<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ONYX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-3154463
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
--------------------------
3031 RESEARCH DRIVE
RICHMOND, CA 94806
(510) 222-9700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
HOLLINGS C. RENTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONYX PHARMACEUTICALS, INC.
3031 RESEARCH DRIVE
RICHMOND, CA 94806
(510) 222-9700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT L. JONES, ESQ. JUSTIN P. KLEIN, ESQ.
MICHAEL L. WEINER, ESQ. DOUGLAS M. FOX, ESQ.
COOLEY GODWARD LLP BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Five Palo Alto Square 300 East Lombard Street, Suite 1900
3000 El Camino Real Baltimore, MD 20120
Palo Alto, California 94036 (410) 528-5600
(650) 843-5000
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.............. 2,875,000 $19.0625 $54,804,687 $14,468
</TABLE>
(1) Includes shares that the underwriters will have the option to purchase
solely to cover over allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended, and based
upon the average high and low sales price on March 23, 2000, as reported on
the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 27, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES
OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS
2,500,000 SHARES
[LOGO]
ONYX PHARMACEUTICALS, INC.
COMMON STOCK
$ PER SHARE
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
- - Onyx Pharmaceuticals, Inc. is offering - Trading symbol: Nasdaq National Market--
2,500,000 shares of common stock. ONXX
- - On March 24, 2000, the last reported sale
price on the Nasdaq National Market was
$18.375.
</TABLE>
------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to Onyx Pharmaceuticals............................ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE UNDERWRITERS HAVE A 30-DAY OPTION TO PURCHASE UP TO 375,000 ADDITIONAL
SHARES OF COMMON STOCK FROM US TO COVER OVERALLOTMENTS, IF ANY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY
CHASE H&Q
CIBC WORLD MARKETS
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
INSIDE COVER ARTWORK
PANEL ONE
Artwork depicting the effects of ONYX-015 in a normal cell versus a cancer cell
with the capiton: "Selectively-Replicating Therapeutic Viruses"
Graphic of therapeutic virus, with caption "Therapeutic Virus (ONYX-105)", with
two arrows, one pointing to top half of panel and one pointing to bottom half of
panel.
Top half of Panel One shows ONYX-015 entering normal cell:
First picture: Graphic of therapeutic virus ONYX-015 entered normal cell, with
following caption:
"Our engineered viruses cannot inactivate tumor suppressors."
Arrow pointing from first picture to second picture.
Second picture: There is no interaction between ONYX-015 and tumor suppressor,
with following caption:
"The therapeutic virus is unable to reproduce efficiently in normal cells."
Arrow pointing from second picture to third picture.
Third picture: ONYX-015 is unable to reproduce itself within the normal cell and
harm healthy tissue, with following caption:
"Healthy tissue remains unaffected."
Bottom half of Panel One shows ONYX-015 entering cancer cell:
First picture: ONYX-015 enters cancer cell, with following caption:
"Cancer cells lack p53 and RB tumor suppressor functions."
Arrow pointing form first picture to second picture.
Second picture: ONYX-015 replicates within the cancerous cell, with following
caption:
"Our therapeutic viruses reproduce efficiently in cancer cells."
Arrow pointing from second picture to third picture.
Third picture: The cancer cell is killed, thereby releasing the newly replicated
ONYX-015, with following caption:
"Cancer cell is killed and new virus progeny are released."
PANEL TWO
Artwork describing armed therapeutic viruses and depicting the effects on cancer
cells, with the caption:
"Armed Therapeutic Viruses"
Graphic of therapeutic virus armed with anticancer gene, with caption "Armed
virus," with arrow pointing to first picture of cancer cell:
First picture: A therapeutic virus armed with anticancer gene enters a cancer
cell, with following caption:
"Our armed viruses carry anticancer genes and selectively replicate."
Arrow pointing from first picture to second picture.
Second picture: Armed therapeutic virus replicates itself, along with anticancer
agents, with following caption:
"They replicate and also produce anticancer agent in cancer cells."
Arrow pointing from second picture to third picture.
Third picture: The cancer cell is killed, thereby releasing the newly replicated
armed therapeutic virus and anticancer agent, with following caption:
"Cancer cell is killed, new virus progeny and anticancer agent spread to kill
neighboring cancer cells."
Caption below Panel Two:
"Technology Platform"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Price Range of Common Stock................................. 21
Capitalization.............................................. 22
Dilution.................................................... 23
Selected Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 29
Management.................................................. 44
Principal Stockholders...................................... 47
Description of Capital Stock................................ 50
Shares Eligible for Future Sale............................. 53
Underwriting................................................ 54
Legal Matters............................................... 56
Experts..................................................... 56
Where You Can Find More Information......................... 56
</TABLE>
------------------------
You should rely only on the information contained in this prospectus and
information incorporated by reference into this prospectus. We have not, and the
underwriters have not, authorized anyone to provide you with different
information. This prospectus is not an offer to sell, nor is it seeking an offer
to buy, these securities in any state where the offer or sale is not permitted.
The information contained in this prospectus is complete and accurate only as of
the date on the front cover, but the information may have changed since that
date.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in the sections entitled "Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's results,
levels of activity, or achievements to differ significantly and materially from
that expressed or implied by such forward-looking statements. Such factors
include, among others, those listed under "Risk Factors" and elsewhere in this
prospectus.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "intend," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," or "continue," or the negative of such terms
or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance or achievements. We do not assume responsibility for the
accuracy and completeness of the forward-looking statements. We do not intend to
update any of the forward-looking statements after the date of this prospectus
to conform such statements to actual results.
2
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING APPEARING ELSEWHERE IN THIS PROSPECTUS AND OUR FINANCIAL STATEMENTS AND
NOTES THERETO INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVERALLOTMENT OPTION.
OVERVIEW
We are engaged in the discovery and development of novel cancer therapies based
on our proprietary virus technology platform. We believe that this platform
enables us to develop therapeutics that selectively kill cancer cells in the
human body, leaving healthy, non-cancerous tissues unharmed. We have completed
two Phase II clinical trials of our lead product candidate, ONYX-015, for the
treatment of head and neck cancer. Based on the results from these trials and in
collaboration with Warner-Lambert Company, we intend to begin a pivotal Phase
III clinical trial for ONYX-015 for the treatment of head and neck cancer by the
middle of 2000. We are also evaluating ONYX-015 in Phase I/II and Phase I
clinical trials for four additional cancer indications.
MARKET OPPORTUNITY
Cancer is a group of diseases characterized by uncontrolled growth and
proliferation of abnormal cells. Cancer accounts for approximately 25% of all
deaths in the United States, ranking second only to cardiovascular disease.
According to the American Cancer Society, in the year 2000, approximately 1.2
million new cancer cases are expected to be diagnosed and over 550,000 deaths
are expected to occur. The worldwide oncology drug market was estimated at $15
billion in 1998, growing 13% from 1997. We believe that the limited efficacy of
existing treatments combined with the high public awareness of the need for
improved therapies provides an attractive market opportunity.
TECHNOLOGY PLATFORM
Our technology relies on selectively killing cancer cells based on the presence
of mutations in specific tumor suppressor genes in these cells. Tumor
suppressors are normal growth regulators, and their loss of function through
mutation results in cancer formation. We utilize our technology to engineer
human viruses to selectively replicate in and kill cancer cells based on the
presence of mutations in the p53 and the retinoblastoma, or RB, tumor suppressor
genes. This selectivity leaves healthy tissues unaffected, while the newly made
and released virus progeny infect nearby cancer cells and perpetuate the cancer
cell killing cycle, thereby amplifying the therapeutic effect.
We are developing a number of technologies that complement our
selectively-replicating virus platform. First, we are developing the capability
to arm our therapeutic viruses with anticancer genes. This technology provides
for selective production of anticancer agents at the tumor site, thus minimizing
systemic exposure and toxicity. As the virus replicates, it also steadily
increases the concentration of the anticancer agent at the tumor site. In
addition to armed viruses, we are also developing ways to physically or
genetically modify our therapeutic viruses to improve their circulating half
life upon systemic delivery. We believe that these modifications would enable
our therapeutic viruses to be used for a wider spectrum of cancer indications,
including metastatic disease.
ONYX-015
ONYX-015 is a human adenovirus that has been genetically engineered to replicate
in and kill cancer cells based on abnormal p53 pathway function in these cells.
Mutations in the p53 gene occur in over 50% of human cancer cases.
3
<PAGE>
To date, ONYX-015 has been studied in Phase II trials for head and neck cancer,
both as a single agent and in combination with chemotherapy. In the trial
involving ONYX-015 in combination with chemotherapy, of 30 evaluable patients,
19 experienced tumor regressions of greater than 50%, which corresponds to an
overall response rate of 63%. We believe that this response rate compares
favorably to an average historical response rate of approximately 35% using
chemotherapy alone.
Based on these results, we intend to begin a pivotal Phase III trial of ONYX-015
for the treatment of head and neck cancer in the middle of 2000 together with
Warner-Lambert. This trial will compare intratumoral injections of ONYX-015 plus
standard chemotherapy versus administration of standard chemotherapy alone. We
expect that this trial will take place at numerous centers in the United States
and Europe and will include 290 evaluable patients. The primary endpoints for
this trial will be progression free survival and durable tumor response.
Secondary endpoints will include patient quality of life and overall survival.
In addition, we plan to initiate a Phase II/III trial of ONYX-015 in combination
with chemotherapy for refractory head and neck cancer by the end of 2000.
We are also conducting two separate Phase I/II clinical trials evaluating
ONYX-015 in patients with liver metastases of colorectal cancer and in patients
with pancreatic cancer. Additionally, separate Phase I clinical trials have been
completed evaluating ONYX-015 in patients with ovarian cancer and in patients
with advanced cancers with lung involvement. We expect to present interim
results from several of these trials at the American Society of Clinical
Oncology, or ASCO, meeting in May 2000.
In October 1999, we entered into a collaboration with Warner-Lambert to develop
and commercialize ONYX-015 as well as two armed therapeutic viruses. Under the
terms of this collaboration, we have the right to co-promote ONYX-015 and the
two armed viruses in the United States and Canada, and to share equally in the
profits or losses. Additionally, Warner-Lambert is responsible for
commercializing the products in the rest of the world and is obligated to pay us
royalties based on net sales in these markets.
OTHER PRODUCT OPPORTUNITIES
In addition to developing ONYX-015, we are also conducting a number of research
and development programs based on our virus technology platform. Notably, we are
focusing substantial efforts on arming our therapeutic viruses with genes that
result in the selective activation of chemotherapeutic drugs within targeted
tumors. Additionally, we are developing therapeutic viruses that selectively
replicate in and kill cancer cells based on mutations in the RB tumor suppressor
gene. Mutations in the RB gene occur in over 30% of human cancer cases.
Further, we are working with Bayer Corporation 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. Depending upon final results of preclinical testing of this
compound, we expect Bayer to file an Investigational New Drug application, or
IND, with the Food and Drug Administration, or FDA, by the middle of 2000.
BUSINESS OBJECTIVES
Our objective is to be a leading developer of novel cancer therapies. We intend
to develop and commercialize a broad portfolio of products based primarily on
our selectively-replicating virus technology platform. Elements of our strategy
are to:
- obtain FDA approval of ONYX-015 for head and neck cancer;
- develop ONYX-015 in other cancer indications;
- broaden our therapeutic virus product portfolio;
- retain substantial co-promotion rights to our products;
- collaborate with leading pharmaceutical companies; and
- acquire technologies and products that complement our business.
4
<PAGE>
OFFICE LOCATION
Our principal executive offices are located at 3031 Research Drive, Richmond, CA
94806 and our telephone number is (510) 222-9700. We maintain an Internet
homepage at www.onyx-pharm.com. The contents of our homepage are not
incorporated by reference into our prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................... 2,500,000 shares
Common stock outstanding after this offering....... 16,564,509 shares
Use of proceeds.................................... For research and development activities; the
potential commercialization of ONYX-015;
operating costs; capital expenditures; potential
acquisitions of technologies or products; and
other general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol...................... ONXX
</TABLE>
The number of shares of our common stock to be outstanding after this offering
is based on the number of shares outstanding as of February 29, 2000 and
excludes:
- 1,617,745 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of approximately
$7.23 per share;
- 458,543 shares available for future issuance under our stock option plans;
and
- 48,079 shares available for sale under our employee stock purchase plan.
This prospectus contains our trademarks. All other trademarks, trade names or
service marks appearing in this prospectus are the trademarks, trade names or
service marks of the companies that use them.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following statement of operations data for the years ended December 31,
1995, 1996, 1997, 1998 and 1999 are derived from our audited financial
statements. The financial data set forth below is qualified by reference to, and
should be read in conjunction with, the sections of this prospectus entitled
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................... $ 6,945 $ 8,302 $ 7,799 $ 11,314 $ 13,324
Operating expenses:
Research and development................... 13,290 14,767 20,715 25,383 23,627
General and administrative................. 2,807 3,527 5,089 5,275 5,341
------- ------- -------- -------- --------
Loss from operations......................... (9,152) (9,992) (18,005) (19,344) (15,644)
Interest income, net......................... 725 1,575 1,980 1,685 842
------- ------- -------- -------- --------
Net loss..................................... $(8,427) $(8,417) $(16,025) $(17,659) $(14,802)
======= ======= ======== ======== ========
Net loss per share........................... $ (8.92) $ (1.31) $ (1.65) $ (1.56) $ (1.29)
======= ======= ======== ======== ========
Shares used in computing net loss per
share...................................... 945 6,401 9,707 11,289 11,503
======= ======= ======== ======== ========
</TABLE>
The pro forma balance sheet information set forth below reflects the following:
- the sale and issuance in January 2000 of 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; and
- the sale and issuance in February 2000 of 279,470 shares of common stock
to Warner-Lambert in a private placement, at a price of $17.891 per share,
for aggregate proceeds of $5,000,000.
