<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
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.
(X) Yes ( ) No
The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 14,210,322 as of May 1, 2000.
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ONYX PHARMACEUTICALS, INC.
INDEX
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. Financial Statements
Condensed Balance Sheets - March 31, 2000 and
December 31, 1999 3
Condensed Statements of Operations - Three months
ended March 31, 2000 and 1999 4
Condensed Statements of Cash Flows - Three months ended
March 31, 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 21
PART II: OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 22
ITEM 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBIT INDEX 24
</TABLE>
2
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ONYX PHARMACEUTICALS, INC.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
ASSETS (Unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,918 $ 12,671
Short-term investments 4,239 1,792
Receivable from related party 2,135 3,300
Other current assets 518 460
-------------- ---------------
Total current assets 39,810 18,223
Property and equipment, net 2,937 3,000
Notes receivable from related parties 363 386
Other assets 26 19
-------------- ---------------
$ 43,136 $ 21,628
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,116 $ 2,149
Accrued liabilities 1,462 1,194
Accrued clinical trials and related expenses 1,163 1,110
Accrued compensation 576 1,250
Deferred revenue 3,453 3,548
Long-term debt, current portion 1,832 2,199
-------------- ---------------
Total current liabilities 9,602 11,450
Long-term debt, noncurrent portion - 183
Long-term deferred revenue 1,833 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; 25,000,000 shares authorized, 14,187,244
and 11,551,681 shares issued and outstanding as of March 31, 2000 and
December 31, 1999, respectively 14 12
Additional paid-in capital 111,440 85,723
Accumulated deficit (79,753) (78,073)
-------------- ---------------
Total stockholders' equity 31,701 7,662
-------------- ---------------
$ 43,136 $ 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
March 31,
--------------- - -------------
2000 1999
--------------- -------------
<S> <C> <C>
Revenue:
Contract and other revenue $ 112 $ 601
Contract revenue from related parties 5,725 2,618
--------------- -------------
Total revenue 5,837 3,219
--------------- -------------
Operating expenses:
Research and development 6,070 5,291
General and administrative 1,842 1,321
--------------- -------------
Total operating expenses 7,912 6,612
--------------- -------------
Loss from operations (2,075) (3,393)
Interest income, net 395 285
--------------- -------------
Net loss $(1,680) $(3,108)
=============== =============
Net loss per share $ (0.12) $ (0.27)
=============== =============
Shares used in computing net loss per share 13,462 11,460
=============== =============
</TABLE>
See accompanying notes.
4
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ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,680) $ (3,108)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 429 518
Forgiveness of notes receivable 10 24
Stock-based compensation 662 -
Amortization of deferred compensation - 55
Changes in assets and liabilities:
Receivable from related party 1,165 -
Other current assets (63) 68
Other assets (7) 20
Accounts payable (1,033) (1,315)
Accrued liabilities 268 203
Accrued clinical trials and related expenses 53 (109)
Accrued compensation (674) 162
Deferred revenue (595) (1,231)
Deferred rent - (21)
-------------- --------------
Net cash used in operating activities (1,465) (4,734)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (4,238) (2,721)
Sales and maturities of short-term investments 1,791 3,003
Capital expenditures (366) (327)
Notes receivable from related parties 18 94
-------------- --------------
Net cash provided by (used in) investing activities (2,795) 49
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (550) (550)
Net proceeds from issuances of common stock, net of repurchases 25,057 13
-------------- --------------
Net cash provided by (used in) financing activities 24,507 (537)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 20,247 (5,222)
Cash and cash equivalents at beginning of period 12,671 21,368
-------------- --------------
Cash and cash equivalents at end of period $32,918 $16,146
============== ==============
</TABLE>
See accompanying notes.
5
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ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 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
three months ended March 31, 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 LOSS PER SHARE
Basic net loss per share and diluted net 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. In accordance with SFAS No. 128, basic and diluted net loss
per share have been computed using the weighted-average number of shares of
common stock outstanding during the period.
NOTE 3. COMPREHENSIVE 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 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 loss. During the three-month
periods ended March 31, 2000 and March 31, 1999, total comprehensive loss
equaled net 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.
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,
6
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ONYX PHARMACEUTICALS, INC.
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 March 2000, the Securities and Exchange Commission delayed the
implementation date of Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements," for companies with fiscal
years that begin between December 16, 1999 and March 15, 2000, to the second
quarter of 2000. SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company will adopt SAB 101 as required in the second quarter of 2000. The
impact of the bulletin on the Company's financial position and results of
operations is not expected to be material.
