UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2008.
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
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Commission File
No. 0-28298
Onyx Pharmaceuticals,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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94-3154463
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(State or other jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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2100
Powell Street
Emeryville, California 94608
(510) 597-6500
(Address,
including zip code, and telephone number,
including area code, of registrants principal executive
offices)
Securities Registered Pursuant
to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock $0.001 par value
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NASDAQ Global Market
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Securities Registered Pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting
company
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(Do
not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act): Yes
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No
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The aggregate market value of the voting stock held by
nonaffiliates of the Registrant based upon the last trade price
of the common stock reported on the NASDAQ Global Market on
June 30, 2008 was approximately $1,503,106,048.*
The number of shares of common stock outstanding as of
February 20, 2009 was 56,715,793.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants Definitive Proxy Statement for
its 2009 Annual Meeting of Shareholders, which will be filed
with the Commission within 120 days of December 31,
2008, are incorporated herein by reference into Part III
items 10-14
of this Annual Report on
Form 10-K.
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*
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Excludes 13,599,261 shares of Common Stock held by
directors, officers and stockholders whose beneficial ownership
exceeds 5% of the Registrants Common Stock outstanding.
The number of shares owned by stockholders whose beneficial
ownership exceeds 5% was determined based upon information
supplied by such persons and upon Schedules 13D and 13G, if any,
filed with the SEC. Exclusion of shares held by any person
should not be construed to indicate that such person possesses
the power, direct or indirect, to direct or cause the direction
of the management or policies of the Registrant, that such
person is controlled by or under common control with the
Registrant, or that such persons are affiliates for any other
purpose.
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TABLE OF CONTENTS
PART I.
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
statements involve known and unknown risks, uncertainties and
other factors that may cause our or our industrys results,
levels of activity, or achievements to differ significantly and
materially from that expressed or implied by such
forward-looking statements. These factors include, among others,
those set forth in Item 1A Risk Factors and
elsewhere in this Annual Report on
Form 10-K.
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 Annual Report on
Form 10-K
to conform these statements to actual results, unless required
by law.
Unless the context otherwise requires, all references to
the Company, Onyx, we,
our, and us in this Annual Report on
Form 10-K
refer to Onyx Pharmaceuticals, Inc.
Overview
We are a biopharmaceutical company dedicated to developing
innovative therapies that target the molecular mechanisms that
cause cancer. With our collaborators, we are developing
anticancer therapies with the goal of
changing the way cancer
is
treated
tm
.
We are applying our expertise to develop and commercialize
therapies designed to exploit the genetic differences between
cancer cells and normal cells.
Our first commercially available product,
Nexavar
®
(sorafenib) tablets, being developed with our collaborator,
Bayer HealthCare Pharmaceuticals Inc., or Bayer, is approved by
the United States Food and Drug Administration, or FDA, for the
treatment of patients with advanced kidney cancer and liver
cancer. Nexavar is a novel, orally available kinase inhibitor
and is one of a new class of anticancer treatments that target
both cancer cell proliferation and tumor growth through the
inhibition of key signaling pathways. In December 2005, Nexavar
became the first newly approved drug for patients with advanced
kidney cancer in over a decade. In November 2007, Nexavar was
approved as the first and is currently the only systemic therapy
for the treatment of patients with liver cancer. Nexavar is now
approved in more than 70 countries for the treatment of advanced
kidney cancer and in more than 60 countries for the treatment of
liver cancer. We and Bayer are also conducting clinical trials
of Nexavar in several important cancer types in addition to
advanced kidney cancer and liver cancer, including lung,
melanoma, breast, ovarian and colon cancers.
We have expanded our development pipeline through the
acquisition of rights to development-stage, novel anticancer
agents. In November 2008, we entered into an agreement to
license worldwide development and commercialization rights to
ONX 0801, previously known as BGC 945, from BTG International
Limited, or BTG, a London-based specialty pharmaceuticals
company. ONX 0801 is in preclinical development and is believed
to work by combining two proven approaches to improve outcomes
for cancer patients, selectively targeting tumor cells through
the alpha-folate receptor, which is overexpressed in a number of
tumor types, and inhibiting thymidylate synthase, a key enzyme
responsible for cell growth and division. In December 2008, we
acquired options to license SB1518 (designated by Onyx as ONX
0803) and SB1578 (designated by Onyx as ONX 0805), which
are both Janus Kinase 2, or JAK2, inhibitors, from S*BIO Pte
Ltd, or S*BIO, a Singapore-based company. The activation of JAK2
stimulates blood cell production, and the JAK2 pathway is known
to play a critical role in the proliferation of certain types of
cancer cells and in the anti-inflammatory pathway. ONX 0803 is
in multiple Phase 1 studies and ONX 0805 is in preclinical
development.
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Products
Nexavar
Nexavar is an orally active agent designed to operate through
dual mechanisms of action by inhibiting angiogenesis and the
proliferation of cancer cells. A common feature of cancer cells
is the excessive activation of signaling pathways that cause
abnormal cell proliferation. In addition, tumors require oxygen
and nutrients from newly formed blood vessels to support their
growth. The formation of these new blood vessels is a process
called angiogenesis. Nexavar inhibits the signaling of VEGFR-1,
VEGFR-2, VEGFR-3 and PDGFR-ß, key receptors of Vascular
Endothelial Growth Factor, or VEGF, and Platelet-Derived Growth
Factor, or PDGF. Both receptors play a role in angiogenesis.
Nexavar also inhibits RAF kinase, an enzyme in the RAS signaling
pathway that has been shown in preclinical models to be
important in cell proliferation. In normal cell proliferation,
when the RAS signaling pathway is activated, or turned
on, it sends a signal telling the cell to grow and
divide. When a gene in the RAS signaling pathway is mutated, the
signal may not turn off as it should, causing the
cell to continuously reproduce. The RAS signaling pathway plays
an integral role in the growth of some tumor types such as liver
cancer, melanoma and lung cancer, and we believe that inhibiting
this pathway could have an effect on tumor growth. Nexavar also
inhibits other kinases involved in cancer, such as KIT, FLT-3
and RET. The following is a listing of the Nexavar development
status for select indications.
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Current
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Indication
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Status
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Liver Cancer
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Advanced, First line, single-agent
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Approved: United States, European Union and other territories
worldwide
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Adjuvant therapy
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Phase 3
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Advanced, First line, doxorubicin +/-
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Phase 2
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Loco-regional therapy
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Phase 2
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Kidney Cancer
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Advanced, single-agent
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Approved: United States, European Union and other territories
worldwide
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Adjuvant therapy
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Phase 3
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Dose escalation
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Phase 2
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Combinations
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Phase 2
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Advanced, Non-Small Cell Lung Cancer
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First line, gemcitabine, cisplatin +/-
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Phase 3
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Second line, pemetrexed +/-
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Phase 2
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Second line, erlotinib +/-
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Phase 2
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Advanced, Metastatic Melanoma
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First line, carboplatin/paclitaxel +/-
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Phase 3
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Advanced, Breast Cancer
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First line, paclitaxel +/-
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Phase 2
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First line, docetaxel or letrozole +/-
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Phase 2
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First/second line, capecitabine +/-
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Phase 2
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First line, gemcitabine +/-
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Phase 2
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Ovarian Cancer
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Maintenance therapy
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Phase 2
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Advanced, Colorectal Cancer
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First line, combination
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Phase 2
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Commercialization
Status
We and Bayer are commercializing Nexavar for the treatment of
patients with advanced kidney cancer and liver cancer. Nexavar
has been approved and is marketed for these indications in the
United States and in the European Union, as well as other
territories worldwide. Nexavar was approved for the treatment of
patients with advanced kidney cancer by the FDA in December 2005
and by authorities in Japan in January 2008. It was approved by
the European Union in July 2006 for the treatment of patients
with advanced kidney cancer who have failed prior therapy or are
considered unsuitable for other therapies. Nexavar has been
approved in more than 70 countries worldwide for advanced kidney
cancer. In the fourth quarter of 2007, Nexavar was approved in
the European Union and United States for the treatment of
patients with liver cancer. Nexavar is now approved in more than
60 countries for this indication. In the United States, we
co-promote Nexavar with Bayer. Outside of the United States,
Bayer manages all commercialization activities. In 2008,
worldwide sales of Nexavar, as recorded by Bayer, totaled
$677.8 million.
Development
Strategy
We and Bayer are executing the Nexavar development strategy with
three primary areas of focus. First, we have several ongoing and
planned clinical trials that are designed to expand
Nexavars position in the two approved indications, liver
cancer and advanced kidney cancer. These include studies in the
adjuvant setting, at varying doses and in combination with other
anti-cancer agents. Secondly, we have several ongoing and
planned Phase 3 registration studies in cancer types and
settings for which we believe Nexavars unique features and
established evidence of activity support accelerated
development. Finally, we are conducting several Phase 1 and
Phase 2 studies, including a portfolio of large randomized Phase
2 studies, designed to generate signals in a variety of cancer
types, lines of therapy and in combination with other
anti-cancer agents. We believe Nexavars unique features,
including its efficacy, oral availability and tolerability, may
be important attributes that could differentiate it from other
anti-cancer agents and enable it to be used broadly in the
treatment of cancer. In addition to conducting company-sponsored
clinical trials, we plan to expand our collaborations with
government agencies, cooperative groups, and individual
investigators. Our goal is to maximize Nexavars commercial
and clinical potential by simultaneously running multiple
studies to produce the clinical evidence necessary to
demonstrate that Nexavar can benefit patients with many
different types of cancers. Additionally, because it is
difficult to predict the success of clinical trials, running
multiple trials may mitigate the risk of failure of any single
clinical trial.
Clinical
Trials
Under our collaboration agreement, we and Bayer are jointly
developing Nexavar internationally, with the exception of Japan.
The following is a summary of our significant clinical trials.
Liver
Cancer Program
Phase 3 Trial.
In March 2005, we and Bayer
initiated an international, randomized, double-blind,
placebo-controlled Phase 3 clinical trial of Nexavar
administered as a single agent in patients with advanced
hepatocellular carcinoma, or HCC, also known as liver cancer.
The Phase 3 study was designed to measure differences in overall
survival, time to symptom progression and time to tumor
progression of Nexavar versus placebo in patients with advanced
liver cancer. Patients with advanced liver cancer, who had not
received previous systemic treatment for their disease, were
randomized to receive Nexavar or placebo.