The pro forma as adjusted balance sheet information set forth below also
reflects the following:
- the net proceeds from the sale of 2,500,000 shares of common stock offered
by us in this offering at an assumed public offering price of $18.375 per
share, the last reported sale price of our common stock on March 24, 2000,
after deducting the underwriting discounts and estimated offering
expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(in thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 14,463 $ 37,463 $ 79,744
Total assets................................................ 21,628 44,628 86,909
Working capital............................................. 6,773 29,773 72,054
Long-term debt, non-current portion......................... 183 183 183
Accumulated deficit......................................... (78,073) (78,073) (78,073)
Total stockholders' equity.................................. $ 7,662 $ 30,662 $ 72,943
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION IN THIS
PROSPECTUS. IN ADDITION, THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING US BECAUSE WE ARE ALSO SUBJECT TO ADDITIONAL RISKS AND
UNCERTAINTIES NOT PRESENTLY KNOWN TO US. IF ANY OF THESE RISKS ACTUALLY OCCUR,
OUR BUSINESS, FINANCIAL CONDITION, OPERATING RESULTS OR CASH FLOWS, COULD BE
MATERIALLY ADVERSELY AFFECTED. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON
STOCK TO DECLINE, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
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 unforseen 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.
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 intra-
7
<PAGE>
tumoral 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 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;
8
<PAGE>
- 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 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.
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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 commericialize 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.
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 are
unable to deliver the required quantities of ONYX-015 or either of them
terminate 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
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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
- 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 conjuction 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
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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 December 31, 1999, we had an accumulated deficit
of approximately $78.1 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 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
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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.
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
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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.
RISKS RELATED TO THE INDUSTRY
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, recordkeeping, 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.
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;
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- 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
- 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;
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- variations in interpretation of data obtained from trials;
- 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 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
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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.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE IS HIGHLY VOLATILE.
The market price of our common stock has been highly volatile and is likely to
continue to be volatile. Factors affecting our stock price include:
- results of clinical trials;
- ability to accrue patients;
- ability to manufacture sufficient supply of ONYX-015;
- success or failure in obtaining regulatory approval by us or our
competitors;
- public concern as to the safety and efficacy of our products;
- developments concerning the business of collaborative parties or their
transactions with third parties;
- developments in our relationship with collaborative parties;
- developments in patent or other proprietary rights;
- additions or departures of key personnel;
- announcements by us or our competitors of technological innovations or new
commercial therapeutic products;
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- published reports by securities analysts;
- fluctuations in stock market price and volume, which are particularly
common among securities of biotechnology companies;
- fluctuations in our operating results;
- statements of governmental officials; and
- changes in healthcare reimbursement policies.
EXISTING STOCKHOLDERS HAVE SIGNIFICANT INFLUENCE OVER US.
Upon completion of this offering, our executive officers, directors and 5%
stockholders will beneficially own, in the aggregate, approximately 30% of our
outstanding common stock. As a result, these stockholders will be able to
exercise substantial influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could have the effect of delaying or preventing a change in
control of our company and will make some transactions difficult or impossible
to accomplish without the support of these stockholders.
Bayer, a collaborative party, has the right to have its nominee elected to our
board of directors as long as we continue to collaborate on the development of a
compound. In addition, International Biotechnology Trust plc has the right to
have its nominee elected to our board of directors as long as it continues to
own at least 66 2/3% of our common stock it purchased in January 1998. Because
of these rights and ownership and voting arrangements, our officers, directors
and principal stockholders may be able to effectively control the election of
all members of the board of directors and to determine all corporate actions.
WE DO NOT INTEND TO PAY DIVIDENDS.
We intend to retain any future earnings to finance the growth and development of
our business and we do not plan to pay cash dividends in the foreseeable future.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The offering price is substantially higher than the book value per share of our
common stock. Investors purchasing common stock in this offering will,
therefore, incur immediate dilution in net tangible book value per share of
common stock of $13.905 per share. Investors will incur additional dilution upon
the exercise of outstanding stock options. See "Dilution."
SUBSTANTIAL SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD CAUSE OUR
STOCK PRICE TO FALL.
The market price of our common stock could decline as a result of sales by our
existing stockholders of shares of common stock in the market after this
offering or the perception that these sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate. Upon completion of this offering,
assuming the number of outstanding shares as of February 29, 2000, we will have
16,564,509 outstanding shares of common stock, 16,939,509 shares if the
underwriters exercise their over-allotment option in full. Of these shares, a
total of approximately 4,965,581 shares held by our directors, executive
officers and 5% stockholders are subject to lock-up agreements generally
providing that these stockholders will not sell or otherwise dispose of their
shares for a period of 90 days following the date of the final prospectus for
this offering without the prior written consent of the representatives.
In addition, approximately 60 days after the date of the final prospectus for
this offering, we will file a resale registration statement with the SEC to
register 2,000,000 shares of our common stock acquired in connection with a
private placement that was completed in January 2000. We will use our best
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efforts to have that resale registration statement declared effective within
90 days following the date of the final prospectus for this offering and these
shares will become freely tradable upon the expiration of this 90-day period. In
addition, options to purchase up to 1,617,745 shares of our common stock are
outstanding as of February 29, 2000 under our stock option plans.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY.
In the past, securities class action litigation has often been brought against a
company following a decline in the market price of its securities. This risk is
especially acute for us because biotechnology companies have experienced greater
than average stock price volatility in recent years and, as a result, have been
subject to, on average, a greater number of securities class action claims than
companies in other industries. We may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and divert
management's attention and resources, and could seriously harm our business,
financial condition and results of operations.
PROVISIONS IN DELAWARE LAW AND OUR CHARTER MAY PREVENT OR DELAY A CHANGE OF
CONTROL.
We are subject to the Delaware anti-takeover laws regulating corporate
takeovers. These anti-takeover laws prevent Delaware corporations from engaging
in a merger or sale of more than 10% of its assets with any stockholder,
including all affiliates and associates of the stockholder, who owns 15% or more
of the corporation's outstanding voting stock, for three years following the
date that the stockholder acquired 15% or more of the corporation's stock
unless:
- the board of directors approved the transaction where the stockholder
acquired 15% or more of the corporation's stock;
- after the transaction where the stockholder acquired 15% or more of the
corporation's stock, the stockholder owned at least 85% of the
corporation's outstanding voting stock, excluding shares owned by
directors, officers and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held under the plan will be tendered in a tender or exchange offer;
or
- on or after this date, the merger or sale is approved by the board of
directors and the holders of at least two-thirds of the outstanding voting
stock that is not owned by the stockholder.
As such, these laws could prohibit or delay mergers or a change of control of us
and may discourage attempts by other companies to acquire us.
Our certificate of incorporation and bylaws include a number of provisions that
may deter or impede hostile takeovers or changes of control or management. These
provisions include:
- our board is classified into three classes of directors as nearly equal in
size as possible with staggered three year-terms;
- the authority of our board to issue up to 5,000,000 shares of preferred
stock and to determine the price, rights, preferences and privileges of
these shares, without stockholder approval;
- all stockholder actions must be effected at a duly called meeting of
stockholders and not by written consent;
- special meetings of the stockholders may be called only by the chairman of
the board, the chief executive officer or the board; and
- no cumulative voting.
These provisions may have the effect of delaying or preventing a change of
control, even at stock prices higher than the then current stock price.
19
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of December 31, 1999 on:
- an actual basis;
- a pro forma basis, giving effect to the following stock transactions:
- the sale and issuance in January 2000 of 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; and
- the sale and issuance in February 2000 of 279,470 shares of common
stock to Warner-Lambert in a private placement, at a price of $17.891
per share, for aggregate proceeds of $5,000,000; and
- a pro forma as adjusted basis to reflect the sale of the shares of common
stock in this offering at an assumed offering price of $18.375 per share,
the last reported sale price of our common stock on March 24, 2000, after
deducting underwriting discounts and estimated offering expenses payable
by us.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $14,463 $37,463 $ 79,744
======= ======= =========
Long-term debt, non-current portion......................... $ 183 $ 183 $ 183
------- ------- ---------
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized, issuable in series; none issued and
outstanding
Common stock, $0.001 par value; 25,000,000 shares
authorized; 11,551,681 shares issued and outstanding,
actual; 13,831,151 shares issued and outstanding, pro
forma; 16,331,151 shares issued and outstanding, pro
forma as adjusted....................................... 12 14 16
Additional paid-in capital................................ 85,723 108,721 151,000
Accumulated deficit....................................... (78,073) (78,073) (78,073)
------- ------- ---------
Total stockholders' equity.............................. $ 7,662 $30,662 $ 72,943
======= ======= =========
Total capitalization.................................. $ 7,845 $30,845 $ 73,126
======= ======= =========
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of December 31, 1999 and excludes:
- 2,011,447 shares issuable upon exercise of outstanding options as of
December 31, 1999, at a weighted average exercise price of $7.05 per
share;
- an aggregate of 298,199 shares of common stock available for future
issuance under our stock option plans as of December 31, 1999; and
- an aggregate of 48,079 shares of common stock available for future
issuance under our Employee Stock Purchase Plan as of December 31,
1999.
22
<PAGE>
DILUTION
As of December 31, 1999, we had a pro forma net tangible book value of
$30,662,000, or $2.22 per share. Pro forma net tangible book value per share
represents the amount of our stockholders' equity, less intangible assets,
divided by 13,831,151 shares of common stock outstanding after giving effect to:
- the sale and issuance in January 2000 of 2,000,000 shares of common stock
to four institutional investors in a private placement at $9.00 per share
for aggregate proceeds of $18.0 million; and
- the sale and issuance in February 2000 of 279,470 shares of common stock,
to Warner-Lambert in a private placement at $17.891 per share, for
aggregate proceeds of $5.0 million.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock outstanding immediately after completion of this offering at an
assumed offering price of $18.375 per share, the last reported sale price of our
common stock on March 24, 2000. After giving effect to the sale by us of
2,500,000 shares of common stock in this offering, after deducting the
underwriting discounts and offering expenses, our pro forma net tangible book
value as of December 31, 1999 would have been $4.47 per share to existing
stockholders and an immediate dilution in net tangible book value of $13.91 per
share to purchasers of common stock in this offering, as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share................... $18.375
-------
Pro forma net tangible book value per share
as of December 31, 1999............................... $ 2.22
Increase per share attributable to new investors........ 2.25
-------
As adjusted pro forma net tangible book value per share
after the offering...................................... 4.47
-------
Dilution per share to new investors....................... $13.905
=======
</TABLE>
The following tables shows the total consideration paid and the average price
per share paid by the existing stockholders and by new investors, after
deducting underwriting discounts and offering expenses payable by us at an
assumed public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 13,831,151 84.7% $107,507,000 70.1% $ 7.77
New investors.......................... 2,500,000 15.3 45,937,500 29.9% $18.375
----------- ----- ------------ -----
Total.............................. 16,331,151 100.0% $153,444,500 100.0%
=========== ===== ============ =====
</TABLE>
The foregoing discussion and tables are based on the total number of shares
outstanding on December 31, 1999 and excludes:
- 2,011,447 shares of common stock subject to outstanding stock options at
December 31, 1999, at a weighted average exercise price of $7.05 per
share;
- an aggregate of 298,199 shares of common stock reserved for future
issuance under our stock option plans as of December 31, 1999; and
- an aggregate of 48,079 shares of common stock reserved for future issuance
under our Employee Stock Purchase Plan as of December 31, 1999.
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with, and
are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
prospectus, and the financial statements and related notes thereto included in
our annual report on Form 10-K for the year ended December 31, 1999, which is
incorporated herein by reference. The statement of operations data for the years
ended December 31, 1997, 1998, and 1999 and the balance sheet data as of
December 31, 1998 and 1999 are derived from, and qualified by reference to, our
audited financial statements included in our annual report on Form 10-K for the
year ended December 31, 1999 and should be read in conjunction with those
financial statements and related notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................... $ 6,945 $ 8,302 $ 7,799 $ 11,314 $ 13,324
Operating expenses:
Research and development................... 13,290 14,767 20,715 25,383 23,627
General and administrative................. 2,807 3,527 5,089 5,275 5,341
------- ------- -------- -------- --------
Loss from operations......................... (9,152) (9,992) (18,005) (19,344) (15,644)
Interest income, net......................... 725 1,575 1,980 1,685 842
------- ------- -------- -------- --------
Net loss..................................... $(8,427) $(8,417) $(16,025) $(17,659) $(14,802)
======= ======= ======== ======== ========
Net loss per share........................... $ (8.92) $ (1.31) $ (1.65) $ (1.56) $ (1.29)
======= ======= ======== ======== ========
Shares used in computing net loss per
share...................................... 945 6,401 9,707 11,289 11,503
======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments.............................. $ 12,483 $ 40,329 $ 35,472 $ 32,160 $ 14,463
Total assets............................... 17,756 45,779 41,858 37,207 21,628
Working capital............................ 9,447 36,483 27,885 19,591 6,773
Long term debt, non-current portion........ 544 99 4,336 2,382 183
Accumulated deficit........................ (21,170) (29,587) (45,612) (63,271) (78,073)
Total stockholders' equity................. $ 13,545 $ 40,923 $ 28,821 $ 21,619 $ 7,662
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "MAY," "WILL," "EXPECTS,"
"ANTICIPATES," "ESTIMATES," "INTENDS," "PLANS," "PREDICTS," "POTENTIAL,"
"BELIEVE," "SHOULD" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS".
