OVERVIEW
We are developing innovative products for the treatment of cancer. Based on our
proprietary virus technology, we are developing our lead product, CI-1042.
CI-1042 is a human virus genetically engineered to selectively replicate in and
kill cancer cells based on a specific genetic abnormality in those cells.
We have completed two Phase II clinical trials of CI-1042 for the treatment of
head and neck cancer. Based on the data from these trials, we have recently
initiated a 300-patient, multi-center Phase III clinical trial of CI-1042. This
Phase III clinical trial is being conducted in conjunction with Warner-Lambert,
our collaborator for the development and commercialization of CI-1042.
We are also conducting two separate Phase I/II clinical trials evaluating
CI-1042 in patients with liver metastases of colorectal cancer and in patients
with pancreatic cancer. In addition, a Phase I clinical trial has been completed
evaluating CI-1042 in patients who have advanced cancers with tumors in the
lung. Based on the interim results from these trials, we plan to initiate
additional Phase II clinical trials evaluating CI-1042 in patients with liver
metastases of colorectal cancer and non-small cell lung cancer.
In October 1999, we entered into a collaboration with Warner-Lambert to develop
and commercialize CI-1042 as well as two armed therapeutic viruses. Pfizer
subsequently acquired Warner-Lambert. Under the terms of this collaboration, we
have the right to co-promote CI-1042 and the two additional product candidates
in the United States and Canada, and to share equally in the profits or losses.
Moreover, under the terms of the collaboration, Warner-Lambert is responsible
for commercializing the products in the rest of the world and is obligated to
pay us royalties based on net sales in these markets. Additionally,
Warner-Lambert is obligated to fund up to $40 million of development costs
related to CI-1042 and to fully fund preclinical development of the two armed
viruses.
In addition to CI-1042, we are conducting a number of research and development
programs based on our virus technology as well as our small molecule drug
discovery efforts. In our raf kinase inhibitor program, we recently initiated
with Bayer a Phase I clinical trial in Germany and intend to initiate additional
Phase I trials in the United States, Canada and Belgium by the end of 2000. In
our RB-selective therapeutic virus program, we have shown that our therapeutic
viruses produce significant tumor shrinkage in animal models. Pending the final
results of these ongoing preclinical studies, we intend to file an IND for a
product candidate from this program in late 2001. In our armed therapeutic virus
program, we are currently developing two classes of armed therapeutic viruses:
(A) viruses armed with prodrug converting enzymes and (B) viruses armed with
genes which activate an immune response to tumors. We are currently developing
two armed virus candidates, one from each class, under our collaborative
agreement with Warner-Lambert.
30
<PAGE>
OUR PRODUCT CANDIDATES
We are developing the product candidates listed below:
<TABLE>
PRODUCT/PROGRAM TECHNOLOGY INDICATION STATUS
------------------------ --------------------------------- --------------------------------- ----------------
<S> <C> <C> <C>
CI-1042 p53-Selective Replicating Virus Recurrent Head and Neck Cancer Phase III
Refractory Head and Neck Cancer Phase II/III
Liver Metastases of Colorectal Phase I/II
Cancer
Pancreatic Cancer Phase I/II
Advanced Cancers with Tumors in Phase I/II
the Lung
Oral Leukoplakia Phase I
Glioblastoma Phase I
Cervical Cancer Phase I
Bladder Cancer Phase I
Raf Kinase Inhibitor Small Molecule Inhibitor of the Colorectal, Prostate, Lung, and Phase I
ras Pathway Pancreatic Cancer, Acute
Myelogenous Leukemia
RB-Selective Therapeutic RB-Selective Replicating Virus Multiple Tumor Types Preclinical
Virus
Armed Therapeutic p53- and RB-Selective Replicating Multiple Tumor Types Research
Viruses Viruses Armed with Anticancer
Genes
Cell Cycle Program Small Molecule Multiple Tumor Types Research
Inflammation Program Small Molecule Acute and Chronic Inflammatory Research
Disease
</TABLE>
CI-1042
Our lead product, CI-1042, is a human virus that is genetically engineered so
that it does not make E1B 55k, a viral protein that binds to a specific tumor
suppressor protein, p53, and blocks its function. As a result, CI-1042 cannot
inactivate p53 or its function and, therefore, cannot effectively replicate in
normal cells. However, in most cancer cells, p53 has already lost its function
through mutation of the p53 gene or other mutations in the p53 pathway. When
CI-1042 infects these cancer cells, the virus growth cycle proceeds and the
cancer cells are killed. New viruses are then released and infect neighboring
cancer cells, killing those cells and perpetuating the selective cancer killing
cycle. This process continues, amplifying the therapeutic effect.
31
<PAGE>
We are currently conducting Phase II and Phase III clinical trials using CI-1042
to treat several cancer types. The American Cancer Society projects that the
numbers of new cases and deaths from these types of cancers in the United States
for the year 2000 are as follows:
<TABLE>
<CAPTION>
CANCER TYPE NEW CASES DEATHS
----------- --------- --------
<S> <C> <C>
Head and neck*........................................... 40,300 11,700
Colon and rectum......................................... 130,200 56,300
Pancreas................................................. 28,300 28,200
Lung..................................................... 169,000 158,000
</TABLE>
------------------------
* Includes cancers of the larynx, tongue, mouth, oral cavity and pharynx.
HEAD & NECK CLINICAL PROGRAMS
We have completed two Phase II clinical trials with CI-1042 in head and neck
cancer patients. In the first trial, patients with refractory disease received
intratumoral injections of CI-1042 daily over five consecutive days. In this
trial, four of 19 evaluable patients experienced tumor regressions of 50% or
more. In two of these cases, the patient experienced a 100% reduction in the
size of the injected tumor. In this trial, patients generally tolerated
treatment with CI-1042 well. Sixty percent of the patients experienced minor
flu-like symptoms.
In the most recent Phase II clinical trial, head and neck cancer patients with
recurrent disease received CI-1042 administered in combination with Cisplatin
and 5-Fluorouracil. These two chemotherapeutic drugs are the current standard of
care for patients with recurrent head and neck tumors. In this trial, the dosing
regimen provided for:
- daily direct intratumoral injections of CI-1042 on each of days one
through five;
- intravenous dosing of Cisplatin on day one; and
- intravenous dosing of 5-Fluorouracil on each of days one through five.
In this trial, 19 of the 30 evaluable patients, or 63%, experienced regression
of 50% or more in their injected tumors. Eight of the patients, or 27%,
experienced a 100% regression in the size of their injected tumors. We believe
these rates compare favorably to past trials involving treatment by chemotherapy
alone in which approximately 35% of the patients experienced tumor regressions
of greater than 50%, and less than 10% experienced a complete tumor regression.
In this trial, the patients generally tolerated the treatment well. Some
patients, however, experienced chemotherapy-related gastrointestinal symptoms
and injection site pain.
In a separate analysis of this same trial, we compared the efficacy of CI-1042
plus chemotherapy in the injected tumor to the efficacy of chemotherapy alone in
distant uninjected tumors. Eleven patients had more than one tumor, and the
investigators injected CI-1042 only in the largest tumor that caused the most
severe symptoms. Nine of the 11 tumors injected with CI-1042 responded, while
only three of the uninjected tumors in the 11 patients responded. We believe
that this trial, which considers the patients as their own control, demonstrates
the superiority of CI-1042 plus chemotherapy over chemotherapy alone.
Together with Warner-Lambert, we recently initiated a pivotal Phase III clinical
trial for the treatment of recurrent head and neck disease. The trial will
compare intratumoral injection of CI-1042 plus standard chemotherapy,
5-Fluorouracil and Cisplatin, versus standard chemotherapy alone. The trial will
take place at numerous centers in the United States and Europe and will include
approximately 300 patients, half in each arm of the study. The primary
objectives, or endpoints, of the trial are to establish improvements in
(A) lasting reductions in the size of the treated tumor, also known as durable
tumor response, and (B) patient survival without further growth of the treated
tumor, also
32
<PAGE>
known as progression free survival. Secondary endpoints are to demonstrate
higher quality of life and overall survival of patients.
We are also planning to initiate an open-label Phase II/III clinical trial that
will evaluate CI-1042 in patients with refractory head and neck cancer. We
expect this trial will include 50 to 100 patients who will receive CI-1042 in
combination with chemotherapy with durable tumor response as the primary
endpoint.