In February 2007, we and Bayer announced that an independent
data monitoring committee, or DMC, had reviewed the data from
the trial at a planned interim analysis and concluded that the
trial met its primary endpoint resulting in superior overall
survival in those patients receiving Nexavar. The DMC also noted
no demonstrated difference in the serious adverse event rates
between Nexavar and placebo. Subsequently, we and Bayer made the
decision to stop the trial early and allowed all patients in the
trial to be offered access to Nexavar, enabling them to
crossover to Nexavar treatment.
Phase 3 Trial.
We and Bayer conducted a
double-blind, randomized, placebo-controlled Phase 3 trial in
the Asia Pacific region designed to evaluate Nexavar in patients
with liver cancer who had no prior systemic therapy. The primary
objectives of the study were to compare overall survival, time
to progression and
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progression-free survival, or PFS, in patients administered
Nexavar versus patients administered placebo. In August 2007, we
and Bayer announced that a planned review by a DMC found that
Nexavar significantly improved overall survival, PFS and time to
progression. Based on the DMCs recommendation, the trial
was stopped early to allow all patients to receive treatment
with Nexavar.
Phase 3 Trial.
We and Bayer have initiated an
international, randomized, placebo-controlled Phase 3 clinical
trial evaluating Nexavar as an adjuvant therapy for patients
with liver cancer who have undergone resection or loco-regional
treatment with curative intent. The study will evaluate Nexavar
in over 1,000 patients. Enrollment for this study began in
the fourth quarter of 2008.
Phase 2 Trial.
The data from this trial showed
that of 137 patients enrolled in the trial, investigators
reported median overall survival for all patients was
9.2 months and median time-to-tumor progression was
4.2 months (or 5.7 months in patients with good
hepatic function). In the trial, safety data generated in
February 2008 showed that Nexavars side effect profile was
generally well tolerated and predictable.
Phase 2 Trial.
In 2005, we and Bayer initiated
a 100-patient randomized Phase 2 study comparing Nexavar plus
doxorubicin to doxorubicin alone for the treatment of patients
with advanced liver cancer. In February 2007, we and Bayer
accepted the recommendation of an independent DMC to stop this
study early because patients receiving chemotherapy alone were
thought to be at a considerable disadvantage. In September 2007,
data from this study was presented. The data showed that Nexavar
plus doxorubicin doubled overall survival to 14 months as
compared to 7 months for those patients taking doxorubicin
alone. There were no major differences in the rate of serious
adverse events between the two arms.
Kidney
Cancer Program
Phase 3 Trial.
In March 2005 enrollment
completed in a placebo-controlled, randomized Phase 3 trial of
more than 900 patients evaluating the safety and efficacy
of Nexavar in the treatment of advanced renal cell carcinoma, or
advanced kidney cancer. In the first quarter of 2005, we and
Bayer announced that an independent DMC had reviewed the data
from the trial and concluded that Nexavar significantly
prolonged PFS. Subsequently, we and Bayer allowed all patients
in the Phase 3 kidney cancer trial to be offered access to
Nexavar, enabling them to crossover to Nexavar
treatment.
Phase 3 Trial.
We and Bayer have initiated an
international, randomized, placebo-controlled Phase 3 clinical
trial evaluating Nexavar as an adjuvant therapy for patients
with advanced kidney cancer, who are at high or intermediate
risk of relapse, with the primary objective of comparing
disease-free survival.
Phase 2 Trial.
In June 2007, results were
presented from a Phase 2 clinical trial comparing Nexavar to
interferon, or IFN, in patients who had no prior systemic
therapy. The 189 patient study indicated PFS was comparable
for patients who received either Nexavar or IFN. Median PFS was
5.6 months and 5.7 months, respectively, for IFN- and
Nexavar-treated patients.
Non-Small
Cell Lung Cancer Program
Phase 3 Trial.
A pivotal trial of
approximately 900 patients with non-small cell lung cancer,
or NSCLC, is ongoing primarily in Europe using a chemotherapy
doublet that is more commonly used in Europe than the United
States. In this trial, patients are receiving gemcitabine and
cisplatin plus Nexavar or gemcitabine and cisplatin plus
placebo. The study has a primary endpoint of overall survival.
In February 2008, the criteria for patient enrollment were
changed so that patients with non-squamous cell NSCLC only are
being enrolled.
Phase 3 Trial.
In February 2006, we and Bayer
initiated a randomized, double-blind, placebo-controlled pivotal
clinical trial, called Evaluation of Sorafenib, Carboplatin And
Paclitaxel Efficacy, or ESCAPE, studying Nexavar administered in
combination with the chemotherapeutic agents carboplatin and
paclitaxel in patients with NSCLC. This multicenter study of
approximately 900 patients compared Nexavar administered in
combination with these two agents to treatment with just the two
agents alone. In February 2008, this clinical trial was stopped
early following a planned interim analysis when an independent
DMC concluded that the study would not meet its primary endpoint
of improved overall survival. Safety events were generally
consistent with those previously reported. However, higher
mortality was observed in the subset of patients
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with squamous cell carcinoma of the lung treated with sorafenib
and carboplatin and paclitaxel than in the subset treated with
carboplatin and paclitaxel alone.
Phase 1/Phase 2 Trials.
We and Bayer conducted
a 54-patient, single-agent Nexavar trial in second- or
third-line NSCLC patients. The median PFS in this refractory
population was approximately three months. We and Bayer also
obtained additional data from a subset of 14 evaluable NSCLC
first-line patients enrolled in a single-arm Phase 1 study
administering the combination of carboplatin, paclitaxel and
Nexavar. For the lung cancer patients on the combination
therapy, the investigator reported an overall median PFS of
approximately eight months. As this investigator-initiated
analysis was not reviewed by the sponsors, the results are
subject to change until the database is finalized.
Metastatic
Melanoma Program
Phase 3 Trial.
In 2005, a Phase 3 study
administering Nexavar in combination with carboplatin and
paclitaxel was initiated under the sponsorship of the Eastern
Cooperative Oncology Group, or ECOG. Patients, who had not
received prior chemotherapy, were randomized to receive Nexavar
plus the chemotherapeutic agents paclitaxel and carboplatin or
placebo plus paclitaxel and carboplatin. This trial has overall
survival as its primary endpoint. This study has completed
enrollment and incorporates an event driven series of interim
analyses.
Phase 3 Trial.
In May 2005, we and Bayer
commenced a randomized, double-blind Phase 3 trial administering
Nexavar in combination with the chemotherapeutic agents
carboplatin and paclitaxel in patients with advanced metastatic
melanoma who had failed one prior treatment. The 270-patient
trial had PFS as its primary endpoint. Participating patients
failed one previous systemic chemotherapeutic treatment with
either dacarbazine, also known as DTIC, or temozolomide.
Patients were randomized to receive Nexavar or matching placebo,
in addition to a standard dosing schedule of carboplatin and
paclitaxel. In December 2006, Bayer and Onyx announced that this
study did not meet its primary endpoint of improving PFS, noting
that the treatment effect was comparable in each arm.
Phase 2 Trial.
In addition, we conducted a
randomized, double-blind, placebo-controlled, multicenter, Phase
2 study administering Nexavar in combination with DTIC that had
PFS as its primary endpoint. Approximately 100 patients
with advanced melanoma, who had not received prior chemotherapy,
were randomized to receive Nexavar in combination with DTIC or
placebo in combination with DTIC. In June 2007, we reported that
there was a trend toward improved PFS in patients in the Nexavar
arm versus patients in the placebo arm. However, overall
survival was not improved in this study. At this time we are not
planning further studies administering Nexavar and DTIC in
melanoma patients, pending the outcome of the ongoing Phase 3
study sponsored by ECOG.
Breast
Cancer Program
In 2007, we and Bayer launched a broad, multinational Phase 2
program in advanced breast cancer. These trials are screening
studies intended to provide information that will be used to
design a Phase 3 program. The current program involves a number
of different drug combinations with Nexavar and encompasses
various treatment settings.
Phase 2 Studies.
We have several ongoing
combination studies in breast cancer. All of the studies are
randomized, double-blind, placebo-controlled trials that are
designed to assess PFS as the primary endpoint. They are
designed to compare Nexavar in combination with other agents to
the other agents and placebo. The two most advanced trials,
which have completed enrollment, are evaluating Nexavar in
combination with capecitibine and Nexavar in combination with
paclitaxel.
Early
Stage Clinical Development
With Bayer, we have multiple ongoing and planned Phase 1b and
Phase 2 studies evaluating Nexavar as a single agent and in
combination with other anti-cancer agents in tumors such as
ovarian, colorectal and other
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cancers. As these studies are completed, we intend to present
data at scientific meetings. In addition, based on the results
of these ongoing trials, we plan to identify additional
potential registration paths for Nexavar.
Product
Candidates
ONX
0801
In November 2008, we entered into a development and license
agreement with BTG pursuant to which we licensed from BTG
worldwide product development and commercialization rights to
ONX 0801. ONX 0801 is a novel targeted oncology compound in
preclinical development that is designed to combine two proven
approaches to improve outcomes for cancer patients, by
selectively targeting tumor cells through the alpha-folate
receptor, which is overexpressed in a number of tumor types, and
inhibiting thymidylate synthase, a key enzyme responsible for
cell growth and division. ONX 0801 targets malignant cells that
overexpress the alpha-folate receptor, which is located on the
cells surface. Once ONX 0801 enters the cell via this
receptor, the compound inhibits, or switches off, thymidylate
synthase (TS). ONX 0801 differs from currently marketed TS
inhibitors due to its selective tumor cell-specific uptake by
the alpha-folate receptor. The alpha-folate receptor is
overexpressed in a number of tumor types, including ovarian
cancer, lung cancer, breast cancer, and colorectal cancer. In
the United States, ONX 0801 is covered by United States Patent
No. 7297701B2. The corresponding European patent
application is pending. The United States patent expires in
2023, and the European patent application, if granted, would
also expire in 2023. Both may be entitled to term extensions.
