<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to______________
Commission File Number: 0-28298
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ONYX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3154463
-------- ----------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
3031 Research Drive
Richmond, California 94806
(Address of principal executive offices)
(510) 222-9700
(Registrant's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
(XX) Yes ( ) No
The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 14,288,888 as of July 31, 2000.
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ONYX PHARMACEUTICALS, INC.
INDEX
PART I: FINANCIAL INFORMATION
------------------------------
PAGE
ITEM 1. Financial Statements
Condensed Balance Sheets - June 30, 2000 and
December 31, 1999 3
Condensed Statements of Operations - Three and Six Months
Ended June 30, 2000 and 1999 4
Condensed Statements of Cash Flows - Six Months ended
June 30, 2000 and 1999 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II: OTHER INFORMATION
---------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
EXHIBIT INDEX 23
2
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ONYX PHARMACEUTICALS, INC.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,777 $ 12,671
Short-term investments 3,981 1,792
Receivable from related party 2,442 3,300
Other current assets 655 460
----------- ------------
Total current assets 42,855 18,223
Property and equipment, net 3,146 3,000
Notes receivable from related parties 325 386
Other assets 35 19
----------- ------------
$ 46,361 $ 21,628
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,682 $ 2,149
Accrued liabilities 1,463 1,194
Accrued clinical trials and related expenses 1,162 1,110
Accrued compensation 855 1,250
Deferred revenue 4,772 3,548
Long-term debt, current portion 1,283 2,199
----------- ------------
Total current liabilities 11,217 11,450
Long-term debt, noncurrent portion -- 183
Long-term deferred revenue 1,333 2,333
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; none issued and outstanding -- --
Common stock, $0.001 par value; 50,000,000 shares
authorized; 14,287,984 and 11,551,681 shares issued
and outstanding as of June 30, 2000 and December 31,
1999, respectively 14 12
Additional paid-in capital 112,112 85,723
Accumulated deficit (78,315) (78,073)
----------- ------------
Total stockholders' equity 33,811 7,662
----------- ------------
$ 46,361 $ 21,628
=========== ============
</TABLE>
See accompanying notes.
3
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ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Contract and other revenue $ 65 $ 401 $ 177 $ 1,002
Contract revenue from related parties 8,945 1,407 14,670 4,025
-------- -------- ------- -------
Total revenue 9,010 1,808 14,847 5,027
Operating expenses:
Research and development 6,300 5,835 12,370 11,126
General and administrative 1,818 1,440 3,660 2,761
-------- -------- ------- -------
Total operating expenses 8,118 7,275 16,030 13,887
-------- -------- ------- -------
Income (loss) from operations 892 (5,467) (1,183) (8,860)
Interest income, net 546 218 941 503
-------- -------- ------- -------
Net income (loss) $ 1,438 $ (5,249) $ (242) $(8,357)
======== ======== ======= =======
Basic and diluted net income (loss) per share $ 0.10 $ (0.46) $ (0.02) $ (0.73)
======== ======== ======= =======
Shares used in computing basic net income
(loss) per share 14,239 11,490 13,852 11,475
======== ======== ======= =======
Shares used in computing diluted
net income (loss) per share 14,788 11,490 13,852 11,475
======== ======== ======= =======
</TABLE>
See accompanying notes.
4
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ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (242) $ (8,357)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 776 1,056
Forgiveness of notes receivable 39 48
Stock-based compensation and amortization of
deferred compensation 751 110
Changes in assets and liabilities:
Receivable from related party 858 --
Other current assets (207) (130)
Other assets (16) 41
Accounts payable (467) (1,056)
Accrued liabilities 269 (434)
Accrued clinical trials and related expenses 52 (436)
Accrued compensation (395) (368)
Deferred revenue 224 (1,232)
Deferred rent -- (28)
--------- --------
Net cash provided by (used in) operating activities 1,642 (10,786)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (4,977) (2,003)
Sales and maturities of short-term investments 2,788 6,231
Capital expenditures (929) (726)
Notes receivable from related parties 34 134
Proceeds from sale of fixed assets 7 45
--------- --------
Net cash (used in) provided by investing activities (3,077) 3,681
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,099) (1,100)
Net proceeds from issuances of common stock,
net of repurchases 25,640 235
--------- --------
Net cash provided by (used in) financing activities 24,541 (865)
--------- --------
Net increase (decrease) in cash and cash equivalents 23,106 (7,970)
Cash and cash equivalents at beginning of period 12,671 21,368
--------- --------
Cash and cash equivalents at end of period $ 35,777 $ 13,398
========= ========
</TABLE>
See accompanying notes.