OTHER CLINICAL PROGRAMS
We are currently conducting Phase I/II clinical trials evaluating CI-1042 in
patients with liver metastases of colorectal cancer and pancreatic cancer. In
addition, we have completed a Phase I clinical trial evaluating CI-1042 in
patients who have advanced cancers with tumors in the lung. The results from
these trials described below are at an early stage of development and we may not
observe sufficient anticancer activity or clinical benefit in later trials.
LIVER METASTASES OF COLORECTAL CANCER. Colorectal cancer is the third leading
cause of cancer death in the United States. Aside from the standard therapies
for treatment of colorectal cancer, currently there is no standard treatment
specifically for liver metastases of colorectal cancer, other than surgery.
Approximately 5% of patients with liver metastases of colorectal cancer have
disease that may be surgically treated.
We are conducting a Phase I/II clinical trial in which CI-1042 is administered
through intrahepatic artery infusion, in patients with liver metastases of
colorectal cancer. Intrahepatic artery infusion permits simultaneous delivery of
CI-1042 to multiple tumor sites within the liver. In this trial, patients who
receive initial cycles of treatment with CI-1042 alone, received a combination
of CI-1042 plus 5-Fluorouracil and Leucovorin, the standard chemotherapeutic
regimen for colorectal cancer treatment, for subsequent treatment cycles. To
date, 25 patients were treated and evaluated. All patients tolerated the
regimen, and the investigators observed dose dependent antitumoral activity. Of
the 25 evaluable patients, three patients achieved 50% or greater reduction in
tumors in their liver. Based on these interim results, we are continuing to
enroll and treat additional patients in this trial using intrahepatic artery
infusion. We also plan to initiate a Phase II clinical trial for this cancer
type using intravenous delivery of CI-1042.
PANCREATIC CANCER. Pancreatic cancer is the fifth leading cause of cancer death
in the United States. The median survival rate for patients with pancreatic
cancer is 4-6 months and the 5-year survival rate is 3%.
We have reported interim results of an ongoing Phase I/II clinical trial in
which we treated patients with pancreatic cancer with CI-1042 by intratumoral
injections guided by ultrasound. This technique allows for multiple injections
per treatment by guiding a needle with ultrasound down the esophagus and
injecting the tumor. Patients who tolerated the initial cycles of treatment with
CI-1042 alone then received Gemcitabine, a chemotherapeutic agent that is the
standard treatment for pancreatic cancer, in combination with CI-1042 in four
subsequent treatment cycles and, thereafter, received Gemcitabine alone. Two
additional groups of patients remain to be treated with higher doses in this
trial. In 21 evaluable patients, two patients achieved 50% or greater reduction
in their tumors. In addition, two patients experienced a 25-50% reduction in
their tumors.
ADVANCED CANCERS WITH TUMORS IN THE LUNG. One of our independent investigators
has completed a Phase I clinical trial in 10 patients with advanced cancers with
tumors in the lung. The primary objectives of the trial were to determine
safety, distribution and biological effects of intravenously administered
CI-1042. CI-1042 was administered intravenously in combination with Carboplatin
and Taxol, the standard chemotherapeutic treatment of lung cancer. All patients
tolerated the treatment well. As follow up to this trial, we are discussing with
Warner-Lambert future Phase II clinical trials involving intravenous treatment
with CI-1042 in patients with non-small cell lung cancer. Lung cancer is
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the leading cause of cancer death in the United States. While several new
therapies have recently been approved for use, the 5-year survival rate for
patients with lung cancer is approximately 14%.
OTHER PRODUCT OPPORTUNITIES
In addition to CI-1042, we are also conducting a number of research and
development programs based on our virus technology as well as our small molecule
drug discovery efforts.
RAF KINASE INHIBITOR
The ras gene and its related biochemical pathway, or the ras signaling pathway,
play a key role in cell proliferation. In normal cell proliferation, when the
ras signaling pathway is activated, or "on," it sends a signal telling the cell
to grow and divide. When a gene in the ras signaling pathway is mutated, the
signal may not turn "off," causing the cell to continuously reproduce itself. We
believe that the ras signaling pathway plays an integral role in growth of some
tumor types, and that inhibiting this pathway could have an effect on the tumor
growth. Mutations in the ras gene occur in approximately 30% of all human
cancers, including 90% of pancreatic cancer, 50% of colon cancer and some lung
cancers.
With Bayer, we have initiated a Phase I clinical trial in Germany of a compound
that blocks ras signaling in cells by inhibiting a specific enzyme known as raf
kinase. Bayer has also filed an IND for this compound in the United States, and
Phase I clinical trials are also planned for Canada and Belgium.
RB-SELECTIVE THERAPEUTIC VIRUSES
We believe that the RB pathway function is abnormal in most cancers. We have
engineered human viruses to selectively replicate in and kill cancer cells based
on defects in the RB function in these cells. In preclinical studies, we have
shown that these viruses produce significant tumor shrinkage in animal models.
Pending the final results of these ongoing preclinical studies, we plan to
designate a RB-selective therapeutic virus as a clinical candidate and file an
IND in late 2001.
ARMED THERAPEUTIC VIRUSES
We are developing therapeutic viruses armed with anticancer genes. A number of
anticancer chemotherapeutic agents are inactive forms of drugs, or prodrugs,
that are converted to their active forms by specific chemical modifications.
Specific enzymes, or prodrug converting enzymes, are known to carry out this
conversion.
We have developed a system to arm our therapeutic viruses with genes that
produce prodrug converting enzymes. With this strategy, we arm each virus with a
single gene that produces an enzyme that converts a prodrug into an anticancer
chemotherapeutic drug at the tumor site. As a result, we believe that arming our
viruses enables the concentrated delivery of the anticancer chemotherapeutic
drug to the tumor, thereby enhancing the therapeutic effect. To date, we have
obtained licenses to four prodrug converting enzymes for arming our therapeutic
viruses.
In addition, we are developing a class of viruses armed with genes that activate
an immune response to the tumor. This immune response may result either from the
protein expressed by the gene itself, or from other elements of the human immune
system that are activated as a result.
CELL CYCLE AND INFLAMMATION PROGRAMS
Together with Warner-Lambert, we have 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, or the cell
cycle. Mutations in genes that regulate the cell cycle are present in a majority
of human cancers. We are currently evaluating the most advanced lead compound in
this program for its effectiveness in animal models of human cancer. We also
have identified a lead
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compound that inhibits an enzyme associated with inflammatory diseases. We
expect joint research under these programs to continue until the second half of
2001. Thereafter, if Warner-Lambert develops and markets products from this
research, we will receive royalties on their worldwide sales.
BUSINESS STRATEGY
Our objective is to be a leading developer of novel cancer therapies. We intend
to develop and commercialize a broad portfolio of products based primarily on
our selectively-replicating virus technology. Elements of our strategy are to:
- OBTAIN REGULATORY AND MARKETING APPROVALS FOR CI-1042 FOR HEAD AND NECK
CANCER. Together with Warner-Lambert, we have initiated a Phase III
clinical trial aimed at gaining regulatory approval of CI-1042 in patients
with recurrent disease. We are also plan to initiate a Phase II/III
clinical trial in patients with refractory disease.
- DEVELOP CI-1042 FOR OTHER CANCER TYPES. We have studied CI-1042 in Phase I
or Phase I/II clinical trials in patients with liver metastases of
colorectal cancer, pancreatic cancer and other advanced cancers with
tumors in the lung. Together with Warner-Lambert, we plan to initiate
Phase II clinical trials evaluating CI-1042 in patients with liver
metastases of colorectal cancer and in patients with non-small cell lung
cancer. We are also conducting Phase I clinical trials in other cancer
types. Based on results from these trials, we expect to initiate further
clinical trials in an effort to generate data supporting the therapeutic
value of CI-1042 in multiple cancer types.
- IDENTIFY AND DEVELOP ADDITIONAL VIRUS PRODUCTS. We plan to designate a
RB-selective therapeutic virus candidate and file an IND by the end of
2001. In addition, we are developing armed viruses that incorporate
prodrug converting enzymes to selectively activate chemotherapeutic drugs
at the tumor site. In collaboration with Warner-Lambert, we are in the
process of developing our first prodrug armed virus for preclinical
development.
- RETAIN SUBSTANTIAL CO-PROMOTION RIGHTS TO OUR PRODUCTS. We intend to build
sales and marketing capabilities to promote our products in the United
States and Canada. In establishing new product collaborations, we seek to
retain at least 50% of marketing and profit-sharing rights in the United
States. In our collaboration with Warner-Lambert for CI-1042 and the two
armed viruses, we have retained co-promotion rights as well as the
opportunity for equal profit sharing in the United States and Canada. Our
collaboration with Bayer offers us co-promotion and profit-sharing rights
of any developed product in the United States.