ONX
0803 and ONX 0805
In December 2008, we entered into a development collaboration,
option and license agreement with S*BIO pursuant to which we
acquired options to license rights to each of ONX 0803 and ONX
0805. ONX 0803 is an orally available, potent and selective
inhibitor of JAK2 that has been designed to suppress the
overactivity of mutant JAK2. Currently, S*BIO is conducting
trials for ONX 0803 in multiple Phase 1 studies and is working
on ONX 0805, a JAK2 inhibitor in preclinical development. Under
normal circumstances, activation of JAK2 stimulates blood cell
production. Genetic mutations in the JAK2 enzyme result in
up-regulated activity and are implicated in myeloproliferative
diseases, conditions characterized by an overproduction of blood
cells in the bone marrow. The conditions where JAK2 mutations
are most common include polycythemia vera, essential
thrombocytopenia, and primary myelofibrosis. The JAK2 signaling
pathway has been shown to play a critical role in the
proliferation of certain types of cancer cells and in the
anti-inflammatory pathway, suggesting JAK2 inhibitors may be
able to play a role in the treatment of solid tumors and other
diseases such as rheumatoid arthritis. There are patent
applications pending in the United States and European Union
that cover ONX 0803 and ONX 0805 and, if granted, will expire in
2026. Both may be entitled to term extensions.
Cell
Cycle Program
In May 1995, we entered into a research and development
collaboration agreement with Warner-Lambert, now a subsidiary of
Pfizer, Inc., to discover and commercialize small molecule drugs
that restore control of, or otherwise intervene in, the
misregulated cell cycle in tumor cells. Under this agreement, we
developed screening tests, or assays, for jointly selected
targets, and transferred these assays to Warner-Lambert for
screening of their compound library to identify active
compounds. The discovery research term under the agreement ended
in August 2001. Warner-Lambert is responsible for subsequent
medicinal chemistry and preclinical investigations on the active
compounds. In addition, Warner-Lambert is obligated to conduct
and fund all clinical development, make regulatory filings and
manufacture for sale any approved collaboration compounds. We
are entitled to receive payments upon achievement of certain
clinical development milestones and upon registration of any
resulting products and are entitled to receive royalties on all
worldwide sales of the products. Warner-Lambert has identified a
small molecule lead compound, PD 332991, an inhibitor of
cyclin-dependent kinase 4, and began clinical testing with this
drug candidate in September 2004. To date, we have received one
$500,000 milestone payment from Warner-Lambert.
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Collaboration
with Bayer
Effective February 1994, we established a collaboration
agreement with Bayer to discover, develop and market compounds
that inhibit the function, or modulate the activity, of the RAS
signaling pathway to treat cancer and other diseases. Together
with Bayer, we concluded collaborative research under this
agreement in 1999, and based on this research, a product
development candidate, Nexavar, was identified. Bayer paid all
the costs of research and preclinical development of Nexavar
until the Investigational New Drug application, or IND, was
filed in May 2000. Under our collaboration agreement with Bayer,
we are currently funding 50% of mutually agreed development
costs worldwide, excluding Japan. Bayer is funding 100% of
development costs in Japan and pays us a royalty on sales in
Japan. At any time during product development, either company
may terminate its participation in development costs, in which
case the terminating party would retain rights to the product on
a royalty-bearing basis. If we do not continue to bear 50% of
product development costs, Bayer would retain exclusive,
worldwide rights to this product candidate and would pay
royalties to us based on net sales.
In March 2006, we and Bayer entered into a co-promotion
agreement to co-promote Nexavar in the United States. The
co-promotion agreement amends and generally supersedes those
provisions of the 1994 collaboration agreement that relate to
the co-promotion of Nexavar in the United States. Outside of the
United States, the terms of the collaboration agreement continue
to govern. Under the terms of the co-promotion agreement and
consistent with the collaboration agreement, we and Bayer share
equally in the profits or losses of Nexavar, if any, in the
United States. If for any reason we do not continue to
co-promote in the United States, but continue to co-fund
development worldwide (excluding Japan), Bayer would first
receive a portion of the product revenues to repay Bayer for its
commercialization infrastructure, before determining our share
of profits and losses in the United States.
The collaboration agreement called for creditable, interest-free
milestone-based payments from Bayer to us. As a result of the
development of Nexavar, including marketing approval of Nexavar,
we have received $40 million in creditable milestone
advance payments. These advances are repayable to Bayer from a
portion of our share of any quarterly collaboration profits and
royalties after deducting certain contractually agreed upon
expenditures and any of our future profits and royalties. As of
December 31, 2008, $16.6 million of the advance
repayable to Bayer is outstanding.
Licensing
Agreement with BTG
In November 2008, we licensed a novel targeted oncology
compound, ONX 0801, from BTG. Under the terms of the agreement,
we obtained a worldwide license for ONX 0801 and all of its
related patents. We also received exclusive worldwide marketing
rights and are responsible for all product development and
commercialization activities. We paid BTG a $13 million
upfront payment and may be required to make payments of up to
$72 million upon the attainment of certain global
development and regulatory milestones, plus additional milestone
payments upon the achievement of certain marketing approvals and
commercial milestones. We will also pay royalties to BTG on any
future product sales.
Option
Agreement with S*BIO
In December 2008, we entered into a development collaboration,
option and license agreement with S*BIO pursuant to which we
acquired options to license rights to each of ONX 0803 and ONX
0805. Under the terms of the agreement, we have obtained options
which, if we exercise them, would give us rights to exclusively
develop and commercialize ONX 0803 and ONX 0805 for all
potential indications in the United States, Canada and Europe.
If we exercise our options to license the rights to ONX 0803
and/or
ONX
0805, S*BIO will retain responsibility for all development costs
prior to the option exercise, after which we are required to
assume development costs for the U.S., Canada, and Europe
subject to S*BIOs option to fund a portion of the
development costs in return for enhanced royalties on any future
product sales. Upon the exercise of our option of either
compound, S*BIO is entitled to receive a one-time fee, milestone
payments upon achievement of certain development and sales
levels and royalties on any future product sales. Under the
terms of the agreement, in December 2008 we made a
$25 million payment to S*BIO, including an up-front payment
and an equity investment.
9
Research
and Development
A significant portion of our operating expenses relate to the
development of Nexavar through our collaboration with Bayer. We
and Bayer share development expenses for Nexavar, except in
Japan where Bayer is responsible for the development of Nexavar.
We do not have internal research capabilities and our
development staff is primarily focused on the clinical
development of Nexavar and ONX 0801. We expect to continue to
make significant product development investments, primarily for
the clinical development of Nexavar and for the development of
ONX 0801. In addition, if we exercise our option for either ONX
0803 or ONX 0805, we will be required to fund a portion or all
of the related development activities, subject to S*BIOs
option to fund a portion of the development activities.
For the years ended December 31, 2008, 2007, and 2006, our
research and development costs were $123.7 million,
$83.3 million and $84.2 million, respectively, and are
included in our research and development line item for the years
ended December 31, 2008, 2007 and 2006.
Marketing
and Sales
Under our collaboration agreement with Bayer, we have
co-promotion rights for Nexavar in the United States, where we
and Bayer each have sales, marketing and medical affairs
capabilities with particular expertise in commercializing
oncology products. We and Bayer each provide one-half of the
field-based sales and medical affairs staffing in the United
States. Individuals hired into this organization have
significant experience relevant to the field of pharmaceuticals
in general and to the specialty of oncology in particular. In
addition, since the approval of Nexavar for liver cancer, we and
Bayer have added sales and medical staff that have experience in
hepatology. We and Bayer have also established comprehensive
patient support services to maximize access to Nexavar. This
includes Resources for Expert Assistance and Care Hotline, or
REACH, which provides a single point-of-contact for most
patients. In addition, REACH helps link patients to specialty
pharmacies for direct product distribution. Bayer currently has
contacts with multiple specialty pharmacies that ship Nexavar
directly to patients. NexConnect, another support program also
established by Onyx and Bayer, provides valuable patient
education materials on Nexavar and helps patients take an active
role in their treatment. Under the collaboration agreement,
outside the United States, Bayer is responsible for all
commercial activities relating to Nexavar.
Manufacturing
Under our collaboration agreement with Bayer, Bayer has the
manufacturing responsibility to supply Nexavar for commercial
requirements and to support any clinical trials. To date, Bayer
has manufactured sufficient drug supply to support the current
needs of commercial activity and clinical trials in progress. We
believe that Bayer has the capability to meet all future drug
supply needs and meet the FDA and other regulatory agency
requirements.
Under our license agreement with BTG, we are responsible for
manufacturing ONX 0801. Upon exercise of our options under our
agreement with S*BIO, we would obtain rights to
commercialization of ONX 0803 and ONX 0805 for the United
States, Canada and Europe. At this time, we do not have internal
manufacturing capabilities. To manufacture our product
candidates for clinical trials or on a commercial scale, if it
becomes necessary or if we choose to do so, we would have to
build or gain access to manufacturing capabilities, which could
require significant funds.
For risks associated with manufacturing, refer to We do
not have manufacturing expertise or capabilities for any current
and future products and are dependent on others to fulfill our
manufacturing needs, which could result in lost sales and the
delay of clinical trials or regulatory approval under
Risk Factors below in Part I, Item 1A of
this
Form 10-K.
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 on the proprietary rights of others,
both in the United States and other countries. The patents and
patent applications covering Nexavar are owned by Bayer, and are
licensed to us in conjunction with our collaboration agreement
with Bayer. Bayer has United States patents that cover Nexavar
and pharmaceutical compositions of Nexavar, which will expire in
2020 and 2022,
10
respectively. Bayer also has a European patent that covers
Nexavar, which will expire in 2020. Bayer has other
patents/patent applications pending worldwide that cover Nexavar
alone or in combination with other drugs for treating cancer.
Certain of these patents may be subject to possible patent-term
extension, the entitlement to and the term of which cannot
presently be calculated. As of December 31, 2008, we owned
or had licensed rights to 60 United States patents and 24 United
States patent applications and, generally, the foreign
counterparts of these filings. Most of these patents or patent
applications cover protein targets used to identify product
candidates during the research phase of our collaborative
agreements with Warner-Lambert or Bayer, or aspects of our
discontinued therapeutic virus program.
Generally, patent applications in the United States are
maintained in secrecy for a period of 18 months or more.