NOTE 5. SALE OF EQUITY SECURITIES
On January 18, 2000, the Company issued and sold 2,000,000 shares of its common
stock at a purchase price of $9.00 per share in a private placement to four
institutional investors. The Company received $18,000,000 from the private
placement.
On February 25, 2000, the Company issued and sold 279,470 shares of its common
stock at a purchase price of $17.89 per share as the first of two stock
issuances in connection with the collaboration agreement with Warner-Lambert
dated October 13, 1999 and effective September 1, 1999. The Company received
proceeds of $5,000,000 from the exercise of its right to require Warner-Lambert
to purchase additional equity in 2000.
NOTE 6. FACILITY LEASE
On February 24, 2000, the Company signed a Third Amendment to its facility
lease. The amendment extended the lease term to April 30, 2005. Minimum rental
commitments under this amendment include a construction allowance of $568,128.
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 innovative therapeutics for
treatment of cancer based on our proprietary virus technology platform. We
believe our technology platform represents a novel approach in developing
therapeutics that selectively kill cancer cells in the body, leaving healthy,
non-cancerous tissues unharmed. Our lead product candidate, ONYX-015, is
genetically engineered to selectively replicate in and destroy human tumors
based on the loss of p53 tumor suppressor gene function in cancer cells.
We have now completed Phase II clinical trials using ONYX-015 for the treatment
of head and neck cancer. Based on these results, and in collaboration with
Warner-Lambert, we expect to begin a pivotal Phase III clinical trial of
ONYX-015 by the middle of 2000. We are also evaluating ONYX-015 in clinical
trials for a number of other cancer indications. Other potential products from
our technology platform include viruses that replicate in and destroy human
tumors based on defects in the RB tumor suppressor gene function in cancer
cells. Additionally, we are developing armed viruses that increase the cancer
killing power of the virus and expand the range of human cancers sensitive to
the therapy.
Further, we are working with Bayer and Warner-Lambert to identify and develop
small molecule therapeutic compounds for a number of cancers. Together with
Bayer, we have selected an anticancer compound for clinical development. We
expect Bayer to file an IND with the FDA for this compound by the middle of
2000.
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 March 31, 2000, our accumulated
deficit was approximately $79.8 million.
In January 2000, we sold and issued 2,000,000 shares of common stock to four
institutional investors in a private placement, at a price of $9.00 per share,
for aggregate proceeds of $18,000,000. In February 2000, we sold and issued
279,470 shares of common stock to Warner-Lambert in a private placement, at a
price of $17.89 per share, for aggregate proceeds of $5,000,000.
Our business is subject to significant risks, including the risks inherent in
our research and development efforts, the results of the ONYX-015 clinical
trials, uncertainties associated with obtaining and enforcing patents, the
lengthy and expensive regulatory approval process and competition from other
products. 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.
8
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ONYX PHARMACEUTICALS, INC.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999.
REVENUE
Total revenues increased 81 percent to $5,837,000 for the three months ended
March 31, 2000 as compared to $3,219,000 for the three months ended March 31,
1999. Revenues for both periods were primarily attributable to amounts earned
under collaboration agreements with Warner-Lambert. Total revenue also included
a $500,000 license payment from Warner-Lambert for the inflammation
collaboration. The increase in revenues for the three months ended March 31,
2000 as compared to the same period in 1999 is due primarily to revenue
recognized from our agreement with Warner-Lambert to develop and commercialize
ONYX-015 as well as two armed therapeutic viruses. We did not have this
agreement during the first three months of 1999.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 15 percent to $6,070,000 for the
three months ended March 31, 2000 as compared to $5,291,000 for the three months
ended March 31, 1999. The increase was primarily due to contract manufacturing
expenses as we scale-up production to provide ONYX-015 for our upcoming Phase
III clinical trials. 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 parties may not fund these research and development expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 39 percent to $1,842,000 for the
three months ended March 31, 2000 as compared to $1,321,000 for the three months
ended March 31, 1999. The increase was primarily due to employee-related
expenses for hiring of additional staff and a severance agreement. We anticipate
that general and administrative expenses may increase modestly in future periods
in order to support increases in research and development activities.