- ACQUIRE TECHNOLOGIES AND PRODUCTS THAT COMPLEMENT OUR BUSINESS. We intend
to in-license or acquire complementary technologies to enhance our product
portfolio and strengthen our market position. Currently, we are focusing
on accessing technologies to strengthen our efforts in arming our
therapeutic viruses with anticancer genes as well as developing ways to
modify our viruses to improve their activity when administered
intravenously.
COLLABORATIONS
WARNER-LAMBERT: CI-1042 AND ARMED VIRUSES
Effective September 1999, we entered into an agreement with Warner-Lambert for
the purpose of developing and commercializing CI-1042 and two armed therapeutic
viruses. Under the terms of this agreement, we have the right to co-promote
CI-1042 and the two armed virus products with Warner-Lambert in the United
States and Canada. We also have the right to share equally in resulting profits
or losses in these territories. Additionally, Warner-Lambert is responsible for
commercializing the products in the rest of the world and is obligated to pay us
a royalty on net sales in these markets.
We will jointly manage the development of these products. Warner-Lambert is
primarily responsible for conducting the agreed-upon pivotal Phase III clinical
trials of CI-1042 in head and neck cancer and other pivotal trials in various
cancer types. We are required to share responsibility for exploratory
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Phase I and Phase II clinical trials with Warner-Lambert. Warner-Lambert is
responsible for the commercial manufacturing of the collaboration products.
Warner-Lambert is obligated to provide the first $40 million in funding for
clinical development of CI-1042. We are obligated to fund 25% of the costs over
$40 million to retain our profit sharing and co-promotion rights in the United
States and Canada, and Warner-Lambert is obligated to fund the remaining 75%.
Warner-Lambert is also required to fully fund the research and preclinical
development of the two armed virus product candidates. When a product candidate
is selected for clinical development, we will be obligated to pay 25% of the
development costs to retain our profit-sharing and co-promotion rights in the
United States and Canada for any resulting product. If we choose not to or are
unable for any reason to (A) fund our portion of the development costs for
CI-1042 or an armed virus product candidate, or (B) maintain our required
co-promotion effort, then:
- we would lose our co-promotion and profit-sharing rights for that product;
- we would license the product exclusively to Warner-Lambert; and
- we would receive a royalty on these sales in the applicable market.
One of these two armed virus product candidates will be a virus targeting cancer
cells with mutations or loss of p53 function in the p53 gene, or a p53-selective
therapeutic virus, armed with a prodrug converting enzyme. The armed virus
products provided for in the agreement are currently in the research stage, and
the timing of clinical trials will depend on the results of research and
preclinical development activities. We have retained the rights to independently
develop and commercialize products based on p53-selective armed viruses other
than the two selected in the collaboration. In addition, we retain rights to all
other products derived from our therapeutic virus technology.
In addition to providing ongoing research and development support,
Warner-Lambert is obligated to make milestone payments based on product
development achievements, and, pursuant to a related agreement, we have the
right to cause Warner-Lambert to purchase shares of our common stock from us. If
all products covered by the agreement are developed successfully, the milestone
payments could exceed $100 million. We exercised our right to cause
Warner-Lambert to purchase $5 million of our common stock from us in February
2000. We may exercise a similar right during calendar year 2001. If we exercise
this right we would sell to Warner-Lambert an additional $5 million of our
common stock at the trailing average closing price per share of our common stock
over the twenty-day period commencing two days prior to exercise.
Warner-Lambert has the right to terminate this agreement, or terminate its
efforts directed at select product candidates, at any time on 90 days advance
notice. In such event, all product rights, or related product rights in the case
of termination directed at select product candidates, would revert to us. These
product rights would be royalty-free in the case of CI-1042, and would be
royalty-bearing to Warner-Lambert in the case of the armed virus product
candidates, if such candidates had entered clinical trials prior to termination.
WARNER-LAMBERT: CELL CYCLE
In May 1995, we entered into a research and development collaborative agreement
with Warner-Lambert to discover and commercialize small molecule drugs that
restore control of or otherwise intervene in the misregulated cell cycle in
tumor cells. Under this agreement, we developed screening tests, or assays, for
jointly selected targets, and transferred these assays to Warner-Lambert for
screening of their compound library to identify active compounds. Warner-Lambert
is responsible for subsequent medicinal chemistry and preclinical investigations
on the active compounds. We will receive milestone payments on clinical
development and registration and royalties on worldwide sales of the products.
Warner-Lambert is obligated to conduct and fund all clinical development, make
regulatory filings and manufacture for sale the collaboration compounds. We have
agreed to extend research under this agreement through August 2001, but we do
not expect to extend the research term under
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this agreement beyond this date. Thereafter, Warner-Lambert may develop products
identified during the research term and, if Warner-Lambert receives FDA
approval, we could receive milestone payments and royalties on these marketed
products.
WARNER-LAMBERT: INFLAMMATION
In July 1997, we entered into a three-year research and development
collaborative agreement with Warner-Lambert to discover and commercialize small
molecule drugs for the treatment of acute and chronic inflammatory disorders.
The obligations of the parties are similar to those agreed to under the cell
cycle program and each party must dedicate a specified minimum number of
researchers to the collaboration. We would receive milestone payments based on
the development and registration of any resulting products and would receive
royalties on worldwide sales. We have agreed to extend research under this
agreement through August 2001, but we do not expect to extend the research term
under this agreement beyond such date. Thereafter, Warner-Lambert may develop
products identified during the research term and, if Warner-Lambert receives FDA
approval, we could receive milestone payments and royalties on these marketed
products.
BAYER
Effective February 1994, we established a research and development collaborative
agreement with Bayer to discover, develop and market compounds that inhibit the
function, or modulate the activity, of the ras signaling pathway or that
appropriately modulate the activity of this pathway to treat cancer and other
diseases. We and Bayer concluded collaborative research under this agreement in
1999. Based on this research, we and Bayer identified a development candidate, a
compound that inhibits ras signaling in cells by inhibiting raf kinase. In
collaboration with Bayer, we have initiated a Phase I clinical trial in Germany.
Bayer has filed an IND in the United States, and additional Phase I clinical
trials are planned for Canada and Belgium.
Bayer has paid all the costs of research and preclinical development of this
drug candidate. Under our agreement with Bayer, we have the opportunity to
co-fund 50% of clinical development costs worldwide, excluding Japan. With the
initiation of Phase I clinical trials, we are currently co-funding 50% of
clinical development costs. Bayer will fund 100% of development costs in Japan
and pay us a royalty on sales. If we continue to co-fund and we exercise our
right to co-promote in the United States, we would share equally in profits or
losses. If we continue to co-fund but do not co-promote in the United States,
Bayer would first receive a portion of the product revenues to repay Bayer for
its commercialization infrastructure, before determining our share of profits
and losses. In other parts of the world except Japan, Bayer would also receive
this preferential distribution. If we elect to share in development costs, Bayer
would pay us substantial development milestone payments based on the product's
progress through clinical trials. These milestone payments would be repayable to
Bayer from our share of profits and royalties. At any time during product
development, either company may terminate its participation in development
costs, in which case the other party would retain exclusive rights to the
product on a royalty-bearing basis. If we do not continue to bear 50% of product
development costs, Bayer would retain exclusive, worldwide rights to this
product candidate and would pay royalties to us on net sales.
In addition to the development candidate referred to above, Bayer's chemists are
optimizing an additional lead compound identified in the course of the
collaborative research. This continuing work could result in an additional
development candidate.
CHIRON
Our business began in April 1992 by means of the transfer from Chiron to us of
the drug discovery program being conducted at Chiron by Dr. Frank McCormick, our
scientific founder, and his research team. Under an agreement between Chiron and
us, Chiron has an option through April 2007 to receive
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an exclusive or co-exclusive royalty-bearing license to any diagnostic and
vaccine product candidates we may develop. If Chiron does not exercise its
option rights with respect to a particular product candidate, then prior to the
completion of Phase II clinical trials, we may seek a third party licensor of
that product, subject to a right of first refusal in favor of Chiron, and after
the completion of Phase II clinical trials for product candidates, the related
option rights of Chiron expire.