OVERVIEW
We are engaged in the discovery and development of 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.
Depending upon final results of preclinical testing of this compound, we expect
Bayer to file an IND with the FDA 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 December 31, 1999, our accumulated
deficit was approximately $78.1 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 $17.891 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.
25
<PAGE>
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
TOTAL REVENUES. Our total revenues in each of the last three years was derived
almost exclusively from collaborative research and development programs with
Warner-Lambert, Bayer and Eli Lilly & Company. The approximate revenue from each
of our programs, and other sources for each of the past three years was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Warner-Lambert:
ONYX-015 and Armed Viruses................................ $ -- $ -- $ 4.0
Cell Cycle................................................ 1.8 2.8 2.7
Inflammation.............................................. -- 3.1 3.3
Bayer....................................................... 4.7 3.7 1.8
Eli Lilly & Company......................................... 1.2 1.2 0.5
----- ----- -----
Total contract revenues................................... 7.7 10.8 12.3
All other sources........................................... 0.1 0.5 1.0
----- ----- -----
Total revenues............................................ $ 7.8 $11.3 $13.3
===== ===== =====
</TABLE>
Total revenues increased by 45% from 1997 to 1998 and 18% from 1998 to 1999, in
each case primarily as a result of increased contract revenues. Total contract
revenues are expected to increase in 2000 from total contract revenues realized
in 1999 because we anticipate a full year of revenues under the Warner-Lambert
ONYX-015 collaborative agreement, which was in effect for only four months of
1999. In January 1999, our collaboration with Bayer transitioned from a research
program to the co-development of a product candidate and as a result, we will
not recognize any revenue in 2000 from this program. In June 1999, the
collaboration program with Eli Lilly & Company expired pursuant to the terms of
the agreement and as a result, we will not recognize any future revenues under
this program.
RESEARCH AND DEVELOPMENT. Research and development expenses were $20.7 million
in 1997, $25.4 million in 1998 and $23.6 million in 1999. The 1998 expense
increase of 23% was primarily due to additional costs associated with Phase I
and Phase II clinical trials of ONYX-015 and, additionally, due to higher
research expenses in our self-funded virus program. The 1999 expense decrease of
7% was primarily due to a reduced level of research activities associated with
the transition of the ras program. Research under our collaboration agreements
with Warner-Lambert is fully funded by them up to specified levels. 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. These research and development expenses may
not be funded by collaborative parties.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$5.1 million in 1997, $5.3 million in 1998 and $5.3 million in 1999. General and
administrative expenses for all three years remained at essentially the same
level. It is anticipated that general and administrative expenses may increase
modestly in future periods in order to support increases in research and
development activities.
26
<PAGE>
NET INTEREST INCOME. We had net interest income of $2.0 million in 1997,
$1.7 million in 1998 and $0.8 million in 1999. Net interest income decreased by
15% in 1998 primarily due to higher interest expense on a line of credit
arrangement entered into in December 1997. Net interest income decreased by 50%
in 1999 primarily due to a lower average balance of cash, cash equivalents and
short-term investments.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, our cash expenditures have substantially exceeded our
revenues, and we have relied primarily on the proceeds from the sale of equity
securities and revenues from collaborative research and development agreements
to fund our operations.
At December 31, 1997, we had cash and investments of $35.5 million, compared to
$32.2 million at December 31, 1998 and $14.5 million at December 31, 1999. The
decrease of $3.3 million in 1998 was primarily due to cash used in operations of
$10.5 million, repayment of debt of $2.1 million and capital expenditures of
$1.3 million primarily offset by the issuance of 1,403,508 shares of common
stock to two institutional investors, raising $10.0 million in aggregate
proceeds. The decrease of $17.7 million in 1999 was primarily due to cash used
in operations of $14.6 million, repayment of debt of $2.2 million and capital
expenditures of $1.4 million.
Our cash used in operations was $11.8 million in 1997, $10.5 million in 1998 and
$14.6 million in 1999. This cash was used primarily to fund increasing levels of
research and development and the general and administrative expenses necessary
to support increased operations. Expenditures for capital equipment amounted to
$2.2 million in 1997, as compared to $1.3 million in 1998 and $1.4 million in
1999. We currently expect to make expenditures for capital equipment of
approximately $2.9 million in 2000.
We recorded and amortized over the related vesting periods deferred compensation
representing the difference between the exercise price of options granted and
the deemed fair value of our common stock at the time of grant. Options
generally vest over four years. The amortization of deferred compensation was
$219,000 in both 1997 and 1998 and $194,000 in 1999. During 1999, deferred
compensation was fully amortized.
We believe that our existing capital resources and interest thereon including
equity placements of $23.0 million in early 2000 and anticipated revenues from
existing collaborations will be sufficient to fund our current and planned
operations through at least March 2001, before consideration of the proceeds of
this offering. 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Reporting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," or SFAS
133. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Change in the fair value of derivatives
27
<PAGE>
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 Statement of Financial Reporting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133," or 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.
IMPACT OF THE YEAR 2000
In our public disclosures in 1999, we discussed the nature and progress of our
plans to be Year 2000 compliant. In late 1999, we completed our remediation and
testing of computer systems and research and development software and
instrumentation. As a result of those planning and implementation efforts, we
experienced no significant disruptions in those systems applications or our
financial and information technology systems. We believe those systems
successfully responded to the Year 2000 date change. We expensed approximately
$200,000 during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with our
research and development systems, other internal systems or the products and
services of our significant suppliers and other third parties. We will continue
to monitor our computer applications and those of our suppliers throughout the
year 2000 to ensure that any Year 2000 matters that may arise are addressed
promptly.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. Our exposure to market rate risk for changes in interest
rates relates primarily to our investment portfolio. We do not use derivative
financial instruments in our investment portfolio. By policy, we place our
investments with high quality debt security issuers, limit the amount of credit
exposure to any one issuer, limit duration by restricting the term, and hold
investments to maturity except under rare circumstances. We classify our cash
equivalents or short-term investments as fixed rate if the rate of return on an
instrument remains fixed over its term. As of December 31, 1999, all of our cash
equivalents and short-term investments are classified as fixed rate.
The table below presents the amounts and related weighted interest rates of our
cash equivalents and short-term investments at December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE
FAIR VALUE INTEREST
MATURITY (IN $ MILLIONS) RATE
---------- --------------- ----------
<S> <C> <C> <C>
Cash equivalents, fixed rate............. Daily 12.7 5.29%
Short-term investments, fixed rate....... 0 - 1 year 1.8 5.56%
</TABLE>
28
<PAGE>
BUSINESS
OVERVIEW
We are developing innovative products for the treatment of cancer based on our
proprietary virus technology platform. Our platform employs
selectively-replicating viruses to kill cancer cells in the human body, leaving
healthy, non-cancerous tissues unharmed. Our lead product candidate, ONYX-015,
is an engineered virus that has been genetically modified to selectively
replicate in and destroy human cancer cells that are deficient in p53 tumor
suppressor gene function. Mutations in the p53 gene occur in over 50% of human
cancer cases.
We have completed two Phase II clinical trials of ONYX-015 for the treatment of
head and neck cancer. Based on the data from these trials, we intend to begin a
Phase III clinical trial of ONYX-015 in the middle of 2000. This Phase III
pivotal trial will be conducted in conjunction with Warner-Lambert, our
collaborative partner for the development and commercialization of ONYX-015. We
are also evaluating ONYX-015 in Phase I/II and Phase I clinical trials for four
additional cancer indications and expect to report interim results from several
of these studies at the ASCO meeting in May 2000.
To expand our product portfolio, we are developing a number of technologies that
are complementary to our core virus technology platform. First, we are arming
our therapeutic viruses with anticancer genes. We believe that we can arm
viruses to activate the production of a chemotherapeutic agent at the tumor
site. Second, we are developing approaches to enhance systemic delivery of our
viruses. We believe that systemic delivery would enable our therapeutic viruses
to treat a wider spectrum of cancer patients, including those with metastatic
disease. Additionally, we are engineering therapeutic viruses to selectively
replicate in and destroy cancer cells that are deficient in the RB tumor
suppressor gene function. Mutations in the RB gene occur in over 30% of human
cancer cases.
We have entered into an agreement with Warner-Lambert to develop and
commercialize ONYX-015 as well as two armed therapeutic viruses. Under the terms
of this agreement, we have the right to co-promote ONYX-015 in the United States
and Canada and share equally in the resulting profits or losses. Furthermore,
Warner-Lambert has the right to commercialize these products in the rest of the
world and is obligated to pay us a royalty based on net sales in these markets.
Additionally, Warner-Lambert is obligated to fund up to $40.0 million of
development costs related to ONYX-015 and to fully fund preclinical development
of the two armed viruses.
In addition to our therapeutic virus programs, we are working with
Warner-Lambert and Bayer to identify and develop small molecule therapeutic
compounds for a number of cancers. Together with Bayer, we have selected a
compound for clinical development that inhibits ras signaling in cancer cells.
Mutations in the ras gene occur in nearly 30% of human cancer cases. We
anticipate that Bayer will file an IND for this compound in the middle of 2000.
p53 AND RB FUNCTION AND HUMAN CANCER
Cancer is caused by a number of genetic changes or mutations that allow affected
cells to grow uncontrollably. Tumor suppressor genes are normal growth
regulators that are inactivated through mutations, and their loss of function
results in cancer formation. RB and p53 are tumor suppressors that regulate cell
division and cell death in normal cells, and the loss of either function is
often associated with uncontrollable proliferation. The majority of human
cancers appear to be dependent on loss of p53 and RB function. This is a major
difference between cancer and normal cells. Our therapeutic virus platform is
aimed at taking advantage of these important differences.
TECHNOLOGY PLATFORM
Most current non-surgical therapies for cancer, such as chemotherapy and
radiation, discriminate poorly between tumor and normal cells and result in
damage to healthy tissues. Consequently, these treatments can have serious
adverse side effects that frequently limit their use. Our technology enables
29
<PAGE>
the selective killing of cancer cells based on the presence of mutations
affecting specific tumor suppressor gene function. We utilize our technology to
engineer human adenoviruses to selectively replicate in and kill cancer cells
based on the presence of mutations affecting p53 and RB tumor suppressor gene
functions. In healthy cells, human adenoviruses inactivate p53 and RB to
reproduce themselves. Our therapeutic viruses are engineered to lack the ability
to inactivate p53 and RB in healthy cells, and therefore, cannot reproduce
efficiently in and harm normal tissues. By contrast, because the p53 and RB
tumor suppressor gene functions have been eliminated in cancer cells, our
engineered viruses can replicate efficiently and kill these cells. This leaves
the body's healthy tissue unaffected, while the newly made and released virus
progeny infect nearby cancer cells and perpetuate the selective cancer cell
killing cycle, thereby amplifying the therapeutic effect.
We are developing a number of technologies that complement our
selectively-replicating virus platform. First, we are developing the capability
to arm our therapeutic viruses with anticancer genes. The significant features
of this technology are selective expression and amplification of anticancer
genes within the local tumor environment. Because our virus selectively
replicates in tumor cells, the anticancer gene is also selectively expressed at
the tumor site. We believe this should minimize systemic exposure and toxicity.
Furthermore, we believe that as the virus replicates, it will also steadily
increase the concentration of the therapeutic agent in the cancer mass, thereby
adding to the virus' anticancer effect. Thus, the selectivity and amplification
features inherent to our technology should expose the tumor to higher levels of
the therapeutic agent than is possible with other methods of administration. We
plan to arm our viruses with a number of anticancer genes. The two initial
classes are prodrug converting enzyme genes which might convert a nontoxic
prodrug into a cytotoxic chemotherapeutic, and those genes that might stimulate
immune response against the tumor.
In addition to our armed virus program, we are developing ways to physically or
genetically modify our therapeutic viruses to improve their circulating
half-life upon systemic administration. We believe that this is important for
treatment of a broad range of cancers, including metastatic disease.
ONYX-015
Our lead product, ONYX-015, is a human adenovirus that has been modified so that
it does not make E1B 55k, a viral protein that binds to cellular p53 and blocks
its function. As a result, ONYX-015 cannot inactivate the p53 protein and
effectively harm normal cells. However, in the majority of cancer cells, p53
function is already lost through mutation. When ONYX-015 infects cancer cells,
the virus growth cycle proceeds, the cancer cells are killed, new virus progeny
are produced and neighboring cancer cells are infected and killed.
To date, we have evaluated ONYX-015 efficacy in Phase II trials in which direct
intratumoral injections were used to treat head and neck cancer patients.
Additionally, we are conducting separate Phase I/II trials in patients with
liver metastases of colorectal cancer and in patients with pancreatic cancer.
Furthermore, separate Phase I trials have been completed in patients with
ovarian cancer and in advanced cancer patients with lung involvement. Set forth
below are the American Cancer Society's estimates for new cancer cases and
cancer deaths in the United States for the year 2000 for some of the solid tumor
cancers that we are targeting with ONYX-015.