NET INTEREST INCOME
We had net interest income of $395,000 and $285,000 for the three months ended
March 31, 2000 and 1999, respectively. The increase in 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
Warner-Lambert in February 2000, resulting in more interest income for the
current period.
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 March 31, 2000, we had cash and investments of $37,157,000 compared with
$14,463,000 at December 31, 1999. The increase in cash and investments of
$22,694,000 at March 31, 2000, compared with December 31, 1999, is due to the
private placement financing completed on January 18, 2000, which raised
$18,000,000 and the stock issuance to Warner-Lambert on February 25, 2000, which
raised $5,000,000. In addition,
9
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ONYX PHARMACEUTICALS, INC.
$2,317,000 of cash was received from the exercise of stock options. These
increases were partially offset by cash used in operations of $1,465,000 and
the repayment of debt of $550,000. We expect that cash used in operations
will continue at approximately the current rate as research activities and
clinical development for our virus programs progress.
Total capital expenditures for equipment and leasehold improvements for the
three-month period ended March 31, 2000, were $366,000. We currently expect to
make expenditures for capital equipment of approximately $2,500,000 for the
remainder of 2000.
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 March 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
THE RESULTS OF CLINICAL TRIALS OF ONYX-015 ARE UNCERTAIN.
We have completed Phase II clinical trials of ONYX-015 for the treatment of head
and neck cancer, both as a single agent and in combination with chemotherapy.
Based on data from the Phase II clinical trials, we expect to initiate a Phase
III clinical trial for ONYX-015 for the treatment of head and neck cancer in the
middle of 2000. Historically, many pharmaceutical products have failed in Phase
III testing notwithstanding favorable results in Phase II clinical trials. The
results of the Phase III trials of ONYX-015 may fail to achieve primary
endpoints and may demonstrate previously unforeseen side effects. The results
also may not extend the findings of previous clinical trials, including response
rates, duration of response or safety.
There can be no assurance that the FDA will accept the results of the Phase III
trials, or accept other elements of the biologics license application that we
may file for ONYX-015, as being sufficient for market approval. The FDA may
require additional clinical trials. Additional clinical trials will be
extensive, expensive and time-consuming. If ONYX-015 fails to receive regulatory
approval or regulatory approval is delayed, our business, financial condition
and results of operations will be seriously harmed. In addition, our clinical
trials are being conducted with patients who have failed conventional treatments
and who are in the most advanced stages of cancer. During the course of
treatment, these patients can die or suffer adverse medical effects for reasons
that may not be related to ONYX-015. These adverse effects may impact the
interpretation of clinical trial results.
IF WE ARE UNSUCCESSFUL IN DEVELOPING AND COMMERCIALIZING OUR PRODUCTS, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD BE SERIOUSLY
HARMED.
10
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ONYX PHARMACEUTICALS, INC.
None of our products has received regulatory approval, and only ONYX-015 has
entered clinical trials. Accordingly, all of our products will require the
commitment of substantial resources, extensive research and development,
preclinical or animal testing, clinical or human trials, manufacturing scale-up
and regulatory approval prior to being ready for commercial sale. There can be
no assurance that commercially viable products will result from our efforts and
those of parties collaborating with us. If any of our products, even if
developed and approved, cannot be successfully commercialized, our business,
financial condition and results of operations would be seriously harmed.
WE MAY FAIL TO DEMONSTRATE THAT ONYX-015 IS EFFECTIVE FOR THE TREATMENT OF OTHER
TYPES OF CANCER EVEN IF ONYX-015 IS PROVEN EFFECTIVE FOR THE TREATMENT OF HEAD
AND NECK CANCER.
ONYX-015 is being developed initially for treatment of head and neck cancer,
using direct intratumoral injection. Even if ONYX-015 is developed successfully
for this type of cancer, there can be no assurance that we will be able to
demonstrate that it is effective in the treatment of a broader array of cancer
types. We are in the process of completing Phase I/II clinical trials for
ONYX-015 for treatment of liver metastases of colorectal cancer and for the
treatment of pancreatic cancer, both as a single agent and in combination with
chemotherapy. Clinical trial results are inherently uncertain. In addition,
there is no assurance that we will succeed in our efforts to deliver ONYX-015 to
tumors through routes of administration which are more practical for certain
cancer types and less costly than direct intratumoral injection. If we are not
successful in developing additional routes of administration of ONYX-015, or the
drug is otherwise ineffective in the treatment of additional types of cancer,
the commercial potential of this product will be reduced, even if it does
receive marketing approval.