This agreement also includes a mechanism for our making proposals to Chiron for
future collaborations. Such proposal would require that we disclose to Chiron
the material information known to us regarding the program and propose a set of
commercial terms. If such a proposal is made, and we and Chiron do not reach
agreement within 60 days after we make the proposal, then we may, within
120 days thereafter, enter into an agreement with a third party on terms no more
favorable taken as a whole than the terms that we offered to Chiron. Chiron has
advised us that it believes the foregoing provision, in the context of the other
provisions of this agreement, requires us to offer gene therapy programs to
Chiron pursuant to this mechanism before we license any such program to a third
party. We do not agree that these provisions impose this obligation to make
proposals to Chiron. However, the resulting uncertainty about the interpretation
of this agreement may impede our ability to enter into agreements with other
companies for gene therapy products in the absence of a waiver by Chiron.
Chiron has never exercised any right to receive a product license from us. We
executed the agreement with Warner-Lambert concerning CI-1042 and two armed
viruses pursuant to a waiver letter from Chiron. We understand that Chiron has
recently reduced its research activities in the field of gene therapy. However,
it is possible that Chiron will, in the future, assert rights under this
agreement, which may impede or delay our ability to enter into collaboration
agreements with others.
MARKETING AND SALES
We currently have no marketing, sales or distribution capabilities, but we
intend to build these capabilities to promote our products in the United States
and Canada. Consequently, we have retained co-promotion rights in these
territories for most of our products. We also expect to exploit relationships
with one or more pharmaceutical companies with established marketing, sales and
distribution capabilities and direct sales forces to market our products. We
have begun to build marketing capabilities in the United States by hiring an
experienced oncology marketing executive in December 1999. We may be unable to
establish in-house marketing, sales and distribution capabilities or
relationships with third parties, and may not be successful in gaining market
acceptance for our products.
MANUFACTURING
At this time, we do not have internal manufacturing capabilities to supply small
or large-scale clinical trials or commercial quantities of our therapeutic
virus, nor do we have experience in this manufacturing. We expect that our
collaborators will manufacture our therapeutic viruses for late-stage clinical
development and commercialization. Warner-Lambert has an exclusive right to
manufacture the products that result from our collaborations with them. To
manufacture our products for clinical trials or on a commercial scale, if we are
required to or choose to do so, we will have to build or gain access to a
manufacturing facility, which will require a significant amount of funds. In our
collaborations in small molecule drug discovery, Bayer and Warner-Lambert are
obligated to manufacture all such drugs for clinical development and
commercialization.
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We use a contract manufacturer, BioReliance Corporation, for the production of
CI-1042 for use in Phase I and Phase II clinical trials. We have an agreement
with Molecular Medicine LLC to manufacture CI-1042 for use in Phase III clinical
trials using a commercially scaleable manufacturing process. Although Molecular
Medicine has produced viral products for Phase I and Phase II clinical trials,
prior to the commencement of our Phase III clinical trial of CI-1042, Molecular
Medicine had not produced Phase III clinical trial materials for us or any other
parties. To date, we have experienced delays in the release of batches of
clinical material manufactured by Molecular Medicines because although the
product itself passes analytical quality control tests, additional time has been
required to bring the manufacturer's record keeping into compliance. We believe
this aspect of the product manufacturing has improved substantially in recent
months, and we do not expect it to be a significant limitation going forward.
However, for this or other reasons, we may experience delays in the production
of materials necessary to continue the Phase III clinical trials in accordance
with our plans.
We currently anticipate that Molecular Medicine will produce sufficient
quantities of CI-1042 to supply our pivotal Phase III clinical trial for
treatment of head and neck cancer. To the extent there are other indications
that we target for regulatory approval, Molecular Medicine's capacity could
become limiting and priorities and timelines might change. We have initiated
efforts to increase the yield of CI-1042 batches manufactured by Molecular
Medicine. We also expect that we can adequately supply our Phase I and Phase II
clinical trials for other cancer types with drug materials from BioReliance.
Together with Warner-Lambert, we are currently developing plans for process
scale-up and additional facilities for commercial manufacturing of CI-1042.
Warner-Lambert is reviewing the manufacturing process for CI-1042 and the
related facility requirements but has not yet commenced facility expansion or
modification or put in place a specific plan to do so. While we have made
substantial progress in the development of a scaleable, commercially feasible
manufacturing process, we may not successfully establish a commercially feasible
scale manufacturing process and may not establish a commercial facility in a
timely manner.
We are aware of only a limited number of manufacturers who we believe would have
the ability and capacity to manufacture this product or any other therapeutic
viruses we may develop. Failure of any such third-party manufacturer to comply
with state and federal regulations and to deliver the required quantities on a
timely basis and at commercially reasonable prices would seriously harm our
business, financial condition and results of operations. We, acting alone or
with a third party, may not make a successful transition to commercial-scale
production of our potential products. Even if we are successful, we may not
maintain such production.
PATENTS AND PROPRIETARY RIGHTS
We believe that patent and trade secret protection is crucial to our business
and that our future will depend in part on our ability to obtain patents,
maintain trade secret protection and operate without infringing the proprietary
rights of others, both in the United States and other countries. In
October 1997, we were awarded United States Patent No. 5,677,178 for claims
covering the use of CI-1042 for the treatment of functionally p53-deficient
cancers. In April 1999, we were awarded European patent No. 689,447, for claims
covering the use of CI-1042 for the treatment of functionally p53-deficient
cancers. We were also awarded United States Patent No. 5,801,029, a broad
methods of use patent, for claims covering the use of adenoviral mutants that
kill functionally RB-deficient tumor cells. Each of these patents includes
claims covering armed viruses with anticancer genes. Further, we have made
additional filings worldwide that claim adenoviruses that can be used to kill
functionally deficient p53 or RB cancer cells, with or without a prodrug
converting enzyme. We were also awarded United States Patent No. 5,846,945, for
claims covering compositions of matter that consist of CI-1042 and a
chemotherapeutic. As of June 30, 2000, we owned or had licensed rights to 39
U.S. patents and 50 U.S. patent applications, and generally, foreign
counterparts of these filings. We have licensed
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patents and patent applications covering formulations of viruses, prodrug
converting enzymes and other technology useful in the conduct of our business.
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. Our
ultimate patent position will depend on our ability to obtain effective patent
coverage for the compositions of matter identified in these research programs.
Because these programs are at an early stage, we cannot determine whether
potential products that we may derive from our drug discovery program may be
subject to the patent rights of third parties.
Since patent applications in the United States are maintained in secrecy until
patents issue and since publication of discoveries in the scientific or patent
literature often lag behind actual discoveries, we are not certain that we were
the first to make the inventions covered by each of our pending patent
applications or that we were the first to file patent applications for such
inventions. The patent positions of biotechnology and pharmaceutical companies
are highly uncertain and involve complex legal and factual questions. Therefore,
we cannot predict the breadth of claims allowed in biotechnology and
pharmaceutical patents, or their enforceability. To date there has been no
consistent policy regarding the breadth of claims allowed in biotechnology
patents. Third parties or competitors with similar technology may challenge or
circumvent our patents or patent applications, if issued, and the rights granted
thereunder may not provide proprietary protection or competitive advantages to
us with respect to these competitors. Furthermore, others may independently
develop similar technologies or duplicate technology that we have developed.
Because of the extensive time required for development, testing and regulatory
review of a potential product, it is possible that before we commercialize any
of our products, any related patent may expire, or remain in existence for only
a short period following commercialization, thus reducing any advantage of the
patent.
We are aware of pending patent applications that others have filed that may
pertain to aspects of our programs. If patents are issued to others containing
preclusive or conflicting claims and these claims are ultimately determined to
be valid, we may be required to obtain licenses to these patents or to develop
or obtain alternative technology. Our breach of an existing license or failure
to obtain a license to technology required to commercialize our products may
seriously harm our business. We also may need to commence litigation to enforce
any patents issued to us or to determine the scope and validity of third-party
proprietary rights. Litigation would create substantial costs. If our
competitors prepare and file patent applications in the United States that claim
technology also claimed by us, we may have to participate in interference
proceedings declared by the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost, even if
the eventual outcome is favorable to us. An adverse outcome in litigation could
subject us to significant liabilities to third parties and require us to seek
licenses of the disputed rights from third parties or to cease using the
technology if such licenses are unavailable.
With respect to CI-1042 and selectively-replicating viruses, we are aware of a
patent application filed in the United States, Europe, Japan and Canada by
General Hospital Corporation, an affiliate of Massachusetts General Hospital.