5
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ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2000
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000, or for any other future operating periods.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
For further information, refer to the financial statements and footnotes
thereto included in the Onyx Pharmaceuticals, Inc. (the "Company" or "Onyx")
Annual Report on Form 10-K for the year ended December 31, 1999.
NOTE 2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share and diluted net income (loss) per share are
presented in conformity with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share" for all periods presented. Basic net income (loss) per share is
computed using the weighted-average number of shares of common stock
outstanding during the period. Diluted net income per share is computed
using the weighted-average number of common shares and dilutive potential
common equivalent shares outstanding during the period. Dilutive potential
common equivalent shares consist of the assumed exercise of stock options.
NOTE 3. COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted FASB Statement No.130 ("SFAS
130"), "Reporting Comprehensive Income." SFAS 130 establishes new rules for
the reporting and display of comprehensive income and its components;
however, the adoption of SFAS 130 had no impact on the Company's net income
(loss) or stockholders' equity. SFAS 130 requires unrealized gains or losses
on available-for-sale securities, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income (loss). During the three and six month periods ended
June 30, 2000 and June 30, 1999, total comprehensive income (loss) equaled
net income (loss).
NOTE 4. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Reporting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 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.
6
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ONYX PHARMACEUTICALS, INC.
In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"), which amends SFAS 133 to be effective for
all fiscal quarters or all fiscal years beginning after June 15, 2000.
Management does not currently expect that adoption of SFAS 137 will have a
material impact on the Company's financial position or results of operations.
On March 31, 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," which provides guidance
on several implementation issues related to Accounting Principles Board
Opinion No. 25. The most significant are clarification of the definition of
employee for purposes of applying Opinion No. 25 and the accounting for stock
options that have been repriced. Under the interpretation, the
employer-employee relationship would be based on case law and Internal
Revenue Service regulations. The FASB granted an exception to this
definition for outside directors. Under the interpretation, repriced stock
options effectively changed the terms of the plan, which would make it a
variable plan subject to compensation expense. The impact of the
interpretation on the Company's financial position and results of operations
is not expected to be material.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB 101A was released on
March 24, 2000 and delayed for one fiscal quarter the implementation date of
SAB 101 for registrants with fiscal years beginning between December 16, 1999
and March 15, 2000. Since the issuance of SAB 101 and SAB 101A, the staff
issued SAB 101B, delaying the implementation date of SAB 101 until the fourth
fiscal quarter for registrants with fiscal years beginning after December 15,
1999. The Company will adopt SAB 101 as required in the fourth quarter of
2000. The Company is currently evaluating the potential impact of SAB 101 on
its financial position and results of operations.
NOTE 5. FACILITY LEASE
In June 2000, the Company entered into an operating lease for an additional
9,000 square feet of office and laboratory space. The lease expires on July
31, 2010 with renewal options at the end of the lease for two subsequent
five-year terms.
NOTE 6. STOCKHOLDERS' EQUITY
In June 2000, the Company's shareholders approved an increase to the authorized
number of shares of common stock from 25,000,000 shares to 50,000,000 shares.
7
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ONYX PHARMACEUTICALS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS OVERVIEW AND THE
FOLLOWING DISCUSSION CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1999.