THE BIOLOGICAL CHARACTERISTICS OF OUR THERAPEUTIC VIRUSES AND THEIR INTERACTIONS
WITH OTHER DRUGS AND THE HUMAN IMMUNE AND OTHER DEFENSE SYSTEMS ARE NOT FULLY
UNDERSTOOD.
The use of therapeutic replicating viruses is 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 ONYX-015 is used
in combination with standard chemotherapy drugs, but the reasons for and the
nature of the interaction of the virus with these other drugs is still
uncertain. In addition, the response of the human immune system to the viral
infection is still being investigated, and the immune system may play a role in
limiting the tumor-killing effect of our therapeutic viruses. It is also not
known to what extent the filtering organs of the body may clear our therapeutic
viruses from circulation and limit the tumor-killing activity of our therapeutic
viruses. Further, there is some scientific uncertainty as to whether the killing
activity of ONYX-015 is specific to cells with p53 mutations. Moreover, the
large number of factors that contribute to the formation of each individual
patient's cancer, as well as each individual's response to treatment, is largely
unknown, and each tumor is unique. These factors include not only the cancer
type, but also the pressures within the tumor, the presence of interspersed
normal cells and fibrous tissue, and other factors. These are among the reasons
why only 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 increases the risk that our
product candidates will not be successfully developed, or if developed will 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.
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
collaborative parties. We have entered into a number of collaboration
agreements with
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<PAGE> ONYX PHARMACEUTICALS, INC.
different collaborative parties, including research, development and
marketing agreements with Warner-Lambert and Bayer. If we fail to maintain
these relationships or establish new collaborative relationships, we would be
required to undertake these activities at our own expense, which would
significantly increase our capital requirements and limit the programs we are
able to pursue, and we would be subject to 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 collaborative party's
business strategy may adversely affect such party's willingness or
ability to complete its obligations under the collaboration
agreement with us;
- the right of the collaborative party 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;
- the collaborative party may develop or have rights to competing
products and withdraw support of our products; and
- disagreements may arise with a collaborative party regarding breach
of the collaboration agreement or ownership of proprietary rights.
These factors and other possible disagreements with collaborative parties could
lead to delays in the research, development or commercialization of our products
or could require or result in litigation or arbitration, which would be time
consuming and expensive. If we fail to maintain these relationships or establish
new collaborative relationships, our business, financial condition and results
of operations would be seriously harmed.
CHIRON MAY HAVE PREFERENTIAL RIGHTS TO ESTABLISH COLLABORATIONS WITH US.
We were established in April 1992 by means of a transfer from Chiron Corporation
to us of the drug discovery program being 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 that this mechanism requires us to offer gene
therapy programs to Chiron before licensing any such program to a third party.
We and Chiron have different interpretations of this agreement as it relates to
the scope of Chiron's rights. Chiron delivered a letter to us, under which
Chiron waived any rights it has under the agreement with respect to
collaborative arrangements that we may enter into with others until the end of
July 2000, based on our selectively-replicating virus technology. During the
period of time covered by this letter, we executed our agreement with
Warner-Lambert for the development of ONYX-015 and two armed virus products. If
Chiron does not grant us further waivers and asserts
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ONYX PHARMACEUTICALS, INC.
rights under the April 1992 agreement, or if disputes arise, our ability to
enter into future collaborations for other product candidates would be
complicated and might be delayed or interfered with. If we are unable to
establish new collaborative relationships, or if our ability to enter into
future collaborative arrangements are complicated, delayed or interfered
with, our business, financial condition and results of operations would be
seriously harmed.
WARNER-LAMBERT HAS AGREED TO BE ACQUIRED BY PFIZER, INC.
We have entered into multiple research and development and marketing
collaboration agreements with Warner-Lambert, including a collaboration
agreement related to ONYX-015. As part of our collaboration with Warner-Lambert
related to ONYX-015, Warner-Lambert has agreed to manufacture ONYX-015 for
commercial use.
In February 2000, Warner-Lambert agreed to be acquired by Pfizer, Inc. We cannot
assure you that Pfizer will be interested in continuing these collaborative
relationships with us, because these collaborations address smaller markets than
Pfizer generally seeks to address. We also cannot assure you that Pfizer is
interested in the development of a virus technology platform or the products we
seek to develop. If the acquisition of Warner-Lambert by Pfizer is consummated,
then Pfizer could modify, disrupt or terminate our collaboration agreements with
Warner-Lambert currently in effect, subject to the terms of such agreements.