<TABLE>
<CAPTION>
CANCER TYPE NEW CASES DEATHS
- ----------- --------- --------
<S> <C> <C>
Head and neck*........................................... 40,300 11,700
Colon and rectum......................................... 130,200 56,300
Pancreas................................................. 28,300 28,200
Ovary.................................................... 23,100 14,000
Lung..................................................... 169,000 158,000
</TABLE>
- ------------------------
* Includes cancers of the larynx, tongue, mouth, oral cavity and pharynx.
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HEAD & NECK CLINICAL PROGRAMS
We have completed two Phase II efficacy trials with ONYX-015 in head and neck
cancer patients. In the first trial, patients with end-stage refractory tumors
received intratumoral injections of ONYX-015 daily over five consecutive days.
Refractory tumors are those that no longer respond to conventional cancer
treatments, including chemotherapy. In this trial, four of 19 evaluable patients
had greater than 50% reduction in the size of their injected tumors, including
two with complete responses. A complete response is defined as a 100% reduction
in the size of the injected tumor. In this trial, ONYX-015 was well tolerated
with 60% of these patients experiencing transient flu-like symptoms.
In the second Phase II trial, ONYX-015 was administered in combination with
cisplatin and 5-fluorouracil to head and neck cancer patients with recurrent
disease. These two chemotherapeutic drugs are the current standard of care for
patients with recurrent head and neck tumors. In this trial, the dosing regimen
provided for daily direct intratumoral injections of ONYX-015 on each of days
one through five, intravenous dosing of cisplatin on day one and intravenous
dosing of 5-fluorouracil on each of days one through five. Nineteen of the 30
evaluable patients, or 63%, had regressions of greater than 50% in their
injected tumor, including eight patients, or 27%, with complete responses. We
believe these rates compare favorably to an average historical response rate
using chemotherapy alone in which approximately 35% of patients had tumor
regressions of greater than 50%, with an average complete response rate of less
than 10%. In this trial, the treatment was generally well tolerated with
chemotherapy-related gastrointestinal symptoms and injection site pain being the
most frequent adverse events reported by patients.
In a separate analysis of this same trial, we compared the efficacy of ONYX-015
plus chemotherapy in the injected tumor to the efficacy of chemotherapy alone in
distant uninjected tumors. Eleven patients had more than one tumor and only
their largest tumor was injected with ONYX-015. Nine of the 11 tumors injected
with ONYX-015 responded, while only three of the 11 patients' uninjected tumors
responded. We believe that this study, which considers the patients as their own
control, demonstrates the superiority of ONYX-015 plus chemotherapy over
chemotherapy alone.
We have had discussions with the FDA regarding the Phase III trial design for
treating patients with recurrent head and neck cancer with ONYX-015. Based on
these discussions, and together with Warner-Lambert, we intend to initiate a
pivotal Phase III clinical trial in the middle of 2000. The trial will compare
intratumoral injection of ONYX-015 plus standard chemotherapy, 5-fluorouracil
and cisplatin, versus standard chemotherapy alone. We expect that the trial will
take place at numerous centers in the United States and Europe and will include
290 evaluable patients, half in each arm of the study. The primary endpoints for
the trial are progression-free survival and durable tumor response. Secondary
endpoints include patient quality of life measurements and overall survival.
We are also planning to initiate a Phase II/III trial by the end of 2000 which
will evaluate ONYX-015 in patients with refractory head and neck cancer. We
expect this trial will include 50 to 100 patients who will receive ONYX-015 in
combination with chemotherapy, with durable tumor response as the primary
endpoint. We anticipate that the results from this second trial will also be
included in the eventual licensing applications for ONYX-015.
OTHER CLINICAL PROGRAMS
We are currently evaluating ONYX-015 in Phase I/II and Phase I clinical trials
in four additional cancer indications. We intend to report interim results from
several of these studies at the ASCO meeting in May 2000. The trials described
below are at an early stage of development and there can be no assurance that
sufficient anticancer activity or clinical benefit will be observed in later
trials to warrant registration or use in patients with these cancers.
LIVER METASTASES OF COLORECTAL CANCER. We are conducting an ongoing Phase I/II
trial in which ONYX-015 is infused via the hepatic artery in patients with liver
metastases of colorectal cancer. This
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intra-arterial route permits simultaneous delivery of ONYX-015 to multiple tumor
sites within the liver. In this trial, patients who tolerate the initial cycles
of treatment with ONYX-015 alone receive a combination of ONYX-015 plus
5-fluorouracil and leucovorin, the standard chemotherapeutic regimen for
colorectal cancer treatment, for subsequent treatment cycles. This study is in
the final stages of patient accrual and, to date, evidence of biological and
anticancer activity has been observed. We believe that the combination of
ONYX-015 with chemotherapy was able to shrink or halt the growth of intrahepatic
tumors in a number of patients who had progressed following prior chemotherapy
treatment. As a follow-up to these clinical trials, we are discussing various
Phase II protocols with Warner-Lambert.
PANCREATIC CANCER. We are conducting an ongoing Phase I/II trial in which
ONYX-015 is administered through endoscopic ultrasound-guided intratumoral
injections in patients with advanced pancreatic cancer. This technique allows
for multiple injections per treatment. Patients who tolerate the initial cycles
of treatment with ONYX-015 alone receive gemcitabine, a chemotherapeutic agent
for the treatment of pancreatic cancer, in combination with ONYX-015 in
subsequent treatment cycles. The final cohort of patients remains to be treated
in this trial. To date, we believe the combination of ONYX-015 plus gemcitabine
resulted in shrinkage or halted tumor growth in a number of patients.
OVARIAN CANCER. We have completed a Phase I trial of ONYX-015 in 16 patients
with recurrent or refractory ovarian cancer. This Phase I dose escalation trial
involved administration of five daily ONYX-015 infusions per cycle via
intraperitoneal delivery into the abdominal cavity. In this trial ONYX-015 was
generally well tolerated in patients with minimal tumor mass.
LUNG CANCER. One of our independent investigators has completed a Phase I trial
in ten patients with advanced cancers with lung involvement. The primary
objectives of the trial were to determine safety and pharmacokinetics of
intravenously administered ONYX-015. In this trial, ONYX-015 was generally well
tolerated. As a follow up to this trial, we are discussing future Phase II
intravenous trials in patients with lung and liver tumors with Warner-Lambert.
OTHER PRODUCT OPPORTUNITIES
In addition to ONYX-015, we are also conducting a number of research and
development programs based on our virus technology platform as well as our small
molecule drug discovery efforts.
PRODRUG ARMED THERAPEUTIC VIRUS PROGRAM
To expand the range of cancer indications for our product candidates, we are
developing therapeutic viruses armed with anticancer genes. A number of
anticancer chemotherapeutic agents are prodrugs, or can be synthesized as
prodrugs. A prodrug is the inactive form of a drug that requires specific
modifications to be converted to its active form. Specific enzymes are known to
carry out this conversion.
We have developed a system to arm our therapeutic viruses with genes coding for
a number of different prodrug converting enzymes. With this strategy, each virus
is armed with a single gene coding for an enzyme that can convert the prodrug to
the specific anticancer chemotherapeutic drug. Therefore the armed virus would
not only reproduce itself, but in the presence of the prodrug would also turn
the infected cancer cell into a miniature chemotherapeutic anticancer drug
factory. We obtained licenses to several prodrug converting enzyme systems for
arming our therapeutic viruses. We are working with Warner-Lambert to select the
first prodrug armed therapeutic virus for preclinical development.
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RB-SELECTIVE THERAPEUTIC VIRUS PROGRAM
Nearly 30% of all human cancers contain mutations in the RB gene. It is now
believed that mutated components of the RB pathway are present in nearly all
human cancers. We have engineered human adenoviruses to selectively replicate in
and kill cancer cells based on defects in the RB pathway in these cells. In
preclinical studies, these candidate therapeutic viruses have been shown to
selectively replicate and result in significant tumor shrinkage in animal
models. Depending on the results of these preclinical studies, we may designate
a RB-selective therapeutic virus as a clinical candidate in 2000 for treatment
of human cancers.
RAS PATHWAY INHIBITOR PROGRAM
Mutations in the ras gene occur in approximately 30% of all human cancers,
including 90% of pancreatic, 50% of colon and some lung cancers. With Bayer, we
have selected a compound for clinical development that inhibits ras signaling in
cells. This compound is currently undergoing advanced toxicology studies.
Depending on the results of these studies, we expect Bayer to file an IND for
this compound in the middle of 2000.
CELL CYCLE AND INFLAMMATION PROGRAMS
Together with Warner-Lambert, we have identified a number of lead compounds that
modulate the activity of key enzymes that regulate the cell cycle or are
associated with inflammatory diseases. Cell cycle is the process whereby a
single cell replicates its DNA and divides into two identical new cells.
Mutations in cell cycle regulating enzyme genes are present in a majority of
human cancers. The most advanced lead compound in these programs is currently
being evaluated for its efficacy in animal models of human cancer. Joint
research under these programs is expected to continue until the middle of 2001.
BUSINESS STRATEGY
Our objective is to be a leading developer of novel cancer therapies. We intend
to develop and commercialize a broad portfolio of products based primarily on
our selectively-replicating virus technology platform. Elements of our strategy
are to:
- OBTAIN REGULATORY APPROVAL FOR ONYX-015 FOR HEAD AND NECK CANCER. We have
completed Phase II clinical trials of ONYX-015 for treatment of patients
with head and neck cancer. Together with Warner-Lambert, and based on our
discussions with the FDA, we are ready to begin a Phase III pivotal trial
aimed at gaining regulatory approval of ONYX-015.
- DEVELOP ONYX-015 FOR OTHER CANCER INDICATIONS. We are in the process of
completing separate Phase I/II clinical trials in patients with liver
metastases of colorectal cancer and in patients with pancreatic cancer.
Separate Phase I trials evaluating ONYX-015 as a treatment for patients
with ovarian cancer and advanced cancer patients with lung involvement
have also been completed. Based on the results from these studies, we
expect to initiate further clinical trials in an effort to generate data
supporting the therapeutic value of ONYX-015 in multiple cancer
indications.
- BROADEN OUR THERAPEUTIC VIRUS PRODUCT PORTFOLIO. We are currently
evaluating RB-selective therapeutic viruses in preclinical models for
efficacy and toxicity effects. In addition, we are developing armed
viruses that incorporate prodrug systems to selectively activate
chemotherapeutic drugs within tumors. We are in the process of developing
our first prodrug armed virus for preclinical development.
- RETAIN SUBSTANTIAL CO-PROMOTION RIGHTS TO OUR PRODUCTS. We intend to build
sales and marketing capabilities to promote our products in the United
States and Canada. In establishing new product collaborations, we seek to
retain at least 50% of marketing and profit-sharing rights in
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the United States. For ONYX-015 and the two armed viruses, we have
retained co-promotion rights as well as the opportunity for equal profit
sharing in the United States and Canada. Our collaboration with Bayer
offers us co-promotion and profit-sharing rights of any developed product
in the United States.
- COLLABORATE WITH LEADING PHARMACEUTICAL COMPANIES. To market and
distribute our products worldwide, we intend to collaborate with leading
pharmaceutical companies that have worldwide marketing and distribution
capabilities.
- ACQUIRE TECHNOLOGIES AND PRODUCTS THAT COMPLEMENT OUR BUSINESS. We intend
to in-license or acquire complementary technologies to enhance our product
portfolio and strengthen our market position. Currently, we are focusing
on accessing technologies to strengthen our efforts in arming our
therapeutic viruses with anticancer genes as well as formulating our
therapeutic viruses for systemic delivery. Additionally, we intend to
pursue an acquisition strategy targeting products in late stage
development that fit our focus on cancer.
COLLABORATIONS
WARNER-LAMBERT: ONYX-015 AND TWO ARMED THERAPEUTIC VIRUSES
Effective September 1999, we entered into an agreement with Warner-Lambert for
purposes of developing and commercializing ONYX-015 and two armed therapeutic
viruses. Under the terms of this agreement, we have the right to co-promote
ONYX-015 and the two armed virus products with Warner-Lambert in the United
States and Canada. We also have the right to share equally in resulting profits
or losses in these territories. Additionally, Warner-Lambert is responsible for
commercializing the products in the rest of the world and is obligated to pay us
a royalty on net sales in these markets.
We will jointly manage the development of these products. Warner-Lambert will be
primarily responsible for conducting the agreed-upon Phase III registration
trials of ONYX-015 in head and neck cancer and other registration trials in
various cancer indications. The parties are required to share responsibility for
Phase I and Phase II exploratory trials. Warner-Lambert is responsible for the
commercial manufacturing of the collaboration products.
Warner-Lambert is obligated to provide the first $40 million in funding for
clinical development of ONYX-015. We are obligated to fund 25% of the costs over
$40 million in order to retain our profit sharing and co-promotion rights in the
United States and Canada, and Warner-Lambert is obligated to fund the remaining
75%. Warner-Lambert is also required to fully-fund the research and preclinical
development of the two armed virus product candidates. When a product candidate
is selected for clinical development, we will be obligated to pay 25% of the
development costs in order to retain our profit-sharing and co-promotion rights
in the United States and Canada for any resulting product. If we choose not to
or are unable for any reason to: (a) fund our portion of the development costs
for ONYX-015 or an armed virus product candidate, or (b) maintain our required
co-promotion effort, we would lose our co-promotion and profit-sharing rights
for that product, the product would be exclusively licensed to Warner-Lambert,
and we would receive a royalty on these sales in the applicable market.