Since publication of discoveries in the scientific or patent
literature often lag behind actual discoveries, we are not
certain that we were the first to make the inventions covered by
each of our pending patent applications or that we were the
first to file those patent applications. The patent positions of
biotechnology and pharmaceutical companies are highly uncertain
and involve complex legal and factual questions. Therefore, we
cannot predict the breadth of claims allowed in biotechnology
and pharmaceutical patents, or their enforceability. To date,
there has been no consistent policy regarding the breadth of
claims allowed in biotechnology patents. Additionally, as a
result of the recent U.S. Supreme Courts ruling in
KSR International v. Teleflex
, it has become more
difficult for U.S. patent applicants to predict whether or
not they will succeed and rebut an obvious rejection from the
United States Patent and Trademark Office, or USPTO, or if they
are successful whether or not the opinion will be upheld on
appeal. Third parties or competitors may challenge or circumvent
our patents or patent applications, if issued. Because of the
extensive time required for development, testing and regulatory
review of a potential product, it is possible that before we
commercialize any of our products, any related patent may
expire, or remain in existence for only a short period following
commercialization, thus reducing any advantage of the patent.
If patents are issued to others containing preclusive or
conflicting claims and these claims are ultimately determined to
be valid, we may be required to obtain licenses to these patents
or to develop or obtain alternative technology. For example,
certain of our products may ultimately be used in combination
with products covered by a patent owned by a third party. Use of
a third party product may require us to obtain a license from
the third party. Our breach of an existing license or failure to
obtain a license to technology required to commercialize our
products may seriously harm our business. We also may need to
commence litigation to enforce any patents issued to us or to
determine the scope and validity of third-party proprietary
rights. Litigation would create substantial costs. If our
competitors prepare and file patent applications in the United
States that claim technology also claimed by us, we may have to
participate in interference proceedings declared by the USPTO to
determine priority of invention, which could result in
substantial cost, even if the eventual outcome is favorable to
us. An adverse outcome in litigation could subject us to
significant liabilities to third parties and require us to seek
licenses of the disputed rights from third parties or to cease
using the technology if such licenses are unavailable.
Together with our licensors, we also rely on trade secrets to
protect our combined technology especially where we do not
believe patent protection is appropriate or obtainable. However,
trade secrets are difficult to protect. We protect our
proprietary technology and processes, in part, by
confidentiality agreements with our employees, consultants and
collaborators. These parties may breach these agreements, and we
may not have adequate remedies for any breach. Our trade secrets
may otherwise become known or be independently discovered by
competitors. To the extent that we or our consultants or
collaborators use intellectual property owned by others in their
work for us, we may have disputes with them or other third
parties as to the rights in related or resulting know-how and
inventions.
Government
Regulation
Regulation by government authorities in the United States and
other countries will be a significant factor in the
manufacturing and marketing of any products that may be
developed by us. We must obtain the requisite regulatory
approvals by government agencies prior to commercialization of
any product. This is true internationally and for additional
indications, if any. We anticipate that any product candidate
will be subject to rigorous preclinical and clinical testing and
pre-market 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, record-keeping, marketing and promotion of
products and product candidates.
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The steps ordinarily required before a drug or biological
product may be marketed in the United States include:
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preclinical studies;
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the submission to the FDA of an IND that must become effective
before human clinical trials may commence;
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adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product candidate;
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the submission of a New Drug Application, or NDA, to the
FDA; and
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FDA approval of the NDA, including inspection and approval of
the product manufacturing facility.
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Preclinical trials involve laboratory evaluation of product
candidate chemistry, formulation and stability, as well as
animal studies to assess the potential safety and efficacy of
each product candidate. Next, the results of the preclinical
trials are submitted to the FDA as part of an IND and are
reviewed by the FDA before the commencement of clinical trials.
Unless the FDA objects to an IND, the IND will become effective
30 days following its receipt by the FDA. Submission of an
IND may not result in FDA clearance to commence clinical trials,
and the FDAs failure to object to an IND does not
guarantee FDA approval of a marketing application.
Clinical trials involve the administration of the product
candidate to humans under the supervision of a qualified
principal investigator. In the United States, clinical trials
must be conducted in accordance with Good Clinical Practices
under protocols submitted to the FDA as part of the IND. In
addition, each clinical trial must be approved and conducted
under the auspices of an Institutional Review Board, or IRB, and
with the patients informed consent. The United Kingdom and
many other European and Asian countries have similar regulations.
The goal of Phase 1 clinical trials is to establish initial data
about safety and tolerability of the product candidate in
humans. The goal of Phase 2 clinical trials is to provide
evidence about the desired therapeutic efficacy of the product
candidate in limited studies with small numbers of carefully
selected subjects. The investigators seek to evaluate the
effects of various dosages and to establish an optimal dosage
level and dosage schedule. Investigators also gather additional
safety data from these studies. Phase 3 clinical trials consist
of expanded, large-scale, multi-center studies in the target
patient population. This phase further tests the products
effectiveness, monitors side effects, and, in some cases,
compares the products effects to a standard treatment, if
one is already available.
Submission of all data obtained from this comprehensive
development program as an NDA to the FDA and to the
corresponding agencies in other countries for review and
approval is needed before marketing product candidates. These
regulations define not only the form and content of the
development of safety and efficacy data regarding the proposed
product, but also impose certain specific requirements.
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 product
candidate. In some instances, regulatory approval may be granted
with the condition that confirmatory Phase 4 clinical trials are
carried out. If these Phase 4 clinical trials do not confirm the
results of previous studies, regulatory approval for marketing
may be withdrawn. Moreover, if regulatory approval of a product
is granted, the approval will be limited to specific indications.
Companies, including Onyx, are subject to various federal and
state laws pertaining to healthcare fraud and abuse,
including anti-kickback and false claims laws. The federal
Anti-Kickback Law makes it illegal for any person, including a
prescription drug manufacturer, or a party acting on its behalf,
to knowingly and willfully solicit, offer, receive or pay any
remuneration, directly or indirectly, in exchange for, or to
induce, the referral of business, including the purchase, order
or prescription of a particular drug, for which payment may be
made under federal healthcare programs such as Medicare and
Medicaid. Some of the state prohibitions apply to referral of
patients for healthcare services reimbursed by any source, not
only the Medicare and Medicaid programs.
In the course of practicing medicine, physicians may legally
prescribe FDA approved drugs for an indication that has not been
approved by the FDA and which, therefore, is not described in
the products approved labeling so-called
off-label use. The FDA does not regulate the
behavior of physicians in their choice of treatments. The FDA
and other governmental agencies do, however, restrict
communications on the subject of off-label use by a
12
manufacturer or those acting on behalf of a manufacturer.
Companies may not promote FDA-approved drugs for off-label uses.
The FDA has not approved the use of Nexavar for the treatment of
any diseases other than advanced kidney cancer and liver cancer,
and neither we nor Bayer market Nexavar for the treatment of any
diseases other than advanced kidney cancer and liver cancer. The
FDA and other governmental agencies do permit a manufacturer
(and those acting on its behalf) to engage in some limited,
non-misleading, non-promotional exchanges of scientific
information regarding unapproved indications.
For risks associated with government regulation, refer to
We are subject to extensive government regulation, which
can be costly, time consuming and subject us to unanticipated
delays. If we are unable to obtain or maintain regulatory
approvals for our products, compounds or product candidates, we
will not be able to market or further develop them and
We may incur significant liability if it is determined
that we are promoting the off-label use of drugs or
are otherwise found in violation of federal and state
regulations in the United States or elsewhere under
Risk Factors below in Part I, Item 1A of
this
Form 10-K.
Competition
We are engaged in a rapidly changing and highly competitive
field. We are seeking to develop and market product candidates
that will compete with other products and therapies that
currently exist or are being developed. Many other companies are
actively seeking to develop products that have disease targets
similar to those we are pursuing. Some of these competitive
product candidates are in clinical trials and others are
approved. Currently, three other novel agents besides Nexavar
have been approved for the treatment of advanced kidney
cancer Sutent, Torisel and Avastin. Sutent, a
multi-kinase inhibitor, was approved by the FDA in January 2006
to treat advanced kidney cancer patients. In July 2006, Sutent
was approved by European regulators to treat advanced kidney
cancer patients who had failed a cytokine-based regimen. In
January 2007, European regulators approved Sutent as a
first-line treatment for advanced kidney cancer patients.
Torisel, an mTOR inhibitor, was approved by the FDA in May 2007
to treat advanced kidney cancer patients. European regulators
approved Torisel in November 2007 for poor-risk advanced kidney
cancer patients. In December 2007 Avastin was approved by
European regulators for the first-line treatment of patients
with advanced kidney cancer in combination with interferon. In
the third quarter of 2008, a Supplemental Biologics Application
for Avastin was filed with the FDA. Products in development for
advanced kidney cancer include Novartiss everolimus, an
mTOR inhibitor, and GlaxoSmithKlines pazopanib, a
multi-kinase inhibitor, among others. There are many existing
approaches used in the treatment of liver cancer including
alcohol injection, radiofrequency ablation, chemoembolization,
cryoablation and radiation therapy. While Nexavar is the first
systemic therapy to demonstrate a survival benefit for liver
cancer, several other therapies are in development, including
Pfizers Sutent, a multi-kinase inhibitor.
For risks associated with competition, refer to There are
several competing therapies approved and in development for the
treatment of advanced kidney cancer. If Nexavar is unable to
successfully compete against existing and future therapies in
advanced kidney cancer, our business would be harmed,
There are several existing approaches and several
therapies in development for the treatment of liver cancer. If
Nexavar is unable to successfully compete against existing and
future therapies in liver cancer, our business would be
harmed, and We face intense competition and rapid
technological change, and many of our competitors have
substantially greater resources than we have under
Risk Factors below in Part I, Item 1A of
this
Form 10-K.
Employees
As of December 31, 2008, we had 197 full-time
employees, of whom 29 hold Ph.D., M.D. or Pharm.D. degrees.
Of our employees, 52 are in research and development, 77 are in
sales and marketing and 68 are in corporate development, finance
and administration. No employee is represented by a labor union.
Company
Information
We were incorporated in California in February 1992 and
reincorporated in Delaware in May 1996. Our principal office is
located at 2100 Powell Street, Emeryville, California 94608 and
our telephone number is
(510) 597-6500.
Our website is located at
http://www.onyx-pharm.com
.
However, information found on our website is not incorporated by
reference into this report.
13
Available
Information
We make our SEC filings available free of charge on or through
our website, including our annual report on
Form 10-K,
quarterly interim reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Further, a copy of
this Annual Report on
Form 10-K
is located at the Securities and Exchange Commissions
Public Reference Rooms at 100 F Street, N.E.,
Washington, D. C. 20549. Information on the operation of the
Public Reference Room can be obtained by calling the Securities
and Exchange Commission at
1-800-SEC-0330.