Pursuant to our agreement with Warner-Lambert relating to ONYX-015,
Warner-Lambert has the right to terminate this agreement for any reason with 90
days notice, in which case they would be required to return all rights to
ONYX-015 to us royalty-free. We cannot assure you that Pfizer will not modify,
disrupt or terminate one or more of our collaboration agreements with
Warner-Lambert pursuant to the terms of these agreements.
If Pfizer terminates our agreement relating to ONYX-015, a significant portion
of the $40 million Warner-Lambert is obligated to fund for the development of
ONYX-015, including the cost of clinical trials, would be lost. In addition,
because we do not have any sales and marketing capability, we are relying on
Warner-Lambert's sales and marketing expertise to commercialize ONYX-015.
Further, if Pfizer terminates our agreement relating to ONYX-015 and does not
agree to continue to manufacture ONYX-015 for commercial use, we would have to
establish an alternate-manufacturing source for ONYX-015, which would cause a
delay in the commercial sale of ONYX-015. Such a delay, or the modification,
disruption or termination of any of our current collaboration agreements with
Warner-Lambert, especially our collaboration related to ONYX-015, would
seriously harm our business, financial condition and results of operations.
WE DO NOT HAVE CLINICAL OR COMMERCIAL SCALE MANUFACTURING EXPERTISE OR
CAPABILITIES AND ARE DEPENDENT ON THIRD PARTIES TO FULFILL OUR MANUFACTURING
NEEDS.
We lack the resources and capabilities to manufacture our products on our own
for clinical trials or in commercial quantities, and we have no experience in
such manufacturing. It would require substantial funds to establish these
capabilities. We have generally granted our collaborative parties the exclusive
right to manufacture products resulting from our collaborations, and we expect
to grant similar manufacturing rights in future collaborations. 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. If these third parties fail to deliver the required
quantities of our products or product candidates for clinical or commercial use
on a timely basis and at commercially reasonable prices, and we fail to find a
replacement manufacturer or obtain resources to develop our own manufacturing
capabilities, our business will be seriously harmed.
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ONYX PHARMACEUTICALS, INC.
WE CURRENTLY RELY ON A SOLE SOURCE OR LIMITED NUMBER OF SOURCES FOR THE
MANUFACTURING OF ONYX-015.
We currently rely on a sole source contract manufacturer for the supply of
ONYX-015 for Phase III clinical trials. This contract manufacturer has not
produced materials for Phase III clinical trials for us or any other parties. In
addition, there are a limited number of parties who could manufacture ONYX-015
for commercial use. If either our contract manufacturer or Warner-Lambert is
unable to deliver the required quantities of ONYX-015 or either of them
terminates our relationship, we may not be able to find a replacement
manufacturer within a reasonable amount of time or at commercially reasonable
rates. If we fail to find a replacement manufacturer or develop our own
manufacturing capabilities, our business, financial condition and results of
operations will be seriously harmed.
WE NEED TO SCALE-UP THE MANUFACTURING PROCESS OF ONYX-015 FOR COMMERCIAL USE.
To obtain regulatory approval for ONYX-015, our contract manufacturer will need
to be able to produce commercial quantities of ONYX-015. To do so, we need to
modify the manufacturing process to produce large quantities of ONYX-015 and
obtain access to a larger manufacturing facility. This could require a
significant amount of time and experimentation to meet our quality standards for
ONYX-015. This will also require a significant capital investment on our part.
In addition, if we do not treat patients in our Phase III pivotal trial with
product from the new process manufactured at the larger facility, the FDA will
most likely require a bridging study to show that the ONYX-015 produced from the
new process at the larger facility is comparable to ONYX-015 produced from our
existing manufacturing process at our contract manufacturer's existing facility.
If we encounter difficulties in modifying the manufacturing process in time to
conduct a bridging study prior to FDA review of our Phase III pivotal clinical
trial, commercial sales of ONYX-015 could be delayed and our business, financial
condition or results of operation could be seriously harmed.
MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN.
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;
- indications 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
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ONYX PHARMACEUTICALS, INC.
- side effects or unfavorable publicity concerning our products or
similar products.
WE DO NOT HAVE MARKETING OR SALES EXPERIENCE OR CAPABILITIES.