One of these two armed virus product candidates will be a p53-selective
therapeutic virus armed with a prodrug-converting enzyme. The armed virus
products provided for in the agreement are currently in the research stage, and
the timing of clinical trials will depend on the results of research and
preclinical development activities. We have retained the rights to independently
develop and commercialize p53-selective armed virus products other than the two
selected in the collaboration. In addition, we retain rights to all other
products derived from our therapeutic virus platform.
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In addition to providing ongoing research and development support,
Warner-Lambert is obligated to make milestone payments based on product
development achievements. If all products covered by the agreement are developed
successfully, these milestone payments could exceed $100 million.
Warner-Lambert has the right to terminate this agreement, or terminate its
efforts directed at select product candidates, at any time on 90 days advance
notice. In such event, all product rights, or related product rights in the case
of termination directed at select product candidates, would revert to us. These
product rights would be royalty-free in the case of ONYX-015, and would be
royalty-bearing to Warner-Lambert in the case of the armed virus product
candidates, if such candidates had entered clinical trials prior to termination.
WARNER-LAMBERT: CELL CYCLE PROGRAM
In May 1995, we entered into a research and development collaboration agreement
with Warner-Lambert to discover and commercialize small molecule drugs that
restore control of or otherwise intervene in misregulated cell cycle transitions
in tumor cells. Under this agreement, we assume the responsibility for
developing screening assays for jointly selected targets, and have transferred
these assays to Warner-Lambert for high throughput screening of their compound
library to identify active compounds. Warner-Lambert is responsible for
subsequent medicinal chemistry and preclinical investigations on the active
compounds. We will receive milestone payments on clinical development and
registration and royalties on worldwide sales of the products. Warner-Lambert is
obligated to conduct and fund all clinical development, make regulatory filings
and manufacture for sale the collaboration compounds. Research under this
agreement has been extended through May 2001, but we do not expect the research
term under this agreement to extend beyond this date. Thereafter, Warner-Lambert
may develop products identified during the research term and we could receive
milestone payments and royalties on these marketed products.
WARNER-LAMBERT: INFLAMMATION PROGRAM
In July 1997, we entered into a three-year research and development
collaboration agreement with Warner-Lambert to discover and commercialize small
molecule drugs for the treatment of acute and chronic inflammatory disorders.
The obligations of the parties are similar to those agreed to under the cell
cycle program and each party must dedicate a specified minimum number of
researchers to the collaboration. We would receive milestone payments based on
the development and registration of any resulting products and would receive
royalties on worldwide sales. Research under this agreement has been extended
through July 2001, but we do not expect the research term under this agreement
to extend beyond such date. Thereafter, Warner-Lambert may develop products
identified during the research term and we could receive milestone payments and
royalties on these marketed products.
BAYER
Effective February 1994, we established a research and development collaboration
with Bayer to discover, develop and market compounds that inhibit the function,
or modulate the activity, of the ras signaling pathway or that appropriately
modulate the activity of this pathway in order to treat cancer and other
diseases. Collaborative research under this agreement was concluded in 1999, and
as a result, a development candidate has been identified. Currently, Bayer is
completing preclinical work, and if final toxicology studies are favorable, we
expect Bayer to file an IND for this drug candidate in the middle of 2000.
Bayer has paid all the costs of research and preclinical development of this
drug candidate. Under our agreement with Bayer, we have the opportunity to
co-fund 50% of clinical development costs worldwide, excluding Japan. Bayer will
fund 100% of development costs in Japan and pay us a royalty on sales. If we
co-fund and we exercise our right to co-promote in the United States, we would
share equally in profits or losses. If we do not co-promote in the United
States, Bayer would first receive a
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portion of the product revenues to repay Bayer for its commercialization
infrastructure, before determining our share of profits and losses. In other
parts of the world except Japan, Bayer would also receive this preferential
distribution. If we elect to share in development costs, Bayer would pay us
substantial development milestone payments based on the product's progress
through clinical trials. These milestone payments would be repayable to Bayer
from our share of profits and royalties. At any time during product development,
either company may terminate its participation in development costs, in which
case the other party would retain exclusive rights to the product on a
royalty-bearing basis. If we do not exercise our option to bear 50% of product
development costs, Bayer would retain exclusive, worldwide rights to this
product candidate and would pay royalties to us on net sales.
In addition to the development candidate referred to above, final screening and
lead evaluation is still continuing with respect to other compounds identified
in the course of the collaborative research program with Bayer. There is no
assurance that any additional development candidates will be identified.
CHIRON
Our business began in April 1992 by means of the transfer from Chiron to us of
the drug discovery program being conducted at Chiron by Dr. Frank McCormick, our
scientific founder, and his research team. Under an agreement between Chiron and
us, Chiron has an option through April 2007 to receive an exclusive or
co-exclusive royalty-bearing license to our diagnostic and vaccine product
candidates. If Chiron does not exercise its option rights with respect to a
particular product candidate, then prior to the completion of Phase II clinical
trials, we may seek a third party licensor of that product, subject to a right
of first refusal in favor of Chiron, and after the completion of Phase II
clinical trials for product candidates, the related option rights of Chiron
expire.
This agreement also includes a mechanism for our making proposals to Chiron for
future collaborations. Such proposal would require that we disclose to Chiron
the material information known to us regarding the program and propose a set of
commercial terms. If such a proposal is made, and we and Chiron do not reach
agreement within 60 days after we make the proposal, then we may, within
120 days thereafter, enter into an agreement with a third party on terms no more
favorable taken as a whole than the terms that we offered to Chiron. Chiron has
advised us that it believes the foregoing provision, in the context of the other
provisions of this agreement, requires us to offer gene therapy programs to
Chiron pursuant to this mechanism before we license any such program to a third
party. We do not agree that these provisions impose this obligation to make
proposals to Chiron. However, the resulting uncertainty about the interpretation
of this agreement may impede our ability to enter into agreements with other
companies for gene therapy products in the absence of a waiver by Chiron.
Chiron has never exercised any right to receive a product license from us. In
mid-1999, Chiron delivered a letter 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. We executed the agreement with
Warner-Lambert concerning ONYX-015 and two armed viruses during the period of
time covered by this letter. We understand that Chiron has recently reduced its
research activities in the field of gene therapy. However, it is possible that
Chiron will, in the future, assert rights under this agreement, which may impede
or delay our ability to enter into collaboration agreements with others.
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MARKETING AND SALES
We currently have no marketing, sales or distribution capabilities, but we
intend to build these capabilities to promote our products in the United States
and Canada. Consequently, we have retained co-promotion rights in these
territories for most of our products. We also expect to exploit relationships
with one or more pharmaceutical companies with established marketing, sales and
distribution capabilities and direct sales forces to market our products. We
have begun to build marketing capabilities in the United States by hiring an
experienced oncology marketing executive in December 1999. There can be no
assurance that we will be able to establish in-house marketing, sales and
distribution capabilities or relationships with third parties, or that we will
be successful in gaining market acceptance for our products.
MANUFACTURING
At this time, we do not have internal manufacturing capabilities to supply small
or large-scale clinical trials or commercial quantities, nor do we have
experience in such manufacturing. We expect that our collaborative partners will
manufacture our therapeutic virus products for late-stage clinical development
and commercialization. Warner-Lambert has an exclusive right to manufacture the
products that result from our collaborations with them. To manufacture our
products for clinical trials or on a commercial scale, if we are required to or
choose to do so, we will have to build or gain access to a manufacturing
facility, which will require a significant amount of funds. In our
collaborations in small molecule drug discovery, Bayer and Warner-Lambert are
obligated to manufacture all such drugs for clinical development and
commercialization.
We use a contract manufacturer, BioReliance Corporation, for the production of
ONYX-015 for use in Phase I and Phase II clinical trials. In December 1998, we
entered into an agreement with Molecular Medicine LLC to manufacture ONYX-015
for use in Phase III clinical trials using a commercially scaleable
manufacturing process. The term of this agreement expires in June 2000 and we
are currently negotiating an extension. Although Molecular Medicine has produced
viral products for Phase I and Phase II clinical trials, Molecular Medicine has
not produced Phase III clinical trial materials for us or any other parties.
Molecular Medicine has modified its facility and procedures and has adopted our
production process. Initial lots of drug material using this process have been
produced by Molecular Medicine, but have not yet been released for clinical
usage. We have also initiated efforts to increase the yield of ONYX-015 from the
new process to meet the expected Phase III patient accrual schedule. Because
Molecular Medicine has not previously produced Phase III clinical trial
material, there could be delays in the production of materials necessary to
begin or continue the Phase III trials.
We currently anticipate that Molecular Medicine will be able to produce
sufficient quantities of ONYX-015 to supply our pivotal Phase III trial for
treatment of head and neck cancer. To the extent there are other indications
that could be targeted for regulatory approval, the capacity of Molecular
Medicine could become limiting and priorities and timelines might change. We
also expect that Phase I and Phase II trials in other cancer indications can be
adequately supplied using drug materials from BioReliance. Together with
Warner-Lambert, we are currently developing plans for process scale-up and
additional facilities for commercial manufacturing of ONYX-015. While
substantial progress has been made in the development of a scaleable,
commercially feasible manufacturing process, there can be no assurance that such
a process will be successfully adapted to commercial scale in a timely manner.
We are aware of only a limited number of manufacturers who we believe would have
the ability and capacity to manufacture this product or any other therapeutic
viruses we may develop. Failure of any such third-party manufacturer to comply
with state and federal regulations and to deliver the required quantities on a
timely basis and at commercially reasonable prices would materially adversely
affect our business, financial condition and results of operations. No assurance
can be given that we, alone or with
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a third party, will be able to make the transition to commercial-scale
production of our potential products successfully, if at all, or that if
successful, we will be able to maintain such production.
PATENTS AND PROPRIETARY RIGHTS
We believe that patent and trade secret protection is crucial to our business
and that our future will depend in part on our ability to obtain patents,
maintain trade secret protection and operate without infringing the proprietary
rights of others, both in the United States and other countries. In
October 1997, we were awarded United States Patent No. 5,677,178 for claims
covering the use of ONYX-015 for the treatment of functionally p53-deficient
cancers. In April 1999, we were awarded European patent, No. 689,447 for claims
covering the use of ONYX-015 for the treatment of functionally p53-deficient
cancers. We were also awarded United States Patent No. 5,801,029, a broad
methods of use patent, for claims covering the use of certain adenoviral mutants
that kill functionally RB-deficient tumor cells. Each of these cases' claims has
been issued covering arming these viruses with anticancer genes. Further, we
have made additional filings worldwide that claim adenoviruses that can be used
to kill functionally deficient p53 or RB cancer cells, with or without a prodrug
converting enzyme. We were also awarded United States Patent No. 5,846,945, for
claims covering compositions of matter that consist of ONYX-015 and a
chemotherapeutic. As of March 5, 2000, we owned or had licensed rights to 33
U.S. patents and 51 U.S. patent applications, and generally, foreign
counterparts of these filings. We have licensed patents and patent applications
covering formulations of viruses, prodrug activating enzymes and other
technology useful in the conduct of our business.
Our existing patent rights may not have a deterrent effect on competitors who
are conducting or desire to commence competitive research programs with respect
to the biological targets or fields of inquiry that we are pursuing. Our
ultimate patent position will depend on our ability to obtain effective patent
coverage for the compositions of matter identified in such research programs.
Because these programs are at an early stage and, except in the therapeutic
virus programs, potential products have not yet been identified, it cannot be
determined whether potential products that may be derived from our drug
discovery program may be subject to the patent rights of third parties.
Since patent applications in the United States are maintained in secrecy until
patents issue and since publication of discoveries in the scientific or patent
literature often lag behind actual discoveries, we cannot be certain that we
were the first to make the inventions covered by each of our pending patent
applications or that we were the first to file patent applications for such
inventions. The patent positions of biotechnology and pharmaceutical companies
are highly uncertain and involve complex legal and factual questions. Therefore,
the breadth of claims allowed in biotechnology and pharmaceutical patents, or
their enforceability, cannot be predicted. To date there has been no consistent
policy regarding the breadth of claims allowed in biotechnology patents. There
can be no assurance that any of our patents or patent applications, if issued,
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to us
against competitors with similar technology. Furthermore, there can be no
assurance that others will not independently develop similar technologies or
duplicate any technology that we have developed. Because of the extensive time
required for development, testing and regulatory review of a potential product,
it is possible that, before any of our products can be commercialized, any
related patent may expire, or remain in existence for only a short period
following commercialization, thus reducing any advantage of the patent.
We are aware of pending patent applications that have been filed by others that
may pertain to certain aspects of our programs. If patents are issued to others
containing preclusive or conflicting claims and such claims are ultimately
determined to be valid, we may be required to obtain licenses to these patents
or to develop or obtain alternative technology. Our breach of an existing
license or failure to obtain a license to technology required to commercialize
our products may have a material adverse effect on our business, financial
condition and results of operations. Litigation, which could result in
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substantial costs, may also be necessary to enforce any patents issued to us or
to determine the scope and validity of third-party proprietary rights. If our
competitors prepare and file patent applications in the United States that claim
technology also claimed by us, we may have to participate in interference
proceedings declared by the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost, even if
the eventual outcome is favorable to us. An adverse outcome could subject us to
significant liabilities to third parties and require us to seek licenses of the
disputed rights from third parties or to cease using such technology if such
licenses are not available, and could have a material adverse effect on our
business, financial condition and results of operations.