This patent application is related to research involving a modified herpes
simplex virus but it also includes broader claims that, if they were to issue,
would cover CI-1042 and other selectively-replicating viruses. We believe, and
have received an opinion from outside counsel to the effect, that such broad
claims made in the General Hospital patent application are not patentable.
Consistent with this opinion is a review of the European patent status of the
General Hospital patent application, which shows that the patent examiner is
requiring that General Hospital limit the claims to herpes viruses. However,
General Hospital may receive broad claims in one or more countries, and we may
not successfully challenge these claims. We may not obtain a license if this
patent were to issue.
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We have identified United States Patent No. 5,837,520 that covers methods of
purification of viral vectors. Canji, Inc. either owns or has licensed the
rights to this patent. We may seek a license under this patent from Canji.
However, if a license were not available at commercially reasonably terms, or at
all, we believe that we could develop purification methods that are not covered
by the patent.
We have identified four European Patent Applications, EPA 415, 731; EPA 657,
539; EPA 657, 540; and EPA 690, 129, that claim enzymes for converting prodrugs
to their active forms for treating disease, including cancer, and methods of
delivering the enzymes using viruses. Glaxo Wellcome either owns or has licensed
the rights to these patent applications. The European Applications were filed in
1989, and as yet, have not been granted. We assume that one or more
corresponding United States patent applications have been filed, but none have
issued yet. The issuance of any of these patent applications in either Europe or
the United States will not prevent us from developing and commercializing
CI-1042. However, these patent applications, should they issue, may restrict our
ability to incorporate prodrug converting enzymes into viruses. Moreover, we may
not be successful in challenging these claims, under any of these patents if
they were to issue, and we may not obtain a license to the patent.
In June 1997, ICT Pharmaceuticals, Inc. notified us of two issued United States
Patents, Nos. 4,980,281 and 5,266,464, that ICT Pharmaceuticals believes cover
the use of a cell for the screening, testing or pharmacological characterization
of new drugs or other substances. Foreign counterparts of the U.S. patents are
pending. ICT Pharmaceuticals has offered us a license to the patents. We have
not determined whether to negotiate a license.
Together with our licensors, we also rely on trade secrets to protect our
combined technology, especially where we do not believe patent protection is
appropriate or obtainable. However, trade secrets are difficult to protect. We
protect our proprietary technology and processes, in part, by confidentiality
agreements with our employees, consultants and collaborators. These parties may
breach the agreement, and we may not have adequate remedies for any breach. Our
trade secrets may otherwise become known or be independently discovered by
competitors. To the extent that we or our consultants or research collaborators
use intellectual property owned by others in their work for us, we may have
disputes with them or other third-parties as to the rights in related or
resulting know-how and inventions.
GOVERNMENT REGULATION
Regulation by government authorities in the United States and other countries
will be a significant factor in the manufacturing and marketing of any products
that may be discovered or developed by us, or that may arise out of our
research. We must obtain the requisite regulatory approval by government
agencies prior to commercialization of our products. We anticipate that our
products will be subject to rigorous preclinical and clinical testing and
premarket approval procedures by the FDA and similar health authorities in
foreign countries. Various federal statutes and regulations also govern or
influence the manufacturing, testing, labeling, storage, recordkeeping and
marketing and promotion of such products.
The steps ordinarily required before a drug or biological product may be
marketed in the United States include:
- preclinical studies;
- the submission to the FDA of an IND which must become effective before
human clinical trials may commence;
- adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug or biologic;
- the submission of a marketing application to the FDA; and
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- FDA approval of the marketing application, including inspection and
approval of the product manufacturing facility.
Preclinical trials involve laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety trials must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the preclinical trials are submitted to the FDA as part
of an IND and are reviewed by the FDA before the commencement of clinical
trials. Unless the FDA objects to an IND, the IND will become effective 30 days
following its receipt by the FDA. Submission of an IND may not result in FDA
clearance to commence clinical trials, and the FDA's failure to object to an IND
does not guarantee FDA approval of a marketing application.
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. In the
United States, clinical trials must be conducted in accordance with Good
Clinical Practices under protocols submitted to the FDA as part of the IND. In
addition, each clinical trial must be approved and conducted under the auspices
of an Institutional Review Board, or IRB, and with the patient's informed
consent. The IRB will consider, among other things, ethical factors, the safety
of human subjects and the possible liability of the institution conducting the
clinical trial. The United Kingdom and certain other European and Asian
countries have similar regulations.
The goal of Phase I clinical trials is to establish initial data about safety
and tolerance of the investigational product in humans. The goal of Phase II
clinical trials is to provide evidence about the desired therapeutic efficacy of
the investigational product in limited studies with small numbers of carefully
selected subjects. The investigators seek to evaluate the effects of various
dosages and to establish an optimal dosage level and dosage schedule.
Investigators also gather additional safety data from these studies. The Phase
III clinical trial consists of expanded, large-scale, multicenter studies in the
target patient population. The goal of these studies is to obtain definitive
statistical evidence of the efficacy and safety of the proposed product and
dosage regimen.
We would need to submit all data obtained from this comprehensive development
program as a marketing application to the FDA, and to the corresponding agencies
in other countries for review and approval, before marketing products. The FDA
may elect to present data on our products to one of its advisory committees for
review and recommendation before it grants approval. Essentially all of our
proposed products will be subject to demanding and time-consuming approval
procedures in the countries where we intend to commercialize our products. These
regulations define not only the form and content of the development of safety
and efficacy data regarding the proposed product, but also impose specific
requirements regarding:
- manufacture of the product;
- testing;
- quality assurance;
- packaging;
- storage;
- documentation;
- recordkeeping;
- labeling;
- advertising; and
- marketing procedures.
42
<PAGE>
Effective commercialization also requires inclusion of our products in national,
state, provincial, or institutional formularies or cost reimbursement systems.
The FDA must approve our products, including the manufacturing processes and
facilities used to produce such products, before such products may be marketed
in the United States. The process of obtaining FDA approval can be costly, time
consuming and subject to unanticipated delays. The FDA may refuse to approve an
application if it believes that applicable regulatory criteria are not
satisfied. The FDA may also require additional testing for safety and efficacy
of the drug. Moreover, if regulatory approval of a drug product is granted, the
approval will be limited to specific indications. Approvals of our proposed
products, processes or facilities may not be granted on a timely basis, if at
all. Any failure to obtain, or delay in obtaining, such approvals would
seriously harm our business, financial condition and results of operations.
Moreover, even if regulatory approval is granted, such approval may include
significant limitations on indicated uses for which a product could be marketed.
In some instances, regulatory approval may be granted with the condition that
confirmatory Phase IV clinical trials are carried out. If these Phase IV
clinical trials do not confirm the results of previous studies, regulatory
approval for marketing may be withdrawn. Failure to comply with FDA and other
applicable regulatory requirements may result in, among other things:
- warning letters;
- civil penalties;
- criminal prosecution;
- injunctions;
- seizure or recall of products;
- total or partial suspension of production;
- refusal of the government to grant approval; or
- withdrawal of approval of our products.
In addition to regulations enforced by the FDA, we are subject to regulation
under:
- the Occupational Safety and Health Act;
- the National Environmental Policy Act;
- the Toxic Substances Control Act;
- the Resource Conservation and Recovery Act; and
- other present and potential future federal, state or local regulations.
Our potential products may require review by RAC. In other countries, similar
regulations may apply. Our research and development involves the controlled use
of hazardous materials and chemicals. Although we believe that our safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
In the event of such an accident, we could be held liable for any damages that
result and any such liability could exceed our resources.
Whether or not we obtain FDA approval, approval of a product by comparable
regulatory authorities will be necessary in foreign countries prior to the
commencement of marketing of the product in such countries. The approval
procedure varies among countries and can involve additional testing. The time
required to obtain approval may differ from that required for FDA approval.
Although there is now a centralized European Union approval mechanism in place,
each European country may nonetheless impose its own procedures and
requirements, many of which are time consuming and expensive. Thus,
43
<PAGE>
there can be substantial delays in obtaining required approvals from both the
FDA and foreign regulatory authorities after the relevant applications are
filed. We expect to rely on our collaborators and licensees, along with our own
expertise, to obtain governmental approval in foreign countries of drug and
biological products discovered by us or arising from our programs.
COMPETITION
We are engaged in a rapidly changing and highly competitive field. Other
products and therapies that currently exist or are being developed will compete
with the products we are seeking to develop and market. Some of these
competitive products are in clinical trials. In particular, among other trials,
Schering-Plough Corporation is conducting a Phase II clinical trial of its p53
gene therapy product in liver metastases of colorectal cancer.