We intend to enter into agreements with third parties to market and sell most of
our products. 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 collaborative
parties. 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 be able to 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. Failure to establish marketing and sales
capabilities or failure to enter into marketing agreements with third parties
will seriously harm our business, financial condition and results of operations.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF OUR PRODUCTS.
The recent death of a patient at the University of Pennsylvania undergoing gene
therapy using an adenoviral vector to deliver a therapeutic gene has been widely
publicized. 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. As a result of this death, the United
States Senate has commenced hearings to determine whether additional legislation
is required to protect volunteers and patients who participate in gene therapy
clinical trials. Based on the adverse events reported by investigators using
adenoviral vectors, the Recombinant DNA Advisory Committee, or RAC, which acts
as an advisory body to the National Institutes of Health, or NIH, has
extensively discussed the use of adenoviral vectors in gene therapy clinical
trials. Any increased scrutiny or new government regulation could delay or
increase the costs of our product development efforts or clinical trials. In
this regard, the patient in the University of Pennsylvania trial was receiving
therapy by delivery through the hepatic artery of the liver. This route of
administration is the same as the one we are using in our current Phase I/II
clinical trial of ONYX-015 for liver metastases of colorectal cancer. Concern
about this route of adenovirus administration could be a source of delay in
further clinical trials or regulatory approvals for this type of cancer
treatment.
Our commercial success will 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. Negative public
reaction to gene therapy could result in greater governmental regulation and
stricter clinical trial oversight and commercial product labeling requirements
of gene therapies and could cause a decrease in the demand for products we may
develop.
WE HAVE A HISTORY OF LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN.
To date, we have engaged primarily in research and development. Our research and
development and general and administrative expenses have resulted in substantial
losses from operations. As of March 31, 2000, we had an accumulated deficit of
approximately $79.8 million. We expect to incur significant and increasing
operating losses over the next several years as our research and development
efforts and preclinical testing and clinical trial
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ONYX PHARMACEUTICALS, INC.
activities expand. 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.
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 to bring our products to market. 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. If we are unable to obtain additional funds, we
may be forced to 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 not favorable to us.
FAILURE TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS WILL SERIOUSLY HARM
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our success depends on our continued ability to attract, retain and motivate
highly qualified management and scientific personnel. 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 qualified scientific personnel to perform research
and development, as well as personnel with expertise in clinical testing,
government regulation and manufacturing. These requirements are also expected to
require additional management personnel and the development of additional
expertise by existing management personnel. We face competition for qualified
individuals from numerous pharmaceutical and biotechnology companies,
universities, and other research institutions. The failure to maintain our
management and scientific staff and to attract additional key personnel could
seriously harm our business, financial condition and results of operations.
WE FACE INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE.
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. 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 of its p53 gene therapy product in liver metastases of
colorectal cancer. Aventis, Inc./Introgen Therapeutics, Inc. are also initiating
a Phase III clinical trial in head and neck cancer with their p53 gene therapy
products. If approved, the products of these and other competitors now in
clinical trials will compete directly with ONYX-015. Other companies are
developing small molecule drugs that may compete with product candidates
identified in our small molecule drug programs.
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ONYX PHARMACEUTICALS, INC.
Many of our competitors, either alone or together with collaborative parties,
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 collaborative parties, 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 be competing 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. There are numerous competitors
working on products to treat each of the diseases for which we are seeking to
develop therapeutic products. In addition, any product candidate that we
successfully develop may compete with existing therapies that have long
histories of safe and effective use. Competition may also arise from:
- other drug development technologies and methods of preventing or
reducing the incidence of disease;
- new small molecule drugs; or
- 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 ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS.
Our product candidates under development are subject to extensive and rigorous
domestic regulation. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of biopharmaceutical
products. If we market our products abroad, they also are subject to extensive
regulation by foreign governments. None of our products has been approved for
sale in the United States or any foreign market. Because our products involve
the application of new technologies and will be based on new therapeutic
approaches, our products are subject to substantial additional review by various
governmental regulatory authorities, and as a result, regulatory approvals may
be obtained more slowly than for products using more conventional technologies.
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ONYX PHARMACEUTICALS, INC.
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 collaborative party's product candidates. Delays in
obtaining regulatory approvals may:
- adversely affect the successful commercialization of any products that
we or collaborative parties develop;
- impose costly procedures on us or our collaborative parties;
- diminish any competitive advantages that we or collaborative parties
may attain; and
- adversely affect our receipt of revenues or royalties.