With respect to ONYX-015 and selectively-replicating viruses, we are aware of a
patent application filed in the United States, Europe, Japan and Canada by
General Hospital Corporation, an affiliate of Massachusetts General Hospital.
This patent application is related to research involving a modified herpes
simplex virus but it also includes broader claims that, if they were to issue,
would cover ONYX-015 and other selectively-replicating viruses. We believe, and
have received an opinion from outside counsel to the effect, that such broad
claims made in the General Hospital patent application are not patentable.
Consistent with this opinion is a review of the European patent status of the
General Hospital patent application, which shows that the patent examiner is
requiring that the claims be limited to herpes viruses. However, there can be no
assurance these broad claims will not issue in one or more countries, that we
would be successful in challenging any such claims, or that a license would be
available under any such patent if it were to issue.
We have identified United States Patent No. 5,837,520 that covers methods of
purification of viral vectors. Canji, Inc. either owns or has licensed the
rights to this patent. We may seek a license under this patent from Canji.
However, if such license were not available at commercially reasonably terms, or
at all, we would develop purification methods that are not covered by the
patent. In any event, we do not believe that this patent will have a material
adverse effect on our business assets, liabilities, financial condition,
operations or prospects.
We have identified four European Patent Applications, EPA 415, 731; EPA 657,
539; EPA 657, 540; and EPA 690, 129, that claim enzymes for converting prodrugs
to their active forms for treating disease, including cancer, and methods of
delivering the enzymes using virions. Glaxo Wellcome either owns or has licensed
the rights to these patent applications. The European Applications were filed in
1989, and as yet, have not been granted. It is assumed that one or more
corresponding United States patent applications have been filed, but as yet none
have issued. The issuance of any of these patent applications in either Europe
or the United States will not prevent us from developing and commercializing
ONYX-015. However, there can be no assurance that these patent applications,
should they issue, will not adversely affect our freedom to operate in the area
of armed viruses, that is, viruses that we may develop that have incorporated
into them prodrug converting enzymes. Moreover, there can be no assurances that
we would be successful in challenging any such claims, under any such patents if
they were to issue, or that a license would be available.
We have also identified a PCT patent application, PCT/US98/04080, that claims
pegylated adenovirus. Pegylation is one of many methods we are exploring to
modify our viruses for systemic delivery. Calydon, Inc. filed this application
with a priority date of March 3, 1997. Corresponding patent applications are
also pending in the United States. There can be no assurance that these patent
applications, should they issue, will not restrict our freedom to operate in the
area of pegylated adenovirus.
In June 1997, ICT Pharmaceuticals, Inc. notified us of two issued United States
Patents, Nos. 4,980,281 and 5,266,464 that ICT believes cover the use of a cell
for the screening, testing or pharmacological characterization of new drugs or
other substances. Foreign counterparts of the U.S. patents are pending. ICT has
offered us a license to the patents. We have not determined whether to negotiate
a
39
<PAGE>
license. In any event, we do not believe that these patents will have a material
adverse effect on our business, assets, liabilities, financial condition,
operations or prospects.
Together with our licensors, we also rely on trade secrets to protect our
combined technology, especially where patent protection is not believed to be
appropriate or obtainable. However, trade secrets are difficult to protect. We
protect our proprietary technology and processes, in part, by confidentiality
agreements with our employees, consultants, collaborators and certain
contractors. There can be no assurance that these agreements will not be
breached, that we would have adequate remedies for any breach, or that our trade
secrets will not otherwise become known or be independently discovered by
competitors. To the extent that we or our consultants or research collaborators
use intellectual property owned by others in their work for us, disputes may
also arise as to the rights in related or resulting know-how and inventions.
GOVERNMENT REGULATION
Regulation by government authorities in the United States and other countries
will be a significant factor in the manufacturing and marketing of any products
that may be discovered or developed by us, or that may arise out of our
research. All of our products will require regulatory approval by government
agencies prior to commercialization. We anticipate that our products will be
subject to rigorous preclinical and clinical testing and premarket approval
procedures by the FDA and similar health authorities in foreign countries.
Various federal statutes and regulations also govern or influence the
manufacturing, testing, labeling, storage, recordkeeping and marketing and
promotion of such products.
The steps ordinarily required before a drug or biological product may be
marketed in the United States include (a) preclinical studies, (b) the
submission to the FDA of an IND which must become effective before human
clinical trials may commence, (c) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug or biologic, (d) the
submission of a marketing application to the FDA, and (e) FDA approval of the
marketing application, including inspection and approval of the product
manufacturing facility.
Preclinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the preclinical tests are submitted to the FDA as part
of an IND and are reviewed by the FDA before the commencement of clinical
trials. Unless the FDA objects to an IND, the IND will become effective 30 days
following its receipt by the FDA. There can be no assurance that submission of
an IND will result in FDA clearance to commence clinical trials or that the lack
of an objection means that the FDA will ultimately approve an application for
marketing approval.
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. In the
United States, clinical trials must be conducted in accordance with Good
Clinical Practices under protocols submitted to the FDA as part of the IND. In
addition, each clinical trial must be approved and conducted under the auspices
of an Institutional Review Board, or IRB, and with patient informed consent. The
IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution conducting the clinical
trial. The United Kingdom and certain other European and Asian countries have
similar regulations.
The goal of Phase I clinical trials is to establish initial data about safety
and tolerance of the investigational product in humans. In Phase II clinical
trials, evidence is sought about the desired therapeutic efficacy of the
investigational product in limited studies with small numbers of carefully
selected subjects. Efforts are made to evaluate the effects of various dosages
and to establish an optimal dosage level and dosage schedule. Additional safety
data are also gathered from these studies.
40
<PAGE>
The Phase III clinical trial program consists of expanded, large-scale,
multicenter studies in the target patient population. The goal of these studies
is to obtain definitive statistical evidence of the efficacy and safety of the
proposed product and dosage regimen.
All data obtained from this comprehensive development program are submitted as a
marketing application to the FDA and the corresponding agencies in other
countries for review and approval. FDA approval of a marketing application is
required before marketing may begin in the United States. The FDA may elect to
present data on our products to one of its advisory committees for review and
recommendation before approval is granted. Essentially all of our proposed
products will be subject to demanding and time-consuming approval procedures in
the countries where we intend to commercialize our products. These regulations
define not only the form and content of the development of safety and efficacy
data regarding the proposed product, but also impose specific requirements
regarding manufacture of the product, testing, quality assurance, packaging,
storage, documentation, recordkeeping, labeling, advertising, and marketing
procedures. Effective commercialization also requires inclusion of our products
in national, state, provincial, or institutional formularies or cost
reimbursement systems.
FDA approval of our products, including a review of the manufacturing processes
and facilities used to produce such products will be required before such
products may be marketed in the United States. The process of obtaining FDA
approval can be costly, time consuming and subject to unanticipated delays. The
FDA may refuse to approve an application if it believes that applicable
regulatory criteria are not satisfied. The FDA may also require additional
testing for safety and efficacy of the drug. Moreover, if regulatory approval of
a drug product is granted, the approval will be limited to specific indications.
There can be no assurance that approvals of our proposed products, processes or
facilities will be granted on a timely basis, if at all. Any failure to obtain,
or delay in obtaining, such approvals would have a material adverse affect on
our business, financial condition and results of operations. Moreover, even if
regulatory approval is granted, such approval may include significant
limitations on indicated uses for which a product could be marketed. In some
instances, regulatory approval may be granted with the condition that
confirmatory, Phase IV, clinical studies are carried out. If these Phase IV
studies do not confirm the results of previous studies, regulatory approval for
marketing may be withdrawn. Failure to comply with FDA and other applicable
regulatory requirements may result in, among other things, warning letters,
civil penalties, criminal prosecution, injunctions, seizure or recall of
products, total or partial suspension of production, refusal of the government
to grant approval, or withdrawal of approval of our products.
In addition to regulations enforced by the FDA and by the Nuclear Regulatory
Commission, we are subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act, and other present and potential
future federal, state or local regulations. Our potential products may require
review by RAC. In other countries, similar regulations may apply. Our research
and development involves the controlled use of hazardous materials and
chemicals. Although we believe that our safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, we
could be held liable for any damages that result and any such liability could
exceed our resources.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities will be necessary in foreign countries prior
to the commencement of marketing of the product in such countries. The approval
procedure varies among countries, can involve additional testing, and the time
required may differ from that required for FDA approval. Although there is now a
centralized European Union approval mechanism in place, each European country
may nonetheless impose its own procedures and requirements, many of which are
time consuming and expensive. Thus, there can be substantial delays in obtaining
required approvals from both the FDA and foreign
41
<PAGE>
regulatory authorities after the relevant applications are filed. We expect to
rely on corporate partners and licensees, along with our own expertise, to
obtain governmental approval in foreign countries of drug and biological
products discovered by us or arising from our programs.
COMPETITION
We are engaged in a rapidly changing and highly competitive field. Other
products and therapies that currently exist or are being developed will compete
with the products we are seeking to develop and market. Some of these
competitive products are in clinical trials. In particular, among other trials,
Schering-Plough Corporation is conducting a Phase II clinical trial of its p53
gene therapy product in liver metastases of colorectal cancer.
Aventis Inc./Introgen Therapeutics, Inc. are also initiating a Phase III
clinical trial in head and neck cancer with their p53 gene therapy product.
These products would compete directly with ONYX-015. Other companies are
developing small molecule drugs which may compete with product candidates
identified in our small molecule programs.
Competition from fully integrated pharmaceutical companies and more established
biotechnology companies is intense and is expected to increase. Substantially
all of these companies have significantly greater financial resources and
expertise in research and development, manufacturing, preclinical and clinical
testing, obtaining regulatory approvals, and marketing than us. Smaller
companies may also prove to be significant competitors, particularly through
collaborations with large pharmaceutical and established biotechnology
companies. Many of these competitors have significant products that have been
approved or are in development and operate large, well-funded research and
development programs. Academic institutions, governmental agencies and other
public and private research organizations also conduct research, seek patent
protection and seek marketing and research and development collaborations that
compete with our programs. These companies and institutions also compete with us
in recruiting and retaining highly qualified scientific and management
personnel. In addition to the above factors, we will face competition based on
product efficacy and safety, the timing and scope of regulatory approvals,
availability of supply, marketing and sales capability, reimbursement coverage,
price and patent position.
EMPLOYEES
As of December 31, 1999, we had 120 full-time employees of whom 31 hold Ph.D. or
M.D. degrees. Of our employees, 94 are in research and development and 26 are in
business development, finance and administration. No employee of ours is
represented by a labor union and we consider our employee relations to be good.
SCIENTIFIC ADVISORY BOARD
Our Scientific Advisory Board, or SAB, consists of individuals with expertise in
many aspects of molecular oncology that advise us and provide critical review of
our various development activities. The SAB meets several times a year. In
addition, the SAB members consult with and meet informally with us on a frequent
basis. Certain SAB members own shares of our common stock and each is
compensated for his services. Every member of the SAB has entered into a
consulting agreement with
42
<PAGE>
us covering the terms of their positions as our consultants and as members of
the SAB. The members of our SAB are as follows:
<TABLE>
<CAPTION>
MEMBER AFFILIATION
- ------ -----------
<S> <C>
Edward E. Harlow, Jr., Ph.D. (Chairman)...... Harvard Medical School
Allan Balmain, Ph.D., F.R.S.E................ University of California, San Francisco
Cancer Center
Eric R. Fearon, M.D., Ph.D................... University of Michigan Comprehensive Cancer
Center
Douglas Hanahan, Ph.D........................ University of California, San Francisco
Hormone Research Institute
Frank McCormick, Ph.D., F.R.S................ University of California, San Francisco
Cancer Center
Owen N. Witte, M.D........................... University of California, Los Angeles
Howard Hughes Institute
</TABLE>
PROPERTIES
We occupy approximately 50,000 square feet of office and laboratory space in
Richmond, California. We have leased this facility for a term ending April 2005
with an option to extend the lease for an additional five years.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The names of our executive officers, directors and two key employees and
information about them is presented below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Hollings C. Renton............... 53 Chief Executive Officer, President and Director
Judith I. Blakemore.............. 51 Acting Chief Operating Officer
Ali Fattaey, Ph.D................ 35 Vice President, Discovery Research
Gregory J. Giotta, J.D., Ph.D.... 53 Vice President, and Chief Legal Counsel
Helen S. Kim..................... 37 Vice President, Corporate Development
Mary Ann Rafferty................ 51 Vice President, Organizational Development
Lawrence A. Romel................ 43 Vice President, Clinical Operations and Regulatory Affairs
Marilyn E. Wortzman.............. 53 Controller
Samuel D. Colella................ 60 Chairman of the Board of Directors
Michael J. Berendt, Ph.D......... 52 Director
Paul Goddard, Ph.D............... 50 Director
Nicole Vitullo................... 42 Director
Wendell Wierenga, Ph.D........... 52 Director
</TABLE>
- ------------------------
HOLLINGS C. RENTON has served as President and Chief Executive Officer and one
of our directors since March 1993. Prior to joining us, Mr. Renton served as
President and Chief Operating Officer of Chiron Corporation from December 1991
to March 1993 following Chiron Corporation's acquisition of Cetus Corporation, a
biopharmaceutical company. Prior to the acquisition, Mr. Renton served as
President of Cetus Corporation from August 1990 to December 1991 and as Chief
Operating Officer of Cetus Corporation from 1987 to August 1990. Mr. Renton
holds a B.S. in Mathematics from Colorado State University and an M.B.A. from
the University of Michigan.