The Securities and Exchange Commission maintains a website that
contains reports, proxy and information statements and other
information regarding our filings at
http://www.sec.gov.
Code of
Ethics
In 2003, we adopted a code of ethics that applies to our
principal officers, directors and employees. We have posted the
text of our code of ethics on our website at
http://www.onyx-pharm.com
in connection with Investors materials. However,
information found on our website is not incorporated by
reference into this report. In addition, we intend to promptly
disclose (1) the nature of any amendment to our code of
ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or
persons performing similar functions and (2) the nature of
any waiver, including an implicit waiver, from a provision of
our code of ethics that is granted to one of these specified
officers, the name of such person who is granted the waiver and
the date of the waiver on our website in the future.
You should carefully consider the risks described below,
together with all of the other information included in this
report, in considering our business and prospects. Additional
risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business
operations. Each of these risk factors could adversely affect
our business, operating results and financial condition, as well
as adversely affect the value of an investment in our common
stock.
Nexavar
®
(sorafenib) tablets is our only approved product. If Nexavar
fails and we are unable to develop and commercialize alternative
product candidates our business would fail.
Nexavar is our only approved product. Although we recently
acquired rights to develop and commercialize ONX 0801 and
options to license ONX 0803 and ONX 0805 in the United States,
Canada and Europe, these compounds are in very early stages of
development and we may be unable to successfully develop and
commercialize these or other product candidates. If Nexavar
ceases to be commercially successful and we are unable to
develop and commercialize any other products, our business would
fail.
There are several competing therapies approved and in
development for the treatment of advanced kidney cancer. If
Nexavar is unable to successfully compete against existing and
future therapies in advanced kidney cancer, our business would
be harmed.
There are several competing therapies approved for the treatment
of kidney cancer, including Sutent, a multi-kinase inhibitor
marketed in the United States, the European Union and other
countries by Pfizer; Torisel, an mTOR inhibitor marketed in the
United States, the European Union and other countries by Wyeth;
and Avastin, an angiogenesis inhibitor approved for the
treatment of advanced kidney cancer in the European Union and
marketed by Genentech and Roche globally. Nexavars market
share in advanced kidney cancer has decreased following the
introduction of these products into the market.
A demonstrated survival benefit is an important element in
determining standard of care. While we did not demonstrate a
statistically significant overall survival benefit for patients
treated with Nexavar in our Phase 3 kidney cancer trial, we
believe the outcome was impacted by the cross over of patients
from placebo to Nexavar during the conduct of our pivotal
clinical trial. Competitors with statistically significant
overall survival data could be preferred in the marketplace,
which could impair our ability to successfully market Nexavar.
Furthermore, the use of any particular therapy may limit the use
of a competing therapy with a similar mechanism of action. The
FDA
14
approval of Nexavar permits Nexavar to be used as an initial, or
first-line, therapy for the treatment of advanced kidney cancer,
but some other approvals do not. For example, the European Union
approval indicates Nexavar only for advanced kidney cancer
patients that have failed prior therapy or whose physicians deem
alternate therapies inappropriate.
We expect competition to increase as additional products are
approved to treat advanced kidney cancer. Products in
development for advanced kidney cancer include Novartiss
everolimus, an mTOR inhibitor, and GlaxoSmithKlines
pazopanib, a multi-kinase inhibitor, among others. Everolimus is
currently pending FDA review. The successful introduction of
other new therapies to treat advanced kidney cancer could
significantly reduce the potential market for Nexavar in this
indication.
There are several existing approaches and several
therapies in development for the treatment of liver cancer. If
Nexavar is unable to successfully compete against existing and
future therapies in liver cancer, our business would be
harmed.
There are many existing approaches used in the treatment of
liver cancer including alcohol injection, radiofrequency
ablation, chemoembolization, cryoablation and radiation therapy.
While Nexavar is the first systemic therapy to demonstrate a
survival benefit for liver cancer, several other therapies are
in development, including Pfizers Sutent, a multi-kinase
inhibitor. If Nexavar is unable to compete successfully with
existing approaches or if new therapies are developed for liver
cancer, our business would be harmed.
Although Nexavar has been approved in the United States,
the European Union and other territories for the treatment of
patients with liver cancer, adoption may be slow or limited for
a variety of reasons including the geographic distribution of
the patient population, the current treatment paradigm for liver
cancer patients, the underlying liver disease present in most
liver cancer patients and limited reimbursement. If Nexavar is
not broadly adopted for the treatment of liver cancer, our
business would be harmed.
Nexavar has been approved in the United States, the European
Union and many other countries as the first systemic treatment
for liver cancer. The rate of adoption and the ultimate market
size will be dependent on several factors including educating
treating physicians on the appropriate use of Nexavar and the
management of patients who are receiving Nexavar. This may be
difficult as liver cancer patients typically have underlying
liver disease and other comorbidities and can be treated by a
variety of medical specialists. In addition, screening,
diagnostic and treatment practices can vary significantly by
region. Further, liver cancer is common in many regions in the
developing world where the healthcare systems are limited and
reimbursement for Nexavar is limited or unavailable, which will
likely limit or slow adoption. If we are unable to change the
treatment paradigms for this disease, we may be unable to
successfully achieve the market potential of Nexavar in this
indication, which could harm our business.
While we and Bayer have received marketing approval for Nexavar
in the United States, the European Union and other territories
to treat liver cancer, some regulatory authorities have not
completed their review of the submissions and any review may not
result in marketing approval by these other authorities in this
indication. In addition, although Nexavar is approved for the
treatment of patients with liver cancer in the European Union
and elsewhere, certain countries require pricing to be
established before reimbursement for this indication may be
obtained. We may not receive or maintain pricing approvals at
favorable levels or at all, which could harm our ability to
broadly market Nexavar.
If our ongoing and planned clinical trials fail to
demonstrate that Nexavar is safe and effective or we are unable
to obtain necessary regulatory approvals, we will be unable to
expand the commercial market for Nexavar and our business may
fail.
In collaboration with Bayer, we are conducting multiple clinical
trials of Nexavar. We are currently conducting a number of
clinical trials of Nexavar alone or in combination with other
anticancer agents in kidney, liver, non-small cell lung, breast,
melanoma, and other cancers including a number of Phase 3
clinical trials.
Phase 3 trials are designed to more rigorously test the efficacy
of a product candidate and are normally randomized and
double-blinded. Phase 3 trials are typically monitored by
independent data monitoring committees, or DMC, which
periodically review data as a trial progresses. A DMC may
recommend that a trial be stopped before completion for a number
of reasons including safety concerns, patient benefit or
futility. Our clinical trials may fail
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to demonstrate that Nexavar is safe and effective, and Nexavar
may not gain additional regulatory approval, which would limit
the potential market for the product causing our business to
fail.
Nexavar has not been approved in cancer types other than
advanced kidney and liver cancers. Success in one or even
several cancer types does not indicate that Nexavar would be
approved or have successful clinical trials in other cancer
types. For example, Bayer and Onyx have conducted Phase 3 trials
in melanoma and non-small cell lung cancer that were not
successful. In addition, in the non-small cell lung cancer Phase
3 trial, higher mortality was observed in the subset of patients
with squamous cell carcinoma of the lung treated with Nexavar
and carboplatin and paclitaxel than in the subset of patients
treated with carboplatin and paclitaxel alone. Based on this
observation, further enrollment of squamous cell carcinoma of
the lung has been suspended from other NSCLC trials sponsored by
us. Other cancer types with a histology similar to squamous cell
carcinoma of the lung may yield a similar adverse treatment
outcome. If so, patients having this histology may be excluded
from ongoing and future clinical trials, which could potentially
delay clinical trial enrollment and would reduce the number of
patients that could potentially receive Nexavar.
Many companies have failed to demonstrate the effectiveness of
pharmaceutical product candidates in Phase 3 clinical trials
notwithstanding favorable results in Phase 1 or Phase 2 clinical
trials. We are conducting clinical trials of Nexavar in a
variety of cancer types, stages of disease and in combination
with a variety of therapies and therapeutic agents. If
previously unforeseen and unacceptable side effects are
observed, we may not proceed with further clinical trials of
Nexavar in that cancer type, stage of disease or combination. In
our clinical trials, we may treat patients with Nexavar as a
single agent or in combination with other therapies, who have
failed conventional treatments and who are in advanced stages of
cancer. During the course of treatment, these patients may die
or suffer adverse medical effects for reasons unrelated to
Nexavar. These adverse effects may impact the interpretation of
clinical trial results, which could lead to an erroneous
conclusion regarding the toxicity or efficacy of Nexavar.
We are dependent upon our collaborative relationship with
Bayer to further develop, manufacture and commercialize Nexavar.
There may be circumstances that delay or prevent Bayers
ability to develop, manufacture and commercialize
Nexavar.
Our strategy for developing, manufacturing and commercializing
Nexavar depends in large part upon our relationship with Bayer.
If we are unable to maintain our collaborative relationship with
Bayer, we would need to undertake development, manufacturing and
marketing activities at our own expense. This would
significantly increase our capital and infrastructure
requirements, may limit the indications we are able to pursue
and could prevent us from effectively developing and
commercializing Nexavar.
We are subject to a number of risks associated with our
dependence on our collaborative relationship with Bayer,
including:
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adverse decisions by Bayer regarding the amount and timing of
resource expenditures for the development and
commercialization of Nexavar;
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possible disagreements as to development plans, including
clinical trials or regulatory approval strategy;
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the right of Bayer to terminate its collaboration agreement with
us on limited notice and for reasons outside our control;
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loss of significant rights if we fail to meet our obligations
under the collaboration agreement;
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withdrawal of support by Bayer following the development or
acquisition by it of competing products;
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adverse regulatory or legal action against Bayer resulting from
failure to meet healthcare industry compliance requirements in
the promotion, sale, or federal and state reporting of Nexavar;
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changes in key management personnel at Bayer that are members of
the collaborations executive team; and
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possible disagreements with Bayer regarding the collaboration
agreement or ownership of proprietary rights.
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16
Due to these factors and other possible disagreements with
Bayer, we may be delayed or prevented from further developing,
manufacturing or commercializing Nexavar, or we may become
involved in litigation or arbitration, which would be time
consuming and expensive.