We expect to rely on the parties with which we collaborate to file
investigational new drug applications and generally direct the regulatory
approval process for many of our product candidates. Such collaborative parties
may not be able to conduct clinical testing or 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. Delays
and limitations may materially adversely affect our business, financial
condition and results of operations.
Any required approvals, once obtained, may be withdrawn. Further, if we fail to
comply with applicable FDA and other domestic or foreign regulatory requirements
at any stage during the regulatory process, we, our contract manufacturers or
our collaborative parties may be subject to sanctions, including:
- delays;
- warning letters;
- fines;
- product recalls or seizures;
- injunctions;
- refusal of the FDA or its foreign counterparts to review pending
market approval applications or supplements to approval applications;
- total or partial suspension of production;
- civil penalties;
- withdrawals of previously approved marketing applications, and
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ONYX PHARMACEUTICALS, INC.
- criminal prosecutions.
We and our contract manufacturers also are required to comply with the
applicable FDA current good manufacturing practice regulations, which include
requirements relating to quality control and quality assurance as well as the
corresponding maintenance of records and documentation. Further, manufacturing
facilities must be approved by the FDA before they can be used to manufacture
our products, and are subject to additional FDA inspection. We or our contract
manufacturers may not be able to comply with the applicable good manufacturing
practice requirements and other FDA regulatory requirements.
After a product has received approval from the FDA, we cannot guarantee the FDA
will permit us to market the product for applications beyond those for which
approval was granted, or that the FDA will grant us approval for separate
product applications which represent extensions of our basic technology, or that
existing approvals will not be withdrawn or modified in a significant manner.
Further, it is possible that the FDA will promulgate additional regulations
restricting the sale of our products.
Labeling and promotional activities are subject to scrutiny by the FDA and state
regulatory agencies and, in some circumstances, by the Federal Trade Commission.
FDA enforcement policy prohibits the marketing of approved products for
unapproved, or off-label, uses. These regulations, and the FDA's interpretation
of them, may impair our ability to effectively market products for which we gain
approval. Failure to comply with these requirements can result in regulatory
enforcement action by the FDA.
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.
CLINICAL TRIALS ARE EXPENSIVE, AND THEIR OUTCOMES ARE UNCERTAIN.
Conducting clinical trials is a lengthy, time-consuming and expensive process.
Before obtaining regulatory approvals for the commercial sale of any of our
product candidates, we or collaborative parties must demonstrate through
preclinical testing and clinical trials that the product is safe and effective
for use in humans. We will incur substantial expense for, and devote a
significant amount of time to, preclinical and clinical testing and clinical
trials. Historically, the results from preclinical testing and early clinical
trials have not been predictive of results obtained in later clinical trials
involving large-scale testing of patients in comparison to control groups.
Clinical trials may require the enrollment of large numbers of patients and
suitable patients may be difficult to identify and recruit. A number of
companies in the pharmaceutical industry have suffered significant setbacks in
every stage of clinical trials, even in advanced clinical trials after promising
results in earlier trials.
The length of time of a clinical trial generally varies substantially according
to the type, complexity, novelty and intended use of the product candidate. Our
commencement and rate of completion of clinical trials may be delayed by many
factors, including:
- inability to acquire sufficient quantities of materials for use in
clinical trials;
- competition for and inability to enroll a sufficient number of
suitable patients for testing and inability to adequately follow
patients after treatment;
- variations in interpretation of data obtained from trials;
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ONYX PHARMACEUTICALS, INC.
- failure to meet or comply with efficacy, safety or quality applicable
standards; or
- government or regulatory delays.
Our product candidates may fail to demonstrate safety and efficacy in clinical
trials. This failure may delay development of our other product candidates, and
hinder our ability to conduct related preclinical testing and clinical trials.
Failure to obtain regulatory approval for our product candidates may also create
difficulties in obtaining additional financing. These failures will seriously
harm our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR OPERATE OUR BUSINESS
WITHOUT INFRINGING UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Our technology will be protected from unauthorized use by others only to the
extent that it is covered by valid and enforceable patents or effectively
maintained as trade secrets. As a result, our success depends 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.