JUDITH I. BLAKEMORE has served as acting Chief Operating Officer since
January 2000, as our acting Vice President, Strategic Programs from April 1998
to January 2000 and as a consultant to us since our inception. Ms. Blakemore has
served as an independent consultant within the biopharmaceutical industry,
helping companies with product development and corporate strategy, from 1991 to
1992 and from 1994 to the present. From 1992 to 1994, Ms. Blakemore was the
President and Chief Operating Officer of XTL Biopharmaceuticals, Ltd., a
biopharmaceutical company based in Israel. Ms. Blakemore holds a B.A. in
Biochemistry from the University of California at Berkeley and an M.B.A. from
St. Mary's College in Moraga, California.
ALI FATTAEY, PH.D. joined the Company in January 1994 as a scientist.
Dr. Fattaey has served as the Vice President, Discovery Research since September
1998. Dr. Fattaey received a Ph.D. degree at Kansas State University working on
the biology of polyoma virus, a small DNA tumor virus. Dr. Fattaey completed his
postdoctoral training at the Massachusetts General Hospital cancer center in
Boston, where he was involved in investigating the mechanisms of cell growth
control by the protein product of the retinoblastoma tumor suppressor gene.
GREGORY J. GIOTTA, PH.D., J.D. joined us in June 1995 as Vice President and
Chief Legal Counsel. Prior to joining us, Dr. Giotta served as Vice President
and Chief Intellectual Property Attorney at Glycomed Corporation, a
biotechnology company, from October 1992 to June 1995. Dr. Giotta earned a Ph.D.
from the University of California at Santa Cruz and a J.D. from the University
of San Diego.
HELEN S. KIM has served as Vice President, Corporate Development since December
1999. Prior to joining us, Ms. Kim was employed at Protein Design Labs, Inc. as
the Vice President of Marketing and
44
<PAGE>
Project Management from July 1998 to December 1999. From 1989 to 1998, Ms. Kim
was employed at Chiron Corporation where she held numerous positions in
planning, marketing and business development and served as the Vice President of
Strategic Marketing for Chiron Therapeutics, Vaccines and Technologies. Ms. Kim
holds a B.S. in Chemical Engineering from Northwestern University and an M.B.A.
from the University of Chicago.
LAWRENCE A. ROMEL has served as Vice President, Clinical Operations and
Regulatory Affairs since August 1999. From November 1997 until August 1999,
Mr. Romel was our Director of Clinical Operations and Project Management. From
November 1996 to November 1999, Mr. Romel served as Senior Director of Clinical
Operations for Sequus Pharmaceuticals, Inc. and served as Project Manager for
Sequus Pharmaceuticals, Inc. from March 1995 until November 1996. Mr. Romel
received his Master of Science degree in Organic Biochemistry and a B.S. in
Chemistry from the University of Illinois at Chicago.
MARY ANN RAFFERTY has served as Vice President, Organizational Development since
November 1999. From February 1998 to November 1999 Ms. Rafferty served as Vice
President, Human Resources and previously as Director, Human Resources from
April 1996 to February 1998. Prior to joining us, Ms. Rafferty served as
Director, Human Resources at Biogenex, Inc., a biopharmaceutical company, from
June 1995 to April 1996. Ms. Rafferty holds a B.A. in Communications and
Linguistics from State University New York, Albany.
MARILYN E. WORTZMAN, C.P.A. was appointed our Controller in August 1998 after
performing that function in an acting capacity since April 1997. From
April 1992 to September 1996, Ms. Wortzman served as Finance Manager for
AutoDesk, Inc., a software company. Ms. Wortzman holds a B.A. in Political
Science from Syracuse University.
SAMUEL D. COLELLA has served as our Chairman of the Board since February 1993
and as a director since its inception. Mr. Colella has been a partner in
Institutional Venture Partners, a private venture capital firm, since 1984.
Mr. Colella holds a B.S. in Business and Engineering from the University of
Pittsburgh and an M.B.A. from Stanford University.
MICHAEL J. BERENDT, PH.D. has served as one of our directors since
December 1996. Dr. Berendt has served as a Senior Vice President for Research
for the Pharmaceutical Division of Bayer Corporation, since December 1996. From
November 1993 to November 1996, Dr. Berendt held various research and management
positions at the Pharmaceutical Division of Bayer Corporation including Vice
President, Institute for Bone & Joint Disorders and Cancer. Dr. Berendt is on
the Board of Directors of Myriad Genetics, Inc. and the Waters Corporation.
Dr. Berendt holds a B.S. from Ohio Dominican College, a M.S. in Microbiology
from Miami University and a Ph.D. in Microbiology/ Immunology from Hahnemann
Medical College and University. Dr. Berendt serves as Bayer's representative on
our board.
PAUL GODDARD PH.D. has served as a director since February 1997. Since
August 1998, Dr. Goddard has served as President and Chief Executive Officer of
Elan Pharmaceuticals, Inc., a biotechnology company and a division of Elan plc.
From March 1991 to August 1998, Dr. Goddard served as Chief Executive Officer
and Chairman of the Board of Neurex Corporation, a biotechnology company, until
Neurex Corporation was acquired by Elan plc. Dr. Goddard serves on the board of
directors of Molecular Devices Corporation. He completed his Ph.D. in the area
of Etiology and Pathophysiology of colon cancer at St. Mary's Hospital,
University of London.
NICOLE VITULLO has served as a director since February 1998. Ms. Vitullo is
Managing Director, Domain Associates, L.L.C, a private venture capital firm.
Prior to joining Domain in 1999, Ms. Vitullo was Senior Vice President of
Rothchild Asset Management from 1992 until 1999. Rothchild Asset Management
managed International Biotechnology Trust plc. and has been advisor to
Biotechnology Investments Limited. Ms. Vitullo serves on the board of directors
of Corvas International and
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<PAGE>
Epimmune Inc. Ms. Vitullo holds a B.A. in Mathematics and an M.B.A. from the
University of Rochester.
WENDELL WIERENGA, PH.D. has served as a director since December 1996.
Dr. Wierenga has served as Senior Vice President, Worldwide Pharmaceutical
Sciences, Technologies and Development for the Parke-Davis Pharmaceutical
Research division of Warner-Lambert since February 1999 and served as Senior
Vice President Research from 1990 to February 1999. Dr. Wierenga has also served
as Vice President of the Medtech division of Warner-Lambert since 1992.
Dr. Wierenga holds a B.A. from Hope College and a Ph.D. in Chemistry from
Stanford University.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 29, 2000, and as adjusted to
reflect the sale of our common stock offered by this prospectus, by:
- each person, or group of affiliated persons, who is known by us to own
beneficially 5% or more of our common stock;
- each of our executive officers as set forth in our summary compensation
table for 1999;
- each of our directors; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of February 29, 2000 are deemed
outstanding. These shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares shown as beneficially owned by them.
Percentage of ownership is based on 14,064,509 shares of common stock
outstanding on February 29, 2000, and 16,564,509 shares of common stock
outstanding after completion of this offering.
47
<PAGE>
BENEFICIAL OWNERSHIP PRIOR TO OFFERING
<TABLE>
<CAPTION>
SHARES
ISSUABLE
PURSUANT TO
OPTIONS
EXERCISABLE PERCENT OF OUTSTANDING SHARES
OUTSTANDING WITHIN 60 DAYS ------------------------------
SHARES OF OF FEBRUARY 29, BEFORE THE AFTER THE
NAME OF BENEFICIAL OWNER COMMON STOCK 2000 OFFERING OFFERING
- ----------------------------------- ------------ ---------------- -------------- -------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
International Biotechnology Trust
plc.............................. 1,122,807 -- 8.0% 6.8%
Five Arrows House
St. Swithins Lane
London EC4N 8NR
United Kingdom
Entities Affiliated with Alta
Partners(1)...................... 1,111,111 -- 7.9 6.7
One Embarcadero Center, Suite
4050
San Francisco, CA 94111
Bayer Corporation(2)............... 945,510 -- 6.7 5.7
400 Morgan Lane
Westhaven, CT 96516
Warner-Lambert Company(3).......... 937,207 -- 6.7 5.7
201 Tabor Road
Morris Plains, NJ 07950
DIRECTORS AND EXECUTIVE OFFICERS
Michael J. Berendt, Ph.D.(2)....... -- -- * *
Samuel D. Colella(4)............... 43,928 43,590 * *
Paul Goddard, Ph.D.(5)............. -- 27,333 * *
Hollings C. Renton(6).............. 131,642 343,145 3.3 2.8
Nicole Vitullo(7).................. 666,667 15,833 4.8 4.1
Wendell Wierenga, Ph.D.(3)......... -- 36,000 * *
Norman Hardman..................... 2,145 50,000 * *
Gregory Giotta, Ph.D., J.D.(8)..... -- 65,101 * *
Mary Ann Rafferty(9)............... 3,492 73,509 * *
Marilyn E. Wortzman(10)............ 187 28,900 * *
All executive officers and
directors as a group (12
persons)(11)..................... 851,361 736,411 10.7 9.2
</TABLE>
- ------------------------
* Less than one percent.
(1) Includes 690,651 shares beneficially owned by Alta BioPharma Partners L.P.,
394,428 beneficially owned by Onyx Chase Partners (AltaBio) LLC and 26,032
beneficially owned by Alta Embarcadero BioPharma Partners, LLC.
(2) Dr. Berendt is Senior Vice President for Research at Bayer. Dr. Berendt
disclaims beneficial ownership of the shares held by Bayer, a wholly-owned
subsidiary of Bayer AG.
(3) Dr. Wierenga is Senior Vice President, Worldwide Pharmaceutical Sciences,
Technologies and Development for the Parke-Davis Pharmaceutical Research
division of Warner-Lambert. Dr. Wierenga disclaims beneficial ownership of
the shares held by Warner-Lambert.
48
<PAGE>
(4) Includes 5,733 shares held by Institutional Venture Management V, L.P., of
which Mr. Colella, one of our directors, is a partner. Also includes 2,255
shares held by The Colella Family Partnership and 3,000 shares held by The
Colella Family Trust. Included in the shares exercisable within 60 days of
February 29, 2000, is an option to purchase 14,007 shares held by
Institutional Venture Management V, L.P. Mr. Colella disclaims beneficial
ownership of the shares held by Institutional Venture Management V, L.P.,
except to the extent of his pecuniary interest therein.
(5) Of the shares exercisable within 60 days of February 29, 2000, 5,667 would
be subject to repurchase by us if exercised.
(6) Includes 124,292 shares held by The Renton Family Trust and 1,200 shares
held by Mr. Renton's spouse. Of the shares exercisable within 60 days of
February 29, 2000, 191,531 would be subject to repurchase by us if
exercised.
(7) Includes 651,065 shares held by Domain Partners IV, L.P. and 15,602 shares
held by DP IV Associates, L.P. Ms. Vitullo is Managing Director of Domain
Associates, L.L.C. which is the manager of Domain Partners IV, L.P. and DP
IV Associates, L.P. Ms. Vitullo disclaims beneficial ownership of the shares
held by Domain Partners IV, L.P. and DP IV Associates, L.P., except to the
extent of her pecuniary interest therein. Of the shares exercisable within
60 days of February 29, 2000, 9,167 would be subject to repurchase by us if
exercised.
(8) Of the shares exercisable within 60 days of February 29, 2000, 44,781 would
be subject to repurchase by us if exercised.
(9) Of the shares exercisable within 60 days of February 29, 2000, 65,903 would
be subject to repurchase by us if exercised.
(10) Of the shares exercisable within 60 days of February 29, 2000, 23,750 would
be subject to repurchase by us if exercised.
(11) See footnotes 2 through 10 above, as applicable.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 shares of common stock, par
value $0.001 and 5,000,000 shares of preferred stock, par value $0.001.
COMMON STOCK
At February 29, 2000 there were 14,064,509 shares of common stock outstanding.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
common stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone.
Subject to preferences that may be applicable to any then outstanding shares of
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
us, holders of the common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of this offering will be fully
paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation provides that our Board of Directors has the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, without any further vote or action by the
stockholders. The issuance of preferred stock could adversely affect the voting
power of holders of common stock and the likelihood that such holders will
receive dividend payments and payments upon liquidation may have the effect of
delaying, deferring or preventing a change in control of our company, which
could have a depressive effect on the market price of or common stock. We have
no present plan to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders, or their permitted transferees, of approximately 1,928,399 shares
of common stock, have rights with respect to the registration of such shares
under the Securities Act of 1933, as amended. If we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other security holders, the holders are entitled to notice of the
registration and are entitled to include, at our expense, such shares therein.
In addition, the holders can require us at our expense, on not more than two
occasions, to file a registration statement under the Securities Act, with
respect to their shares of common stock, and we are required to use our best
efforts to effect the registration, subject to certain conditions and
limitations. Further, the holders may require us at our expense to register
their shares on Form S-3 when such form becomes available to us, subject to
certain conditions and limitations. These holders have waived these registration
rights in connection with this offering.