Aventis Inc./Introgen Therapeutics, Inc. have initiated a Phase III clinical
trial in head and neck cancer with their p53 gene therapy product. These
products would compete directly with CI-1042. Other companies are developing
small molecule drugs which may compete with product candidates identified in our
small molecule programs including companies that are developing ras pathway
inhibitor.
Competition from fully integrated pharmaceutical companies and more established
biotechnology companies is intense and is expected to increase. Substantially
all of these companies have significantly greater financial resources and
expertise in research and development, manufacturing, preclinical and clinical
testing, obtaining regulatory approvals, and marketing than us. Smaller
companies may also compete with us, particularly through collaborations with
large pharmaceutical and established biotechnology companies. Many of these
competitors have significant products that have been approved or are in
development and operate large, well-funded research and development programs.
Academic institutions, governmental agencies and other public and private
research organizations also conduct research, seek patent protection and seek
marketing and research and development collaborations that compete with our
programs. These companies and institutions also compete with us in recruiting
and retaining highly qualified scientific and management personnel. In addition
to the above factors, we will face competition based on:
- product efficacy and safety;
- the timing and scope of regulatory approvals;
- availability of supply;
- marketing and sales capability;
- reimbursement coverage;
- price; and
- patent position.
EMPLOYEES
As of June 30, 2000, we had 124 full-time employees of whom 29 hold Ph.D. or
M.D. degrees. Of our employees, 96 are in research and development and 28 are in
business development, finance and administration. No employee of ours is
represented by a labor union and we consider our employee relations to be good.
44
<PAGE>
SCIENTIFIC ADVISORY BOARD
Our Scientific Advisory Board, or SAB, consists of individuals with expertise in
many aspects of molecular oncology that advise us and provide critical review of
our various development activities. The SAB meets several times a year. In
addition, the SAB members consult with and meet informally with us on a frequent
basis. Certain SAB members own shares of our common stock and each is
compensated for his services. Every member of the SAB has entered into a
consulting agreement with us covering the terms of their positions as our
consultants and as members of the SAB. The members of our SAB are as follows:
<TABLE>
<CAPTION>
MEMBER AFFILIATION
------ -----------
<S> <C>
Edward E. Harlow, Jr., Ph.D. (Chairman)...... Harvard Medical School
Allan Balmain, Ph.D., F.R.S.E................ University of California, San Francisco
Cancer Center
Eric R. Fearon, M.D., Ph.D................... University of Michigan Comprehensive Cancer
Center
Douglas Hanahan, Ph.D........................ University of California, San Francisco
Hormone Research Institute
Frank McCormick, Ph.D., F.R.S................ University of California, San Francisco
Cancer Center
Owen N. Witte, M.D........................... University of California, Los Angeles
Howard Hughes Institute
</TABLE>
PROPERTIES
We occupy a total of approximately 59,000 square feet of office and laboratory
space in Richmond, California. The lease for our primary facility expires in
April 2005 with an option to extend the lease for an additional five years. The
lease for our secondary facility expires in September 2010 with renewal options
at the end of the lease for two subsequent five-year terms.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICER AND DIRECTORS
The names of our executive officers and directors and information about them is
presented below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Hollings C. Renton............... 53 Chairman of the Board, Chief Executive Officer and
President
Leonard E. Post, Ph.D............ 48 Senior Vice President, Research and Development
Judith I. Blakemore.............. 51 Acting Vice President of Strategic Programs
Gregory J. Giotta, J.D., Ph.D.... 54 Vice President and Chief Legal Counsel
Helen S. Kim..................... 37 Vice President, Corporate Development
Mary Ann Rafferty................ 52 Vice President, Organizational Development
Marilyn E. Wortzman.............. 53 Controller
Michael J. Berendt, Ph.D......... 52 Director
Paul Goddard, Ph.D............... 51 Director
Magnus Lundberg.................. 44 Director
George A. Scangos, Ph.D.......... 52 Director
Nicole Vitullo................... 43 Director
Wendell Wierenga, Ph.D........... 52 Director
</TABLE>
------------------------
HOLLINGS C. RENTON has served as President and Chief Executive Officer since
March 1993 and as Chairman of the Board since June 2000. Prior to joining us,
Mr. Renton served as President and Chief Operating Officer of Chiron Corporation
from December 1991 to March 1993 following Chiron Corporation's acquisition of
Cetus Corporation, a biopharmaceutical company. Prior to the acquisition,
Mr. Renton served as President of Cetus Corporation from August 1990 to December
1991 and as Chief Operating Officer of Cetus Corporation from 1987 to
August 1990. Mr. Renton holds a B.S. in Mathematics from Colorado State
University and an M.B.A. from the University of Michigan.
LEONARD E. POST, PH.D. joined us in July 2000 as Senior Vice President, Research
and Development. Prior to joining us, Dr. Post served in various management
positions at the Parke-Davis Pharmaceutical Research division of Warner-Lambert
from 1991 to July 2000, including Vice President, Discovery Research from June
1997 to December 1999 and Vice President, Biologicals from January 2000 to
July 2000. From 1993 to June 2000, Dr. Post served as an adjunct professor in
the Department of Microbiology and Immunology at the University of Michigan.
Dr. Post received a Ph.D. in biochemistry from the University of Wisconsin and
conducted postdoctoral research in virology at the University of Chicago.
JUDITH I. BLAKEMORE has served as Acting Vice President of Strategic Programs
since September 2000. Prior to such time, Ms. Blakemore served as our acting
Chief Operating Officer from January 2000 through August 2000, as our acting
Vice President of Strategic Programs from April 1998 to January 2000 and as a
consultant to us since our inception. Ms. Blakemore has served as an independent
consultant within the biopharmaceutical industry, helping companies with product
development and corporate strategy, from 1991 to 1992 and from 1994 to the
present. From 1992 to 1994, Ms. Blakemore was the President and Chief Operating
Officer of XTL Biopharmaceuticals, Ltd., a biopharmaceutical company based in
Israel. Ms. Blakemore holds a B.A. in Biochemistry from the University of
California at Berkeley and an M.B.A. from St. Mary's College in Moraga,
California.
GREGORY J. GIOTTA, PH.D., J.D. joined us in June 1995 as Vice President and
Chief Legal Counsel. Prior to joining us, Dr. Giotta served as Vice President
and Chief Intellectual Property Attorney at Glycomed Corporation, a
biotechnology company, from October 1992 to June 1995. Dr. Giotta earned a Ph.D.
from the University of California at Santa Cruz and a J.D. from the University
of San Diego.
46
<PAGE>
HELEN S. KIM has served as Vice President, Corporate Development since December
1999. Prior to joining us, Ms. Kim was employed at Protein Design Labs, Inc. as
the Vice President of Marketing and Project Management from July 1998 to
December 1999. From 1989 to 1998, Ms. Kim was employed at Chiron Corporation
where she held numerous positions in planning, marketing and business
development and served as the Vice President of Strategic Marketing for Chiron
Therapeutics, Vaccines and Technologies. Ms. Kim holds a B.S. in Chemical
Engineering from Northwestern University and an M.B.A. from the University of
Chicago.
MARY ANN RAFFERTY has served as Vice President, Organizational Development since
November 1999. From February 1998 to November 1999 Ms. Rafferty served as Vice
President, Human Resources and previously as Director, Human Resources from
April 1996 to February 1998. Prior to joining us, Ms. Rafferty served as
Director, Human Resources at Biogenex, Inc., a biopharmaceutical company, from
June 1995 to April 1996. Ms. Rafferty holds a B.A. in Communications and
Linguistics from State University New York, Albany.
MARILYN E. WORTZMAN, C.P.A. was appointed our Controller in August 1998 after
performing that function in an acting capacity since April 1997. From
April 1992 to September 1996, Ms. Wortzman served as Finance Manager for
AutoDesk, Inc., a software company. Ms. Wortzman holds a B.A. in Political
Science from Syracuse University.
MICHAEL J. BERENDT, PH.D. has served as a Director since December 1996.
Dr. Berendt has served as a Senior Vice President for Research for the
Pharmaceutical Division of Bayer Corporation, since December 1996. From
November 1993 to November 1996, Dr. Berendt held various research and management
positions at the Pharmaceutical Division of Bayer Corporation including Vice
President, Institute for Bone & Joint Disorders and Cancer. Dr. Berendt is on
the Board of Directors of Myriad Genetics, Inc. and the Waters Corporation.