OVERVIEW
We are engaged in the discovery and development of novel cancer therapies
based on our proprietary virus technology. We believe that this technology
enables us to develop therapeutic viruses that selectively kill cancer cells
in the human body, leaving healthy, non-cancerous tissues unharmed. Our lead
product, CI-1042, formerly known as ONYX-015, is a human virus that has been
genetically engineered to selectively replicate in and kill cancer cells
based on a particular abnormality in those cells. Specifically, the
abnormality involves mutation or loss of function of the p53 gene, which is
the most common abnormality in human cancer. We have also developed
additional engineered human viruses that replicate in and kill cancer cells
based on other abnormalities. In addition, we are developing viruses armed
with anticancer genes.
We have completed two Phase II clinical, or human, trials of CI-1042 for the
treatment of head and neck cancer. Based on the data from these trials, we
recently began a Phase III clinical trial of CI-1042. This Phase III
clinical trial is being conducted in conjunction with Pfizer, our
collaborator for the development and commercialization of CI-1042. We have
also evaluated CI-1042 in Phase I and Phase I/II clinical trials for four
additional cancer types and have reported interim results from these studies
at the American Society of Clinical Oncology, or ASCO, meeting in May 2000.
Further, we are working with Pfizer and Bayer to identify and develop small
molecule therapeutic compounds for a number of cancers. In collaboration
with Bayer, we have initiated a Phase I clinical trial in Germany. Bayer
filed an IND in the United States in May 2000, and additional Phase I
clinical trials are planned for Canada and Belgium.
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 collaboration agreements.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999.
REVENUES
8
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ONYX PHARMACEUTICALS, INC.
Our revenues increased 398 percent to $9,010,000 for the three months ended
June 30, 2000 and 195 percent to $14,847,000 for the six months ended June
30, 2000 as compared to the same periods in 1999. Revenues were $1,808,000
for the three months ended June 30, 1999 and $5,027,000 for the six months
ended June 30, 1999. Revenues for the three and six months ended June 30,
2000 and the same periods in 1999 were primarily attributable to amounts
earned for research performed under our collaborations with Pfizer. The
increase in revenues for the three and six months ended June 30, 2000 as
compared to the same periods in 1999 is due primarily to revenue recognized
from our agreement with Pfizer 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 revenue for the three months ended June 30,
2000 also included a one-time $3,700,000 milestone payment related to this
agreement.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased eight percent to $6,300,000 for
the three months ended June 30, 2000 and 11 percent to $12,370,000 for the
six months ended June 30, 2000 as compared with $5,835,000 and $11,126,000
for the same periods in 1999. The increase in expenses for the three and six
months ended June 30, 2000 as compared to the same periods 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, which
may result in substantial increases in research and development expenses.
Collaborative partners may not fund these research and development expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 26 percent to $1,818,000 for
the three months ended June 30, 2000 and 33 percent to $3,660,000 for the six
months ended June 30, 2000 as compared with $1,440,000 and $2,761,000 for the
same periods in 1999. The increase in expenses for the three and six months
ended June 30, 2000 as compared to the same periods in 1999 was primarily due
to increased employee-related expenses for hiring of additional staff.
General and administrative expenses may increase moderately in future periods
to support our research and development efforts.
NET INTEREST INCOME
We had net interest income of $546,000 for the three months ended June 30,
2000 and $941,000 for the six months ended June 30, 2000 as compared with
$218,000 and $503,000 for the same periods in 1999. The increase in net
interest income was principally due to increased cash and investment balances
from the $18,000,000 private placement financing in January 2000 and the
$5,000,000 stock issuance to Pfizer in February 2000, resulting in more
interest income for the three and six month periods ended June 30, 2000.
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, revenue from collaborative research and development
agreements and bank loans to fund our operations.
At June 30, 2000, we had cash and investments of $39,758,000 compared with
$14,463,000 at December 31, 1999. The increase in cash and investments of
$25,295,000 at June 30, 2000, compared with December 31, 1999, is due to the
private placement financing completed in January 2000, which raised
$18,000,000 and the stock issuance to Pfizer in February 2000, which raised
$5,000,000. In addition, $2,789,000 of cash was received from the exercise
of stock options. These increases were partially offset by the repayment of
debt of $1,099,000.
9
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ONYX PHARMACEUTICALS, INC.