Our collaboration agreement with Bayer terminates when patents
expire that were issued in connection with product candidates
discovered under that agreement, or upon the time when neither
we nor Bayer are entitled to profit sharing under that
agreement, whichever is later. Bayer holds the global patent
applications related to Nexavar. The patents and patent
applications covering Nexavar are owned by Bayer, but licensed
to us through our collaboration agreement with Bayer. Bayer has
United States patents that cover Nexavar and pharmaceutical
compositions of Nexavar, which will expire in 2020 and 2022,
respectively. Bayer also has a European patent that covers
Nexavar which will expire in 2020. Bayer has other
patents/patent applications that are pending worldwide that
cover Nexavar alone or in combination with other drugs for
treating cancer.
We face intense competition and rapid technological
change, and many of our competitors have substantially greater
resources than we have.
We are engaged in a rapidly changing and highly competitive
field. We are seeking to develop and market Nexavar to compete
with other products and therapies that currently exist or are
being developed. Many other companies are actively seeking to
develop products that have disease targets similar to those we
are pursuing. Some of these competitive product candidates are
in clinical trials and others are approved. Competitors that
target the same tumor types as our Nexavar program and that have
commercial products or product candidates at various stages of
clinical development include Pfizer, Genentech, Inc., Wyeth,
Novartis International AG, Amgen, AstraZeneca PLC, OSI
Pharmaceuticals, Inc., GlaxoSmithKline, Eli Lilly and several
others. A number of companies have agents such as small
molecules or antibodies targeting Vascular Endothelial Growth
Factor, or VEGF; VEGF receptors; Epidermal Growth Factor, or
EGF; EGF receptors; and other enzymes. In addition, many other
pharmaceutical companies are developing novel cancer therapies
that, if successful, would also provide competition for Nexavar.
Many of our competitors, either alone or together with
collaborators, have substantially greater financial resources
and research and development staffs. In addition, many of these
competitors, either alone or together with their collaborators,
have significantly greater experience than we do in:
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developing products;
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undertaking preclinical testing and human clinical trials;
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obtaining FDA and other regulatory approvals of
products; and
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manufacturing and marketing products.
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Accordingly, our competitors may succeed in obtaining patent
protection, receiving FDA approval or commercializing product
candidates before we do. We will compete with companies with
greater marketing and manufacturing capabilities, areas in which
we have limited or no experience.
We also face, and will continue to face, competition from
academic institutions, government agencies and research
institutions. Further, we face numerous competitors working on
product candidates to treat each of the diseases for which we
are seeking to develop therapeutic products. In addition, our
product candidates, if approved, may compete with existing
therapies that have long histories of safe and effective use. We
may also face competition from other drug development
technologies and methods of preventing or reducing the incidence
of disease and other classes of therapeutic agents.
Developments by competitors may render our product candidates
obsolete or noncompetitive. We face and will continue to face
intense competition from other companies for collaborations with
pharmaceutical and biotechnology companies, for establishing
relationships with academic and research institutions, and for
licenses to proprietary technology. These competitors, either
alone or with collaborative parties, may succeed with
technologies or products that are more effective than ours.
We anticipate that we will face increased competition in the
future as new companies enter our markets and as scientific
developments surrounding other cancer therapies continue to
accelerate. We have made significant expenditures toward the
development of Nexavar and the establishment of a
commercialization infrastructure. If
17
Nexavar cannot compete effectively in the marketplace, we may be
unable to realize sufficient revenue from Nexavar to offset our
expenditures toward its development and commercialization, and
our business will suffer.
ONX 0801 may not be developed successfully, which
would adversely affect our prospects for future revenue growth
and our stock price.
ONX 0801 is in the pre-clinical stage of development. Successful
development of this compound is highly uncertain and depends on
a number of factors, many of which are beyond our control.
Compounds that appear promising in research or development may
be delayed or fail to reach later stages of development or the
market for a variety of reasons including:
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preclinical tests may show the product to be toxic or lack
efficacy in animal models;
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clinical trial results may show the product to be less effective
than desired or to have harmful or problematic side effects;
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the necessary regulatory approvals may not be received, or may
be delayed due to factors such as slow enrollment in clinical
studies, extended length of time to achieve study endpoints,
additional time requirements for data analysis or preparation of
the IND, discussions with regulatory authorities, requests from
regulatory authorities for additional pre-clinical or clinical
data, analyses or changes to study design, or unexpected safety,
efficacy or manufacturing issues;
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difficulties formulating the product, scaling the manufacturing
process or in getting approval for manufacturing;
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manufacturing costs, pricing or reimbursement issues, or other
factors may make the product uneconomical;
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the proprietary rights of others and their competing products
and technologies may prevent the product from being developed or
commercialized; and
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the contractual rights of our collaborators or others may
prevent the product from being developed or commercialized.
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If this compound is not developed successfully, our prospects
for future revenue growth and our stock price would be harmed.
Our operating results are unpredictable and may fluctuate.
If our operating results are below the expectations of
securities analysts or investors, the trading price of our stock
could decline.
Our operating results will likely fluctuate from quarter to
quarter and from year to year, and are difficult to predict. Due
to a highly competitive environment in kidney cancer and
launches throughout the world, as well as the treatment paradigm
in liver cancer, Nexavar sales will be difficult to predict from
period to period. Our operating expenses are highly dependent on
expenses incurred by Bayer and are largely independent of
Nexavar sales in any particular period. In addition, we expect
to incur significant operating expenses associated with the
development activities with ONX 0801. If we exercise our option
right related to ONX 0803 and ONX 0805, we will be required to
pay significant license fees and we also expect to incur
significant operating expenses for development of ONX 0803 and
ONX 0805. We believe that our quarterly and annual results of
operations may be negatively affected by a variety of factors.
These factors include, but are not limited to, the level of
patient demand for Nexavar, the timing and level of investments
in sales and marketing efforts to support the sales of Nexavar,
the timing and level of investments in the research and
development of Nexavar, the ability of Bayers distribution
network to process and ship Nexavar on a timely basis,
fluctuations in foreign currency exchange rates and expenditures
we may incur to acquire or develop additional products.
In addition, as a result of our adoption of SFAS 123(R), we
must measure compensation cost for stock-based awards made to
employees at the grant date of the award, based on the fair
value of the award, and recognize the cost as an expense over
the employees requisite service period. As the variables
that we use as a basis for valuing these awards change over
time, the magnitude of the expense that we must recognize may
vary significantly. Any such variance from one period to the
next could cause a significant fluctuation in our operating
results.
18
It is, therefore, difficult for us to accurately forecast
profits or losses. As a result, it is possible that in some
quarters our operating results could be below the expectations
of securities analysts or investors, which could cause the
trading price of our common stock to decline, perhaps
substantially.
The market may not accept our products and pharmaceutical
pricing and reimbursement pressures may reduce
profitability.
Nexavar or future product candidates that we may develop may not
gain market acceptance among physicians, patients, healthcare
payors
and/or
the
medical community or the market may not be as large as
forecasted. One factor that may affect market acceptance of
Nexavar or future products we may develop is the availability of
third-party reimbursement. Our commercial success may depend, in
part, on the availability of adequate reimbursement for patients
from third-party healthcare payors, such as government and
private health insurers and managed care organizations.
Third-party payors are increasingly challenging the pricing of
medical products and services, especially in global markets, and
their reimbursement practices may affect the price levels for
Nexavar or future products. In addition, the market for our
products may be limited by third-party payors who establish
lists of approved products and do not provide reimbursement for
products not listed. If our products are not on the approved
lists, our sales may suffer. Changes in government legislation
or regulation, such as the Medicare Act in the United States,
including Medicare Part D, or changes in private
third-party payors policies towards reimbursement for our
products may reduce reimbursement of our product costs and
increase the amounts that patients have to pay themselves.
Non-government organizations can influence the use of Nexavar
and reimbursement decisions for Nexavar in the United States and
elsewhere. For example, the National Comprehensive Cancer
Network, or NCCN, a not-for-profit alliance of cancer centers,
has issued guidelines for the use of Nexavar in the treatment of
advanced kidney cancer and unresectable liver cancer. These
guidelines may affect treating physicians use of Nexavar
in treatment-naïve advanced kidney and liver cancer
patients.
Nexavars success in Europe and other regions will also
depend largely on obtaining and maintaining government
reimbursement. For example, in Europe and in many other
international markets, most patients will not use prescription
drugs that are not reimbursed by their governments. Negotiating
prices with governmental authorities can delay commercialization
by twelve months or more. Even if reimbursement is available,
reimbursement policies may adversely affect our ability to sell
our products on a profitable basis. For example, in Europe and
in many international markets, governments control the prices of
prescription pharmaceuticals and expect prices of prescription
pharmaceuticals to decline over the life of the product or as
volumes increase. Further reimbursement policies are subject to
change due to economic, political or competitive factors. We
believe that this will continue into the foreseeable future as
governments struggle with escalating health care spending.
A number of additional factors may limit the market acceptance
of products, including the following:
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rate of adoption by healthcare practitioners;
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treatment guidelines issued by government and non-government
agencies;
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types of cancer for which the product is approved;
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rate of a products acceptance by the target population;
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timing of market entry relative to competitive products;
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availability of alternative therapies;
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price of our product relative to alternative therapies;
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extent of marketing efforts by us and third-party distributors
or agents retained by us; and
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side effects or unfavorable publicity concerning our products or
similar products.
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If Nexavar or any future product candidates that we may develop
do not achieve market acceptance, we may not realize sufficient
revenues from product sales, which may cause our stock price to
decline.
19
Our clinical trials could take longer to complete than we
project or may not be completed at all.
Although for planning purposes we project the commencement,
continuation and completion of ongoing clinical trials, the
actual timing of these events may be subject to significant
delays relating to various causes, including actions by Bayer,
scheduling conflicts with participating clinicians and clinical
institutions, difficulties in identifying and enrolling patients
who meet trial eligibility criteria and shortages of available
drug supply. We may not complete clinical trials involving
Nexavar as projected or at all.