Dr. Berendt holds a B.S. from Ohio Dominican College, a M.S. in Microbiology
from Miami University and a Ph.D. in Microbiology/ Immunology from Hahnemann
Medical College and University. Dr. Berendt serves as Bayer's representative on
our board.
PAUL GODDARD, PH.D. has served as a Director since February 1997. From
August 1998 to March 2000, Dr. Goddard served as President and Chief Executive
Officer of Elan Pharmaceuticals, Inc., a biotechnology company and a division of
Elan plc. Since March 2000 Dr. Goddard has served as a consultant and advisor to
Elan plc. From March 1991 to August 1998, Dr. Goddard served as Chief Executive
Officer and Chairman of the Board of Neurex Corporation, a biotechnology
company, until Neurex Corporation was acquired by Elan plc. Dr. Goddard serves
on the board of directors of Molecular Devices Corporation. He completed his
Ph.D. in the area of Etiology and Pathophysiology of colon cancer at St. Mary's
Hospital, University of London.
MAGNUS LUNDBERG has served as a Director since June 2000. Mr. Lundberg has
served as President of Pharmacia & Upjohn Diagnostics AB, a division of
Pharmacia & Upjohn, Inc., a pharmaceutical company, since March 1999. From
September 1996 to March 1999, Mr. Lundberg served as President of both Chiron
Therapeutics and Chiron Vaccines, each a division of Chiron. From 1981 to
September 1996, Mr. Lundberg held various management positions at Pharmacia AB,
a pharmaceutical company.
GEORGE A. SCANGOS, PH.D. has served as a Director since June 2000. Dr. Scangos
has served as President and Chief Executive Officer of Exelixis, Inc., a
biotechnology company, since October 1996. From September 1993 to October 1996,
Dr. Scangos served as President of Biotechnology at Bayer. Dr. Scangos holds a
B.A. in Biology from Cornell University and a Ph.D. in Microbiology from the
University of Massachusetts. He was a Post-Doctoral Fellow at Yale University.
Dr. Scangos currently serves as an adjunct professor of biology at Johns Hopkins
University.
47
<PAGE>
NICOLE VITULLO has served as a Director since February 1998. Ms. Vitullo is
Managing Director, Domain Associates, L.L.C, a private venture capital firm.
Prior to joining Domain in 1999, Ms. Vitullo was Senior Vice President of
Rothchild Asset Management from 1992 until 1999. Rothchild Asset Management
manages International Biotechnology Trust plc. and has been advisor to
Biotechnology Investments Limited. Ms. Vitullo serves on the board of directors
of Corvas International. Ms. Vitullo holds a B.A. in Mathematics and an M.B.A.
from the University of Rochester.
WENDELL WIERENGA, PH.D. has served as a director since December 1996. Since
September 2000, Dr. Wierenga has served as the Chief Executive Officer of Syrrx,
Inc., a biotechnology company. From February 1999 to August 2000, Dr. Wierenga
served as Senior Vice President, Worldwide Pharmaceutical Sciences, Technologies
and Development for the Parke-Davis Pharmaceutical Research division of
Warner-Lambert, and served as Senior Vice President Research from 1990 to
February 1999. Dr. Wierenga also served as Vice President of Medtech Ventures of
Warner-Lambert from January 1992 to July 2000. Dr. Wierenga holds a B.A. from
Hope College and a Ph.D. in Chemistry from Stanford University.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of August 31, 2000, and as adjusted to reflect
the sale of our common stock offered by this prospectus, by:
- each person, or group of affiliated persons, who is known by us to own
beneficially 5% or more of our common stock;
- each of our executive officers as set forth in our summary compensation
table for 1999;
- each of our directors; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, or the SEC. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of August 31, 2000 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares shown as beneficially owned by them.
Percentage of ownership is based on 14,442,084 shares of common stock
outstanding on August 31, 2000, and 17,442,084 shares of common stock
outstanding after completion of this offering.
49
<PAGE>
<TABLE>
<CAPTION>
SHARES
ISSUABLE
PURSUANT TO
OPTIONS
EXERCISABLE PERCENT OF OUTSTANDING SHARES
OUTSTANDING WITHIN 60 DAYS ---------------------------------------------
SHARES OF OF AUGUST 31, BEFORE THE AFTER THE
NAME OF BENEFICIAL OWNER COMMON STOCK 2000 OFFERING OFFERING
----------------------------------- ------------ -------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
International Biotechnology
Trust plc........................ 1,345,029 -- 9.3% 7.7%
Five Arrow House
St. Swithins Lane
London EC4N 8NR
United Kingdom
Bayer Corporation(1)............... 945,510 -- 6.5 5.4
400 Morgan Lane
Westhaven, CT 96516
Warner-Lambert Company............. 937,207 -- 6.5 5.4
201 Tabor Road
Morris Plains, NJ 07950
DIRECTORS AND EXECUTIVE OFFICERS
Michael J. Berendt, Ph.D.(1)....... -- -- * *
Paul Goddard, Ph.D.(2)............. -- 23,833 * *
Hollings C. Renton(3).............. 125,599 343,145 3.2 2.6
Nicole Vitullo(4).................. 666,667 18,333 4.7 4.0
Magnus Lundberg.................... -- -- * *
George A. Scangos, Ph.D............ -- -- * *
Wendell Wierenga, Ph.D.(5)......... -- 36,000 * *
Norman Hardman..................... 2,145 -- * *
Gregory Giotta, Ph.D., J.D.(6)..... -- 45,576 * *
Mary Ann Rafferty(7)............... 3,818 62,135 * *
Marilyn E. Wortzman(8)............. 243 22,188 * *
All executive officers and
directors as a group (13
persons)(9)...................... 799,627 634,210 9.5 7.3
</TABLE>
------------------------
* Less than one percent.
(1) Dr. Berendt is Senior Vice President for Research at Bayer. Dr. Berendt
disclaims beneficial ownership of the shares held by Bayer, a wholly-owned
subsidiary of Bayer AG.
(2) Of the shares exercisable within 60 days of August 31, 2000, 8,167 would be
subject to repurchase by us if exercised.
(3) Includes 118,249 shares held by The Renton Family Trust and 1,200 shares
held by Mr. Renton's spouse. Of the shares exercisable within 60 days of
August 31, 2000, 154,680 would be subject to repurchase by us if exercised.
(4) Includes 651,065 shares held by Domain Partners IV, L.P. and 15,602 shares
held by DP IV Associates, L.P. Ms. Vitullo is Managing Director of Domain
Associates, L.L.C. which is the manager of Domain Partners IV, L.P. and DP
IV Associates, L.P. Ms. Vitullo disclaims beneficial ownership of the shares
held by Domain Partners IV, L.P. and DP IV Associates, L.P., except to the
extent of her pecuniary interest therein. Of the shares exercisable within
60 days of August 31, 2000, 11,667 would be subject to repurchase by us if
exercised.
50
<PAGE>
(5) Of the shares exercisable within 60 days of August 31, 2000, 7,334 would be
subject to repurchase by us if exercised.
(6) Of the shares exercisable within 60 days of August 31, 2000, 39,912 would be
subject to repurchase by us if exercised.
(7) Of the shares exercisable within 60 days of August 31, 2000, 55,718 would be
subject to repurchase by us if exercised.
(8) Of the shares exercisable within 60 days of August 31, 2000, 20,875 would be
subject to repurchase by us if exercised.
(9) Of the shares exercisable within 60 days of August 31, 2000, 357,687 would
be subject to repurchase by us if exercised.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock, par
value $0.001, and 5,000,000 shares of preferred stock, par value $0.001.
COMMON STOCK
At August 31, 2000 there were 14,442,084 shares of our common stock outstanding.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
common stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone.
Subject to preferences that may be applicable to any then outstanding shares of
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
us, holders of the common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of this offering will be fully
paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation provides that our Board of Directors has the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, without any further vote or action by the
stockholders. The issuance of preferred stock could adversely affect the voting
power of holders of common stock and the likelihood that such holders will
receive dividend payments and payments upon liquidation may have the effect of
delaying, deferring or preventing a change in control of our company, which
could have a depressive effect on the market price of or common stock. We have
no present plan to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders, or their permitted transferees, of approximately 4,575,515 shares
of common stock, have rights with respect to the registration of such shares
under the Securities Act of 1933, as amended. If we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other security holders, the holders are entitled to notice of the
registration and are entitled to include, at our expense, such shares therein.