In addition, pursuant to the private placement of 2,000,000 shares in
January 2000, we agreed to file a resale registration statement with the SEC for
these shares in April 2000 and use our best efforts to make this registration
statement effective no later than June 2000. The holders have agreed to allow us
to delay the filing of this registration statement until approximately 60 days
after the date of the final
50
<PAGE>
prospectus for this offering. We will use our best efforts to have that resale
registration statement declared effective within 90 days following the date of
the final prospectus for this offering and these shares will become freely
tradable upon the expiration of this 90-day period. We also agreed that if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders, the holders are
entitled to notice of the registration and are entitled to include, at our
expense, such shares therein. These holders have waived these registration
rights.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers, and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws include a number of provisions that
may have the effect of deterring or impeding hostile takeovers or changes of
control or management. These provisions include:
- our board of directors is classified into three classes as nearly equal in
size as possible with staggered three year-terms;
51
<PAGE>
- the authority of our board to issue up to 5,000,000 shares of preferred
stock and to determine the price, rights, preferences and privileges of
these shares, without stockholder approval;
- all stockholder action must be effected at a duly called meeting of
stockholders and not by written consent;
- special meetings of the stockholders may be called only by the chairman of
the board, the chief executive officer or the board; and
- no cumulative voting.
Such provisions may have the effect of delaying or preventing a change of
control.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Norwest Bank Minnesota,
National Association.
LISTING
Our common stock is listed on the Nasdaq National Market under the trading
symbol "ONXX".
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based on the number of shares outstanding on
February 29, 2000, we will have 16,564,509 outstanding shares of common stock,
16,939,509 shares if the underwriters exercise their over-allotment option in
full, assuming no exercise of outstanding options.
Of the remaining shares, a total of approximately 4,965,581 shares held by our
directors, executive officers and 5% stockholders are subject to "lock-up"
agreements generally providing that, these stockholders will not (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, file a registration statement, or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock or (2) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the common stock, whether
any of these transactions described in (1) or (2) are to be settled by delivery
of common stock or other such securities, in cash or otherwise, for a period of
90 days following the date of the final prospectus for this offering without the
prior written consent of the representatives. The restrictions described in this
paragraph do not apply to transfers of shares otherwise subject to a lockup
agreement, by gift or distribution or to affiliates of the transfer not
involving a public offering, so long as, in any such instance, such transferee
executes a lock-up agreement with terms identical to those described in this
paragraph.
In addition, within approximately 60 days after the date of the final prospectus
for this offering, we will file a resale registration statement with the SEC to
register 2,000,000 shares of our common stock acquired in connection with the
private placement that was completed in January 2000. We will use our best
efforts to have that resale registration statement declared effective within
90 days following the date of the final prospectus for this offering and these
shares will become freely tradable upon the expiration of this 90-day period. In
addition, options to purchase up to 1,617,745 shares of our common stock are
outstanding as of February 29, 2000, under our stock option plans.
53
<PAGE>
UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc., Chase
Securities Inc. and CIBC World Markets Corp. are acting as representatives, have
agreed to buy, subject to the terms and conditions of the underwriting
agreement, the number of shares listed opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased, other than those shares covered by the over-allotment option
described below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
U.S. Bancorp Piper Jaffray Inc..............................
Chase Securities Inc........................................
CIBC World Markets Corp.....................................
Total.....................................................
========
</TABLE>
The underwriters have advised us that they propose to offer the shares to the
public at $ per share. The underwriters propose to offer the shares to certain
dealers at the same price less a concession of not more than $ per share.
The underwriters may allow and the dealers may reallow a concession of not more
than $ per share on sales to certain other brokers and dealers. After this
offering, these amounts may be changed by the underwriters.
We have granted to the underwriters an option to purchase up to an additional
shares of common stock from us at the same price to the public, and with
the same underwriting discounts, as set forth in the prior paragraph. The
underwriters may exercise this option any time during the 30-day period after
the date of this prospectus, but only to cover over-allotments, if any. To the
extent the underwriters exercise the option, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to purchase under the
purchase agreement.
The following table shows the per share and total underwriting discount to be
paid to the underwriters in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
UNDERWRITERS NO EXERCISE FULL EXERCISE
- ------------ ----------- -------------
<S> <C> <C>
Per share............................................ $ $
Total................................................ $ $
</TABLE>
The underwriting discount is an amount equal to the offering price per share to
the public of the common stock, less the amount paid by the underwriters to us
per share of common stock.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended, or to
contribute to payments that the underwriters may be required to make in respect
of those liabilities.
The expenses of the offering, exclusive of the underwriting discount, include
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers filing fee, the Nasdaq National Market listing
fee, printing expenses, legal fees and expenses, accounting fees and expenses,
road show expenses, Blue Sky fees and expenses, transfer agent and registrar
fees and other miscellaneous fees. We estimate that these fees and expenses will
be an aggregate of approximately $900,000. These fees and expenses are payable
entirely by us.
We and each of our directors, executive officers and 5% stockholders have agreed
not to directly or indirectly offer for sale, sell, contract to sell, grant any
option for the sale of, or otherwise issue or dispose of, any shares of common
stock, options or warrants to acquire shares of common stock, or any
54
<PAGE>
related security or instrument, for a period of 90 days after the date of this
prospectus, without the prior written consent of U.S. Bancorp Piper Jaffray. The
agreements provide exceptions for:
- sales to underwriters pursuant to the underwriting agreement; and
- certain other exceptions specified in the underwriting agreement and
lock-up agreements.
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares of common stock than have been sold to them by us. The underwriters
may elect to cover any such short position by purchasing shares of common stock
in the open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the common stock by bidding for or purchasing shares of common stock in the
open market and may impose penalty bids. If penalty bids are imposed, selling
concessions allowed to syndicate members or other broker-dealers participating
in the offering are reclaimed if shares of common stock previously distributed
in the offering are repurchased, whether in connection with stabilization
transactions or otherwise. The effect of these transactions may be to stabilize
or maintain the market price of the common stock at a level above that which
might otherwise prevail in the open market. The imposition of a penalty bid may
also affect the price of the common stock to the extent that it discourages
resales of the common stock. The magnitude or effect of any stabilization or
other transactions is uncertain. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
In connection with the offering, some underwriters and selling group members may
also engage in passive market making transactions in the common stock on the
Nasdaq National Market. Passive market making consists of displaying bids on the
Nasdaq National Market limited by the prices of independent market makers and
effecting purchases limited by those prices in response to order flow. Rule 103
of Regulation M promulgated by the SEC limits the amount of net purchases that
each passive market maker may make and the displayed size of each bid. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail in the open market and, if commenced,
may be discontinued at any time.
55
<PAGE>
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, attorneys of Cooley Godward LLP owned shares of our common
stock directly. Certain legal matters in connection with the offering will be
passed upon for the underwriters by Ballard Spahr Andrews & Ingersoll, LLP,
Baltimore, Maryland.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial statements
at December 31, 1998 and 1999, and for each of the three years in the period
ended December 31, 1999, as set forth in their report. We have incorporated our
financial statements by reference in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the SEC's public reference
rooms in Washington, D.C., New York, NY and Chicago, IL. You can request copies
of these documents by writing to the SEC and paying a fee for the copying cost.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference rooms. Our SEC filings are also available at the SEC's
Web site at "http://www.sec.gov". In addition, you can read and copy our SEC
filings at the office of the National Association of Securities Dealers, Inc. at
1735 K Street, Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" information that we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. Further, all
filings we make under the Securities Exchange Act after the date of the initial
registration statement and prior to effectiveness of the registration statement
shall be deemed to be incorporated by reference into this prospectus. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934:
1. Our Annual Report on Form 10-K for the year ended December 31, 1999
filed on March 27, 2000; and
2. Our current report on Form 8-K filed on March 1, 2000.
We will provide to you at no cost a copy of any and all of the information
incorporated by reference into the registration statement of which this
prospectus is a part. You may make a request for copies of this information in
writing or by telephone. Requests should be directed to:
Onyx Pharmaceuticals, Inc.
Attention: Secretary
3031 Research Drive
Richmond, CA 94806
(510) 222-9700
56
<PAGE>
2,500,000 SHARES
ONYX PHARMACEUTICALS, INC.
COMMON STOCK
[LOGO]
----------------
PROSPECTUS
----------------
U.S. BANCORP PIPER JAFFRAY
CHASE H&Q
CIBC WORLD MARKETS
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by us in connection with the sale of the
common stock being registered. All the amounts shown are estimates, except for
the SEC registration fee, NASD filing fee and Nasdaq additional listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 14,468
NASD filing fee............................................. 5,980
Nasdaq additional listing fee............................... 17,500
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 325,000
Accounting fees and expenses................................ 200,000
Transfer Agent and Registrar fees and expenses.............. 25,000
Blue Sky fees and expenses.................................. 5,000
Miscellaneous............................................... 107,052
--------
Total..................................................... $900,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, we have broad powers
to indemnify our directors and officers against liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933.
Our certificate of incorporation and by-laws include provisions to
(i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware and (ii) require us
to indemnify our directors and officers to the fullest extent permitted by
Section 145 of the Delaware Law, including circumstances in which
indemnification is otherwise discretionary. Pursuant to Section 145 of the
Delaware Law, a corporation generally has the power to indemnify its present and
former directors, officers, employees and agents against expenses incurred by
them in connection with any suit to which they are, or are threatened to be
made, a party by reason of their serving in such positions so long as they acted
in good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interest of the corporation, and with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful. We
believe that these provisions are necessary to attract and retain qualified
persons as directors and officers. These provisions do not eliminate the
directors' duty of care, and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the directors' duty of loyalty to us, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for acts or omissions that the director believes to be
contrary to the best interests of us or our stockholders, for any transaction
from which the director derived an improper personal benefit, for acts or
omissions involving a reckless disregard for the directors' duty to us or our
stockholders when the director was aware or should have been aware of a risk of
serious injury to us or our stockholders, for acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to us or our stockholders, for improper transactions between the
director and us and for improper distributions to stockholders and loans to
directors and officers. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.
II-1
<PAGE>
We have entered into indemnity agreements with each of our directors and
executive officers that require us to indemnify such persons against expenses,
judgments, fines, settlements and other amounts incurred, including expenses of
a derivative action, in connection with any proceeding, whether actual or
threatened, to which any such person may be made a party by reason of the fact
that such person is or was a director or an executive officer of Onyx or any of
its affiliated enterprises, provided such person acted in good faith and in a
manner such persons reasonably believed to be in, or not opposed to, the best
interests of us and, with respect to any criminal proceeding, has no reasonable
cause to believe his conduct was unlawful. The indemnification agreements also
set forth procedures that will apply in the event of a claim for indemnification
thereunder.
At present, there is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought, nor are we
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
We maintain an insurance policy covering our officers and directors with respect
to certain liabilities, including liabilities arising under the Securities Act
or otherwise.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1* Underwriting Agreement.
5.1* Legal Opinion of Cooley Godward LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP (see Exhibit 5.1).
24.1 Power of Attorney. See page II-4.
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to deliver or cause to be delivered
with the prospectus, to each person to whom the prospectus is sent or given, the
latest annual report to security holders that is incorporated by reference in
the prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 15, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Richmond, County of Contra Costa, State of
California, on March 24, 2000.
<TABLE>
<S> <C> <C>
ONYX PHARMACEUTICALS, INC.
By: /s/ HOLLINGS C. RENTON
-----------------------------------------
Hollings C. Renton
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Hollings C. Renton and Marilyn E. Wortzman, his
or her true and lawful agent, proxy and attorney-in-fact, each acting alone,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and in any and all capacities, to (i) act on,
sign and file with the Securities and Exchange Commission any and all amendments
(including post-effective amendments) to this registration statement together
with all schedules and exhibits thereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, together with all schedules and exhibits thereto, (ii) act on, sign and
file such certificates, instruments, agreements and other documents as may be
necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this registration statement or any such
amendment or any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and
all actions which may be necessary or appropriate to be done, as fully for all
intents and purposes as he or she might or could do in person, hereby approving,
ratifying and confirming all that such agent, proxy and attorney-in-fact or any
of his substitutes may lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ HOLLINGS C. RENTON Officer and Director
------------------------------------------- (PRINCIPAL EXECUTIVE March 24, 2000
Hollings C. Renton OFFICER AND FINANCIAL
OFFICER)
/s/ MARILYN E. WORTZMAN Controller
------------------------------------------- (PRINCIPAL ACCOUNTING March 24, 2000
Marilyn E. Wortzman OFFICER)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
/s/ MICHAEL J. BERENDT
<C> <S> <C>
-------------------------------------------
Michael J. Berendt Director March 24, 2000
------------------------------------------- Director , 2000
Samuel D. Colella
------------------------------------------- Director , 2000
Paul Goddard
/s/ NICOLE VITULLO
------------------------------------------- Director March 24, 2000
Nicole Vitullo
/s/ WENDELL WIERENGA
------------------------------------------- Director March 24, 2000
Wendell Wierenga
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1* Underwriting Agreement.
5.1* Legal Opinion of Cooley Godward LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP (see Exhibit 5.1).
24.1 Power of Attorney. See page II-4.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Onyx
Pharmaceuticals, Inc. for the registration of 2,500,000 shares of its common
stock and to the incorporation by reference therein of our report dated
February 18, 2000, with respect to the financial statements of Onyx
Pharmaceuticals included in its Annual Report (Form 10-K) for the year ended
December 31, 1999, filed with the Securities and Exchange Commission.
/S/ ERNST & YOUNG LLP
Palo Alto, California
March 27, 2000