We cannot be certain that our patents or patents that we license from others
will be enforceable and afford protection against competitors. 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 that will be allowed under our patent applications or their
enforceability. Our patents or patent applications, issued or pending,
respectively, may be challenged, invalidated or circumvented. Our patent rights
may not provide us with proprietary protection or competitive advantages against
competitors with similar technologies. Others may independently develop
technologies similar to ours or independently duplicate our technologies. 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. This would reduce or eliminate any
advantage the patents may give us.
We cannot be certain that we were the first to make the inventions covered by
each of our issued or pending patent applications or that we were the first to
file patent applications for such inventions. We may need to license the right
to use third-party patents and intellectual property to continue development and
marketing of our products. We may not be able to 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, 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
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ONYX PHARMACEUTICALS, INC.
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. Patent litigation is costly. 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. Litigation or interference proceedings could have a material
adverse effect on our business, financial condition and results of
operations, and we could be unsuccessful in our efforts to enforce our
intellectual property rights.
Specifically, we are aware of patent applications filed in the United States and
abroad that, if they were to issue, would cover ONYX-015 and other
selectively-replicating viruses, and we are aware of patent applications that
claim enzymes for converting prodrugs to their active forms for treating
disease, including cancers, and methods of delivering the enzymes using a virus.
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, or design around the patent or negotiate a reasonable license under the
patent, our business, financial condition and results of operations would be
seriously harmed.
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, may expose us to liability claims resulting from such use or
sale of our products. These claims might be made directly by consumers,
healthcare providers or by pharmaceutical companies or others selling such
products. We may experience financial losses in the future due to product
liability claims. 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 or in sufficient amounts to protect us against losses. If a successful
product liability claim or series of claims is brought against us for uninsured
liabilities or in excess of insured liabilities, our business, financial
condition and results of operations would be seriously harmed.
OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS.
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.
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 March 31, 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
three months ended March 31, 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 18, 2000, the Company issued and sold 2,000,000 shares of its Common
Stock at a purchase price of $9.00 per share in a private placement to four
institutional investors. The Company received an aggregate of $18,000,000 from
the private placement. The issuance and sale of the Company's Common Stock
was exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Rule 506 of Regulation D.
On February 25, 2000, the Company issued and sold to Warner-Lambert 279,470
shares of its Common Stock at a purchase price of $17.89 per share pursuant to
the exercise of the First Put contained in the Stock Put and Purchase Agreement
dated October 13, 1999 and effective September 1, 1999. The Company received an
aggregate of $5,000,000 from the exercise of the First Put. The issuance and
sale of the Company's Common Stock was exempt from the registration requirements
of the Securities Act of 1933, as amended, pursuant to Rule 506 of Regulation D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit 27.1 Financial Data Schedule
b) REPORTS ON FORM 8-K
On March 1, 2000, the Company filed a Current Report on
Form 8-K, reporting under Item 5 that on October 13, 1999, the
Company and Warner-Lambert Company entered into a research,
development and marketing collaboration, effective September
1, 1999, to develop and commercialize novel biologics for the
treatment of human cancer. Also under Item 5, the Company
reported that on January 18, 2000, it had issued and sold 2
million shares of its common stock to four institutional
investors, and on February 25, 2000, it had issued and sold
279,470 shares of its common stock to Warner-Lambert.
----------------------
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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: May 15, 2000 By: /s/ Hollings C. Renton
----------------------
Hollings C. Renton
President, Chief Executive Officer and Director
(Principal Executive and Financial Officer)
Date: May 15, 2000 By: /s/ Marilyn E. Wortzman
-----------------------
Marilyn E. Wortzman
Controller
(Principal Accounting Officer)
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ONYX PHARMACEUTICALS, INC.
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit Number Description of Exhibits
27.1 Financial Data Schedule
</TABLE>
----------------------
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ONYX
PHARMACEUTICALS, INC.'S UNAUDITED CONDENSED BALANCE SHEET DATED MARCH 31, 2000,
AND UNAUDITED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 32,918
<SECURITIES> 4,239
<RECEIVABLES> 2,135
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,810
<PP&E> 12,512
<DEPRECIATION> 9,575
<TOTAL-ASSETS> 43,136
<CURRENT-LIABILITIES> 9,602
<BONDS> 1,832
0
0
<COMMON> 14
<OTHER-SE> 31,687
<TOTAL-LIABILITY-AND-EQUITY> 43,136
<SALES> 0
<TOTAL-REVENUES> 5,837
<CGS> 0
<TOTAL-COSTS> 7,912
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> (1,680)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,680)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