In addition, the holders of 1,882,717 shares of common stock can require us at
our expense, on not more than two occasions, to file a registration statement
under the Securities Act, with respect to their shares of common stock, and we
are required to use our best efforts to effect the registration, subject to
certain conditions and limitations. Further, these holders may require us at our
expense to register their shares on Form S-3, subject to certain conditions and
limitations. These holders have waived these registration rights in connection
with this offering.
52
<PAGE>
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers, and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws include a number of provisions that
may have the effect of deterring or impeding hostile takeovers or changes of
control or management. These provisions include:
- our board of directors is classified into three classes as nearly equal in
size as possible with staggered three year-terms;
- 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;
- all stockholder action must be effected at a duly called meeting of
stockholders and not by written consent;
- special meetings of the stockholders may be called only by the chairman of
the board, the chief executive officer or the board; and
- no cumulative voting.
Such provisions may have the effect of delaying or preventing a change of
control.
53
<PAGE>
TRANSFER AGENT
The transfer agent and registrar for our common stock is Wells Fargo Bank.
LISTING
Our common stock is listed on the Nasdaq National Market under the trading
symbol "ONXX".
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based on our outstanding common stock as of
August 31, 2000, we will have 17,442,084 outstanding shares of common stock,
17,892,084 shares if the underwriters exercise their over-allotment option in
full, assuming no exercise of outstanding options.
Of the remaining shares, a total of approximately 3,138,484 shares held by our
directors, executive officers and 5% stockholders are subject to "lock-up"
agreements generally providing that, these stockholders will not (A) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, file a registration statement, or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock or (B) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the common stock, whether
any of these transactions described in (A) or (B) are to be settled by delivery
of common stock or other such securities, in cash or otherwise, for a period of
90 days following the date of the final prospectus for this offering without the
prior written consent of U.S. Bancorp Piper Jaffray. The restrictions described
in this paragraph do not apply to transfers of shares otherwise subject to a
lockup agreement, by gift or distribution or to affiliates of the transfer not
involving a public offering, so long as, in any such instance, such transferee
executes a lock-up agreement with terms identical to those described in this
paragraph.
In addition, options to purchase up to 1,704,010 shares of our common stock are
outstanding as of August 31, 2000, under our stock option plans.
55
<PAGE>
UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc. and CIBC
World Markets Corp. are acting as representatives, have agreed to buy, subject
to the terms and conditions of the underwriting agreement, the number of shares
listed opposite their names below. The underwriters are committed to purchase
and pay for all of the shares if any are purchased, other than those shares
covered by the over-allotment option described below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
U.S. Bancorp Piper Jaffray Inc.............................. 1,800,000
CIBC World Markets Corp..................................... 1,200,000
---------
Total..................................................... 3,000,000
=========
</TABLE>
The underwriters have advised us that they propose to offer the shares to the
public at $15.00 per share. The underwriters propose to offer the shares to
certain dealers at the same price less a concession of not more than $0.54 per
share. The underwriters may allow and the dealers may reallow a concession of
not more than $0.10 per share on sales to certain other brokers and dealers.
After this offering, these amounts may be changed by the underwriters.
We have granted to the underwriters an option to purchase up to an additional
450,000 shares of common stock from us at the same price to the public, and with
the same underwriting discounts, as set forth in the prior paragraph. The
underwriters may exercise this option any time during the 30-day period after
the date of this prospectus, but only to cover over-allotments, if any. To the
extent the underwriters exercise the option, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to purchase under the
underwriting agreement.
The following table shows the per share and total underwriting discount to be
paid to the underwriters in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNT NO EXERCISE FULL EXERCISE
--------------------- ----------- -------------
<S> <C> <C>
Per share............................................ $ 0.90 $ 0.90
Total................................................ $2,700,000 $3,105,000
</TABLE>
The underwriting discount is an amount equal to the offering price per share to
the public of the common stock, less the amount paid by the underwriters to us
per share of common stock.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act or to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.
The expenses of the offering, exclusive of the underwriting discount, include
the SEC registration fee, the National Association of Securities Dealers filing
fee, the Nasdaq National Market listing fee, printing expenses, legal fees and
expenses, accounting fees and expenses, road show expenses, Blue Sky fees and
expenses, transfer agent and registrar fees and other miscellaneous fees. We
estimate that these fees and expenses will be an aggregate of approximately
$900,000. These fees and expenses are payable entirely by us.
Except for 222,222 shares of common stock held by one of our 5% stockholders and
any shares of our common stock deemed to be owned by one of our directors,
Nicolle Vitullo, as a result of her affiliation with Domain Partners, IV, L.P.
and DP IV Associates, L.P., we and each of our directors, executive officers and
5% stockholders have agreed not to directly or indirectly offer for sale, sell,
56
<PAGE>
contract to sell, grant any option for the sale of, or otherwise issue or
dispose of, any shares of common stock, options or warrants to acquire shares of
common stock, or any related security or instrument, for a period of 90 days
after the date of this prospectus, without the prior written consent of U.S.
Bancorp Piper Jaffray. The agreements provide exceptions for:
- sales to underwriters pursuant to the underwriting agreement; and
- certain other exceptions specified in the underwriting agreement and
lock-up agreements.
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares of common stock than have been sold to them by us. A short position
may involve either "covered" short sales or "naked" short sales. Covered short
sales are sales made in an amount not greater than the underwriters'
over-allotment option to purchase additional shares in the offering described
above. The underwriters may close out any covered short position by either
exercising their over-allotment option or purchasing shares in the open market.
In determining the source of shares to close the covered short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Naked short sales are sales
in excess of the over-allotment option. The underwriters may close out any naked
short position by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the shares in the open market after pricing
that could adversely affect investors who purchase in the offering.
Accordingly, to cover these short sales positions or to otherwise stabilize or
maintain the price of the common stock, the underwriters may bid for or purchase
shares of common stock in the open market and may impose penalty bids. If
penalty bids are imposed, selling concessions allowed to syndicate members or
other broker-dealers participating in the offering are reclaimed if shares of
common stock previously distributed in the offering are repurchased, whether in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the common stock to
the extent that it discourages resales of the common stock. The magnitude or
effect of any stabilization or other transactions is uncertain. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
In connection with the offering, some underwriters and selling group members may
also engage in passive market making transactions in the common stock on the
Nasdaq National Market. Passive market making consists of displaying bids on the
Nasdaq National Market limited by the prices of independent market makers and
effecting purchases limited by those prices in response to order flow. Rule 103
of Regulation M promulgated by the SEC limits the amount of net purchases that
each passive market maker may make and the displayed size of each bid. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail in the open market and, if commenced,
may be discontinued at any time.
57
<PAGE>
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California and legal matters
relating to the common stock in this offering will be passed upon for the
underwriters by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial statements
included in our Annual report on Form 10-K for the year ended December 31, 1999,
as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. Our financial statements
are incorporated by reference in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the SEC's public reference
rooms in Washington, D.C., New York, NY and Chicago, IL. You can request copies
of these documents by writing to the SEC and paying a fee for the copying cost.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference rooms. Our SEC filings are also available at the SEC's
Web site at "http://www.sec.gov". In addition, you can read and copy our SEC
filings at the office of the National Association of Securities Dealers, Inc. at
1735 K Street, Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" information that we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. Further, all
filings we make under the Securities Exchange Act after the date of the initial
registration statement and prior to effectiveness of the registration statement
shall be deemed to be incorporated by reference into this prospectus. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934:
1. Our annual report on Form 10-K for the year ended December 31, 1999;
2. Our quarterly reports on Form 10-Q for the quarters ended March 31, 2000
and June 30, 2000;
3. Our current report on Form 8-K filed on March 1, 2000; and
4. Our proxy statement for our annual meeting of stockholders held June 8,
2000.
We will provide to you at no cost a copy of any and all of the information
incorporated by reference into the registration statement of which this
prospectus is a part. You may make a request for copies of this information in
writing or by telephone. Requests should be directed to:
Onyx Pharmaceuticals, Inc.
Attention: Secretary
3031 Research Drive
Richmond, CA 94806
(510) 222-9700
58
<PAGE>
3,000,000 SHARES
ONYX PHARMACEUTICALS, INC.
COMMON STOCK
[LOGO]
----------------
PROSPECTUS
----------------
U.S. BANCORP PIPER JAFFRAY
CIBC WORLD MARKETS
OCTOBER 11, 2000