Total capital expenditures for equipment and leasehold improvements for the
six-month period ended June 30, 2000, were $929,000. We currently expect to
make expenditures for capital equipment of approximately $3,500,000 for the
remainder of 2000. This includes $2,200,000 for construction and capital
equipment for the facility leased in June 2000. See Footnote 5.
We believe that our existing capital resources and interest thereon and
anticipated revenues from existing collaborations will be sufficient to fund
our current and planned operations through at least June 2001. There can be
no assurance, however, that changes in our research and development plans 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 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.
BUSINESS RISKS
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 or human 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 Pfizer,
have recently initiated a multi-center clinical trial, or 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.
10
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ONYX PHARMACEUTICALS, INC.
We are initially developing CI-1042 for treatment of head and neck cancer,
using direct injection into tumors, or 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 have completed a Phase I/II clinical trial for treatment of
colon cancer which has spread to the liver, or liver metastases of colorectal
cancer, with CI-1042 administered through an artery in 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 these
results 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.
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 collaboration agreements with pharmaceutical companies or other
collaborators. We have entered into a number of collaboration agreements with
different parties, including research, development and marketing agreements
with Pfizer 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;
11
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ONYX PHARMACEUTICALS, INC.
- 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;
- 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 Pfizer 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. 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 the development of therapeutic viruses. Pfizer could modify, disrupt or
terminate the collaboration agreements we originally entered into with
Warner-Lambert, subject to the terms of these agreements. Under the agreement
relating to CI-1042, Pfizer has the right to terminate the agreement for any
reason with 90 days notice, in which case Pfizer is required to return all
rights to CI-1042 to us royalty-free.
If Pfizer 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 Pfizer's sales and marketing capabilities and expertise to commercialize
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
Pfizer 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, the FDA may delay regulatory
approval of CI-1042.
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
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ONYX PHARMACEUTICALS, INC.
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 or 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. To date, this contract manufacturer
has produced a limited amount of material for our Phase III clinical trials.
If our contract manufacturer is unable or unwilling to deliver the required
quantities of CI-1042 or terminates our relationship, we may not find a
replacement manufacturer within a reasonable amount of time or at
commercially reasonable rates. This could delay our clinical trials or
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 PFIZER MAY NOT BE ABLE TO PRODUCE COMMERCIAL QUANTITIES OF CI-1042,
WHICH COULD DELAY REGULATORY APPROVAL.
Following Pfizer's acquisition of Warner-Lambert, Pfizer became responsible
for manufacturing CI-1042 for commercial use under our original agreement
with Warner-Lambert. 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. We and Pfizer 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, we and Pfizer will need
to spend a significant amount of time and capital and complete a substantial
amount of experimentation. We and Pfizer will need to obtain a new
manufacturing facility to produce commercial quantities of CI-1042. 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. The FDA may delay regulatory
approval, if we:
- encounter difficulties in modifying the manufacturing process;
- 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;
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ONYX PHARMACEUTICALS, INC.
- 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 conjunction 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 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 gene therapies for the
prevention or treatment of human diseases. Public attitudes may be influenced
by claims that gene therapy is unsafe, and gene therapy may not gain
acceptance of the public or the media. As a result of negative public
reaction to gene therapy, the FDA may impose greater regulation of gene
therapy, stricter clinical trial oversight and stricter commercial product
labeling requirements of gene therapies.
The media has widely publicized the recent death of a patient at the
University of Pennsylvania undergoing gene therapy. The patient in the
University of Pennsylvania trial was receiving therapy by delivery through
the hepatic artery of the liver. We are using the same route in our current
Phase I/II clinical trial of CI-1042 for treatment of liver metastases of
colorectal cancer. 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
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ONYX PHARMACEUTICALS, INC.
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.
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.
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ONYX PHARMACEUTICALS, INC.
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 candidate.
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 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.