We and Bayer are launching a broad, multinational Phase 2
program in advanced breast and other cancers. We may not have
the necessary capabilities to successfully manage the execution
and completion of these planned clinical trials in a way that
leads to approval of Nexavar for the target indications. In
addition, we rely on Bayer, academic institutions, cooperative
oncology organizations and clinical research organizations to
conduct, supervise or monitor the majority of clinical trials
involving Nexavar. We have less control over the timing and
other aspects of these clinical trials than if we conducted them
entirely on our own. Failure to commence or complete, or delays
in our planned clinical trials would prevent us from
commercializing Nexavar in indications other than kidney cancer
and liver cancer, and thus seriously harm our business.
If serious adverse side effects are associated with
Nexavar, approval for Nexavar could be revoked, sales of Nexavar
could decline, and we may be unable to develop Nexavar as a
treatment for other types of cancer.
The FDA-approved package insert for Nexavar for the treatment of
patients with advanced kidney cancer and unresectable liver
cancer includes several warnings relating to observed adverse
reactions. These include, but are not limited to, cardiac
ischemia
and/or
infarction; incidence of bleeding; hypertension which may occur
early in the therapy; hand-foot skin reaction and rash; and some
instances of gastrointestinal perforations. Other
treatment-emergent adverse reactions observed in patients taking
Nexavar include, but are not limited to, diarrhea, fatigue,
abdominal pain, weight loss, anorexia, alopecia, nausea and
vomiting. With continued and potentially expanded commercial use
of Nexavar and additional clinical trials of Nexavar, we and
Bayer anticipate we will routinely update adverse reactions
listed in the package insert to reflect current information. For
example, subsequent to the initial FDA approval, we and Bayer
updated the package insert to include additional information on
new adverse reactions reported by physicians using Nexavar. If
additional adverse reactions emerge, or a pattern of severe or
persistent previously observed side effects is observed in the
Nexavar patient population, the FDA or other international
regulatory agencies could modify or revoke approval of Nexavar
or we may choose to withdraw it from the market. If this were to
occur, we may be unable to obtain approval of Nexavar in
additional indications and foreign regulatory agencies may
decline to approve Nexavar for use in any indication. Any of
these outcomes would have a material adverse impact on our
business. In addition, if patients receiving Nexavar were to
suffer harm as a result of their use of Nexavar, these patients
or their representatives may bring claims against us. These
claims, or the mere threat of these claims, could have a
material adverse effect on our business and results of
operations.
We are subject to extensive government regulation, which
can be costly, time consuming and subject us to unanticipated
delays. If we are unable to obtain or maintain regulatory
approvals for our products, compounds or product candidates, we
will not be able to market or further develop them.
Drug candidates under development and approved for marketing are
subject to extensive and rigorous domestic and foreign
regulation, including the FDAs requirements covering
research and development, testing, manufacturing, quality
control, labeling and promotion of drugs for human use. We have
received regulatory approval for the use of Nexavar in the
treatment of advanced kidney and liver cancer in the United
States, in the European Union and a number of foreign markets,
and we are developing Nexavar for several additional
indications. Any compounds or product candidates that we may
develop, including ONX 0801, ONX 0803 and ONX 0805, cannot be
marketed in the U.S. until they have been approved by the
FDA, and then they can only be marketed for the indications and
claims approved by the FDA.
For Nexavar, we rely on Bayer to manage communications with
regulatory agencies, including filing new drug applications,
submission of promotional materials and generally directing the
regulatory processes for Nexavar. We also rely on Bayer to
complete the necessary government reporting obligations such as
price calculation reporting and clinical study disclosures to
federal and state regulatory agencies. We and Bayer may not
obtain necessary additional approvals from the FDA or other
regulatory authorities. If we fail to obtain required
governmental
20
approvals, we will experience delays in or be precluded from
marketing Nexavar in particular indications or countries. The
FDA or other regulatory authorities may approve only limited
label information for the product. The label information
describes the indications and methods of use for which the
product is authorized, and if overly restrictive, may limit our
and Bayers ability to successfully market any approved
product. If we have disagreements as to ownership of clinical
trial results or regulatory approvals, and the FDA refuses to
recognize us as holding, or having access to, the regulatory
approvals necessary to commercialize Nexavar, we may experience
delays in or be precluded from marketing products.
For any compounds or product candidates that we may further
develop, we cannot be sure that we will be able to receive
necessary regulatory approvals on a timely basis, if at all.
Delays in obtaining approvals could prevent us from marketing
any potential products and would adversely affect our business.
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 products or product candidates.
Delays in obtaining regulatory approvals would adversely affect
the successful commercialization of our products or product
candidates.
After Nexavar and any other products we may develop are
marketed, the products and their manufacturers are subject to
continual review. Later discovery of previously unknown problems
with Nexavar or any other products we may develop and
manufacturing and production by Bayer or other third parties may
result in restrictions on our products or product candidates,
including withdrawal from the market. In addition, problems or
failures with the products of others, before or after regulatory
approval, including our competitors, could have an adverse
effect on our ability to obtain or maintain regulatory approval.
Increased industry trends in U.S. regulatory scrutiny of
promotional activity by the FDA, Department of Justice, Office
of Inspector General and Offices of State Attorney Generals
resulting from healthcare fraud and abuse, including, but not
limited to, violations of the Food, Drug and Cosmetic Act, False
Claims Act and federal anti-kickback statute, have led to
significant penalties for those pharmaceutical companies alleged
of non-compliance. If we or Bayer fail to comply with applicable
regulatory requirements, including strict regulation of
marketing and sales activities, we could be subject to
penalties, including fines, suspensions of regulatory approval,
product recall, seizure of products and criminal prosecution.
We are dependent on the efforts of Bayer to market and
promote Nexavar.
Under our collaboration and co-promotion agreements with Bayer,
we and Bayer are co-promoting Nexavar in the United States.
We do not have the right to co-promote Nexavar in any country
outside the United States, and we are dependent solely on Bayer
to promote Nexavar in foreign countries where Nexavar is
approved. In all foreign countries, except Japan, Bayer will
first receive a portion of the product revenues to repay Bayer
for its foreign commercialization infrastructure, before
determining our share of profits and losses. In Japan, we
receive a single-digit royalty on any sales of Nexavar.
We have limited ability to direct Bayer in its promotion of
Nexavar in foreign countries where Nexavar is approved. Bayer
may not have sufficient experience to promote oncology products
in foreign countries and may fail to devote appropriate
resources to this task. If Bayer fails to adequately promote
Nexavar in foreign countries, we may be unable to obtain any
remedy against Bayer. If this were to happen, sales of Nexavar
in any foreign countries where Nexavar is approved may be
harmed, which would negatively impact our business.
Similarly, Bayer may establish a sales and marketing
infrastructure for Nexavar outside the United States that is too
large and expensive in view of the magnitude of the Nexavar
sales opportunity or establish this infrastructure too early in
view of the ultimate timing of potential regulatory approvals.
Since we share in the profits and losses arising from sales of
Nexavar outside of the United States, rather than receiving a
royalty (except in Japan), we are at risk with respect to the
success or failure of Bayers commercial decisions related
to Nexavar as well as the extent to which Bayer succeeds in the
execution of its strategy.
21
We are dependent on the efforts of and funding by Bayer
for the development of Nexavar.
Under the terms of the collaboration agreement, we and Bayer
must agree on the development plan for Nexavar. If we and Bayer
cannot agree, clinical trial progress could be significantly
delayed or halted. Further, if we or Bayer cease funding
development of Nexavar under the collaboration agreement, then
that party will be entitled to receive a royalty, but not to
share in profits. Bayer could, upon 60 days notice, elect
at any time to terminate its co-funding of the development of
Nexavar. If Bayer terminates its co-funding of Nexavar
development, we may be unable to fund the development costs on
our own and may be unable to find a new collaborator, which
could cause our business to fail.
We do not have the manufacturing expertise or capabilities
for any current and future products and are dependent on others
to fulfill our manufacturing needs, which could result in lost
sales and the delay of clinical trials or regulatory
approval.
Under our collaboration agreement with Bayer, Bayer has the
manufacturing responsibility to supply Nexavar for clinical
trials and to support our commercial requirements. However,
should Bayer give up its right to co-develop Nexavar, we would
have to manufacture Nexavar, or contract with another third
party to do so for us. Additionally, under our agreement with
BTG we are responsible for all product development and
commercialization activities of ONX 0801. Under our agreement
with S*BIO, if we exercise our options and if S*BIO fails to
supply us inventory through manufacturing, or other specified
events occur, we have co-exclusive rights (with S*BIO) to make
and have made ONX 0803 and ONX 0805 for use and sale in the
United States, Canada and Europe.
We lack the resources, experience and capabilities to
manufacture Nexavar, ONX 0801 and, if required, ONX 0803 and ONX
0805 or any future product candidates on our own and would
require substantial funds to establish these capabilities.
Consequently, we are, and expect to remain, dependent on third
parties to manufacture our product candidates and products.
These parties may encounter difficulties in production
scale-up,
including problems involving production yields, quality control
and quality assurance and shortage of qualified personnel. These
third parties may not perform as agreed or may not continue to
manufacture our products for the time required by us to
successfully market our products. These third parties may fail
to deliver the required quantities of our products or product
candidates on a timely basis and at commercially reasonable
prices. Failure by these third parties could impair our ability
to meet the market demand for Nexavar, and could delay our
ongoing clinical trials and our applications for regulatory
approval. If these third parties do not adequately perform, we
may be forced to incur additional expenses to pay for the
manufacture of products or to develop our own manufacturing
capabilities.
If Bayers business strategy changes, it may
adversely affect our collaborative relationship.
Bayer may change its business strategy. Decisions by Bayer to
either reduce or eliminate its participation in the oncology
field, or to add competitive agents to its portfolio, could
reduce its financial incentive to promote Nexavar. A change in
Bayers business strategy may adversely affect activities
under its collaboration agreement with us, which could cause
significant delays and funding shortfalls impacting the
activities under the collaboration and seriously harming our
business.
We have a history of losses, and we may continue to incur
losses.
Although we achieved profitability for the year ended
December 31, 2008 of $1.9 million of net income, we
have incurred net losses for the years ended December 31,
2007 and 2006 of $34.2 million and $92.7 million,
respectively. As of December 31, 2008, we had an
accumulated deficit of approximately $470.7 million. We
have incurred these losses principally from costs incurred in
our research and development programs, from our general and
administrative costs and the development of our
commercialization infrastructure. We may continue to incur
operating losses as we expand our development and commercial
activities for our products, compounds and product candidates.