All of our potential products are subject to comprehensive regulation by the
FDA in the United States and by comparable authorities in other countries. If
we violate regulatory requirements at any stage, whether before or after
marketing approval is obtained, the FDA or other regulatory authority may
fine us, force the removal of a product from the market or take other
measures which could have other adverse consequences to us. Additionally, we
may not obtain the labeling claims necessary or desirable for the promotion
of our products. The FDA may also require us
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ONYX PHARMACEUTICALS, INC.
to undertake post-marketing trials. In addition, identification of side
effects after any of our products are on the market, or the occurrence of
manufacturing problems, could cause subsequent withdrawal of approval,
reformulation of our products, additional clinical trials, changes in
labeling of our products and additional marketing applications.
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 the regulatory approvals necessary to
commercialize our products, we may experience delays in or be precluded from
marketing products developed through our research.
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.
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.
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ONYX PHARMACEUTICALS, INC.
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, we may need to:
- design around other parties' patents;
- 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:
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ONYX PHARMACEUTICALS, INC.
- 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.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 June 30, 2000, all
of our cash equivalents and short-term investments are classified as fixed
rate. There were no significant changes in our market risk exposures during
the six months ended June 30, 2000. For further discussion of our market
risk exposures, refer to Part II, Item 7A., "Quantitative and Qualitative
Disclosures About Market Risk" in our Annual Report on Form 10-K for the year
ended December 31, 1999.
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ONYX PHARMACEUTICALS, INC.
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Stockholders was held on June 8, 2000. The results of
the matters voted upon at the meeting were:
(a) Each of the nominees to the Board of Directors was elected to serve
until our annual meeting of stockholders in 2003. The nominees were:
Paul Goddard, 12,086,775 common shares for and 283,337 withheld; and
Wendell Wierenga, 11,949,283 common shares for and 420,829 withheld.
(b) The stockholders approved the 1996 Equity Incentive Plan, as amended,
to increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 400,000 shares:
11,236,351 common shares for, 1,091,078 against, and 42,683 abstaining.
(c) The stockholders approved the 1996 Non-Employee Directors' Stock
Option Plan, as amended, to increase the aggregate number of shares
of Common Stock authorized for issuance under such plan by 75,000
shares:
11,335,107 common shares for, 992,382 against, and 42,623 abstaining.
(d) The stockholders approved the Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 75,000 shares:
12,177,245 common shares for, 155,467 against, and 37,400 abstaining.
(e) The stockholders approved the Amended and Restated Certificate of
Incorporation, to increase the authorized number of shares of Common
Stock from 25,000,000 shares to 50,000,000 shares:
11,677,240 common shares for, 648,139 against, and 44,733 abstaining.
(f) The stockholders ratified the selection of Ernst & Young LLP as
independent auditors of Onyx for the fiscal year ending December 31,
2000: 12,279,180 common shares for, 63,332 against, and 27,600
abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 3.3 Certificate of Amendment of Amended and Restated
Certificate of Incorporation.
Exhibit 10.31* Second Amendment to the Amended and Restated
Research, Development and Marketing Collaboration
Agreement Between Warner-Lambert and the Company
Dated May 2, 1995.
Exhibit 10.32* Second Amendment to Research, Development and
Marketing Collaboration Agreement Between
Warner-Lambert and the Company
Dated July 31, 1997.
Exhibit 27.1 Financial Data Schedule.
* Confidential treatment has been requested for portions of this document.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this
report.
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ONYX PHARMACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONYX PHARMACEUTICALS, INC.
Date: August 4, 2000 By: /s/ Hollings C. Renton
-----------------------
Hollings C. Renton
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive and Financial Officer)
Date: August 4, 2000 By: /s/ Marilyn E. Wortzman
------------------------
Marilyn E. Wortzman
Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
-------------- -----------------------
<S> <C>
3.3 Certificate of Amendment of Amended and Restated
Certificate of Incorporation.
10.31* Second Amendment to the Amended and Restated Research,
Development and Marketing Collaboration Agreement
Between Warner-Lambert and the Company Dated May 2,
1995.
10.32* Second Amendment to Research, Development and
Marketing Collaboration Agreement Between
Warner-Lambert and the Company
Dated July 31, 1997.
27.1 Financial Data Schedule.
</TABLE>
* Confidential treatment has been requested for portions of this document.
23