We have made, and plan to continue to make, significant
expenditures towards the development and commercialization of
Nexavar. We may never realize sufficient product sales to offset
these expenditures. In addition, we will require significant
funds for the research and development activities for ONX 0801.
Upon the attainment of specified milestones, we are required to
make milestone payments to BTG, which would also require
significant funds. Exercising our option right under our
agreement with S*BIO will also cause us to incur additional
operating
22
expenses that would require significant funds. Our ability to
achieve and maintain consistent profitability depends upon
success by us and Bayer in marketing Nexavar in approved
indications and the successful development and regulatory
approvals of Nexavar in additional indications.
If we lose our key employees or are unable to attract or
retain qualified personnel, our business could suffer.
The loss of the services of key employees may have an adverse
impact on our business unless or until we hire a suitably
qualified replacement. We do not maintain key person life
insurance on any of our officers, employees or consultants. Any
of our key personnel could terminate their employment with us at
any time and without notice. We depend on our continued ability
to attract, retain and motivate highly qualified personnel. We
face competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and
other research institutions. Following our licensing of ONX
0801, we are now conducting our own research and development of
product candidates other than Nexavar, and we will need to hire
individuals with the appropriate scientific skills. If we cannot
hire these individuals in a timely fashion, we will be unable to
engage in new product candidate discovery activities.
We may need additional funds, and our future access to
capital is uncertain.
We may need additional funds to conduct the costly and
time-consuming activities related to the development and
commercialization of Nexavar, ONX 0801 and, if we exercise our
option right, ONX 0803 and ONX 0805, including manufacturing,
clinical trials and regulatory approval. Also, we may need funds
to acquire rights to additional product candidates. Our future
capital requirements will depend upon a number of factors,
including:
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revenue from our product sales;
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global product development and commercialization activities;
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the cost involved in enforcing patent claims against third
parties and defending claims by third parties;
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the costs associated with acquisitions or licenses of additional
products;
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competing technological and market developments;
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repayment of our of milestone-based advances to Bayer, and
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future fee and milestone payments to BTG and S*BIO.
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We may not be able to raise additional capital on favorable
terms, or at all. Beginning in 2008, the public equity and debt
markets, historically our primary source of capital, have become
difficult or impossible for many companies, including those in
our industry, to access. If we are unable to obtain additional
funds, we may not be able to fund our share of commercialization
expenses and clinical trials. We may also have to curtail
operations or obtain funds through collaborative and licensing
arrangements that may require us to relinquish commercial rights
or potential markets or grant licenses on terms that are
unfavorable to us.
We believe that our existing capital resources and interest
thereon will be sufficient to fund our current development plans
beyond 2010. However, if we change our development plans,
acquire rights to or license additional products, or if Nexavar
is not accepted in the marketplace, we may need additional funds
sooner than we expect. In addition, we anticipate that our
expenses related to the development of ONX 0801 and our share of
expenses under our collaboration with Bayer will increase over
the next several years as we begin activities to develop ONX
0801 and continue our share of funding for the Nexavar clinical
development program and expansion of commercial activities for
Nexavar throughout the world. While these costs are unknown at
the current time, we may need to raise additional capital to
begin developing ONX 0801 beyond the pre-clinical stage and to
continue the co-funding of the Nexavar program through and
beyond 2010, and may be unable to do so.
If the specialty pharmacies and distributors that we and
Bayer rely upon to sell Nexavar fail to perform, our business
may be adversely affected.
Our success depends on the continued customer support efforts of
our network of specialty pharmacies and distributors. A
specialty pharmacy is a pharmacy that specializes in the
dispensing of medications for complex or chronic conditions,
which often require a high level of patient education and
ongoing management. The use of
23
specialty pharmacies and distributors involves certain risks,
including, but not limited to, risks that these specialty
pharmacies and distributors will:
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not provide us with accurate or timely information regarding
their inventories, the number of patients who are using Nexavar
or complaints about Nexavar;
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not effectively sell or support Nexavar;
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reduce their efforts or discontinue to sell or support Nexavar;
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not devote the resources necessary to sell Nexavar in the
volumes and within the time frames that we expect;
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be unable to satisfy financial obligations to us or
others; and
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cease operations.
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Any such failure may result in decreased Nexavar sales and
profits, which would harm our business.
We or Bayer may not be able to protect our intellectual
property, which gives us the power to exclude third parties from
using Nexavar, or we may not be able to operate our business
without infringing upon the intellectual property rights of
others.
We can protect our technology from unauthorized use by others
only to the extent that our technology is covered by valid and
enforceable patents or effectively maintained as trade secrets.
As a result, we depend in part on our ability to:
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obtain patents;
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license technology rights from others;
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protect trade secrets;
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operate without infringing upon the proprietary rights of
others; and
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prevent others from infringing on our proprietary rights,
particularly generic drug manufacturers in certain developing
countries such as India.
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In the case of Nexavar, the global patent applications related
to this product candidate are held by Bayer, and are licensed to
us in conjunction with our collaboration agreement with Bayer.
Bayer has United States patents that cover Nexavar and
pharmaceutical compositions of Nexavar, which will expire in
2020 and 2022, respectively. Based on a review of the public
patent databases, Bayer also has a European patent that covers
Nexavar, which will expire in 2020. Bayer has other
patents/patent applications pending worldwide that cover Nexavar
alone or in combination with other drugs for treating cancer.
Certain of these patents may be subject to possible patent-term
extensions, either in the U.S. or abroad, the entitlement
to and the term of which cannot presently be calculated, in part
because Bayer does not share with us information related to its
Nexavar patent portfolio. As of December 31, 2008, we owned
or had licensed rights to 60 United States patents and 24 United
States patent applications and, generally, the foreign
counterparts of these filings. Most of these patents or patent
applications cover protein targets used to identify product
candidates during the research phase of our collaborative
agreements with Warner-Lambert Company, now Pfizer, or Bayer, or
aspects of our now discontinued virus program. Additionally, we
have corresponding patents or patent applications pending or
granted in certain foreign jurisdictions.
The patent positions of biotechnology and pharmaceutical
companies are highly uncertain and involve complex legal and
factual questions. Our patents, or patents that we license from
others, may not provide us with proprietary protection or
competitive advantages against competitors with similar
technologies. Competitors may challenge or circumvent our
patents or patent applications. Courts may find our patents
invalid. Due to the extensive time required for development,
testing and regulatory review of our potential products, our
patents may expire or remain in existence for only a short
period following commercialization, which would reduce or
eliminate any advantage the patents may give us.
24
We may not have been the first to make the inventions covered by
each of our issued or pending patent applications, or we may not
have been the first to file patent applications for these
inventions. Competitors may have independently developed
technologies similar to ours. We may need to license the right
to use third-party patents and intellectual property to develop
and market our product candidates. We may not acquire required
licenses on acceptable terms, if at all. If we do not obtain
these required licenses, we may need to design around other
parties patents, or we may not be able to proceed with the
development, manufacture or, if approved, sale of our product
candidates. We may face litigation to defend against claims of
infringement, assert claims of infringement, enforce our
patents, protect our trade secrets or know-how, or determine the
scope and validity of others proprietary rights. In
addition, we may require interference proceedings declared by
the United States Patent and Trademark Office to determine the
priority of inventions relating to our patent applications.
These activities, especially patent litigation, are costly.
Bayer may have rights to publish data and information in which
we have rights. In addition, we sometimes engage individuals,
entities or consultants to conduct research that may be relevant
to our business. The ability of these individuals, entities or
consultants to publish or otherwise publicly disclose data and
other information generated during the course of their research
is subject to certain contractual limitations. The nature of the
limitations depends on various factors, including the type of
research being conducted, the ownership of the data and
information and the nature of the individual, entity or
consultant. In most cases, these individuals, entities or
consultants are, at the least, precluded from publicly
disclosing our confidential information and are only allowed to
disclose other data or information generated during the course
of the research after we have been afforded an opportunity to
consider whether patent
and/or
other
proprietary protection should be sought. If we do not apply for
patent protection prior to publication or if we cannot otherwise
maintain the confidentiality of our technology and other
confidential information, then our ability to receive patent
protection or protect our proprietary information will be harmed.
Limited foreign intellectual property protection and
compulsory licensing could limit our revenue
opportunities.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United
States. Some companies have encountered significant problems in
protecting and defending such rights in foreign jurisdictions.
Many countries, including certain countries in Europe and
developing countries, have compulsory licensing laws under which
a patent owner may be compelled to grant licenses to third
parties. In those countries, Bayer, the owner of the Nexavar
patent estate, may have limited remedies if the Nexavar patents
are infringed or if Bayer is compelled to grant a license of
Nexavar to a third party, which could materially diminish the
value of those patents that cover Nexavar. If compulsory
licenses were extended to include Nexavar, this could limit our
potential revenue opportunities. Moreover, the legal systems of
certain countries, particularly certain developing countries, do
not favor the aggressive enforcement of patent and other
intellectual property protection, which may make it difficult to
stop infringement. Many countries limit the enforceability of
patents against government agencies or government contractors.
These factors could also negatively affect our revenue
opportunities in those countries.
We may incur significant liability if it is determined
that we are promoting the off-label use of drugs or
are otherwise found in violation of federal and state
regulations in the United States or elsewhere.
Physicians may prescribe drug products for uses that are not
described in the products labeling and that differ from
those approved by the FDA or other applicable regulatory
agencies. Off-label uses are common across medical specialties.
Physicians may prescribe Nexavar for the treatment of cancers
other than advanced kidney cancer or liver cancer, although
neither we nor Bayer are permitted to promote Nexavar for the
treatment of any indication other than advanced kidney cancer or
liver cancer. The FDA and other regulatory agencies have not
approved the use of Nexavar for any other indications. Although
the FDA and other regulatory agencies do not regulate a
physicians choice of treatments, the FDA and other
regulatory agencies do restrict communications on the subject of
off-label use. Companies may not promote drugs for off-label
uses. Accordingly, prior to approval of Nexavar for use in any
indications other than advanced kidney cancer or liver cancer,
we may not promote Nexavar for these indications. The FDA and
other regulatory agencies actively enforce regulations
prohibiting promotion of off-label uses and the promotion of
products for which marketing clearance has not been obtained. A
company that is found to have improperly promoted off-label uses
may be subject to significant liability, including civil and
administrative remedies as well as criminal sanctions.
25
Notwithstanding the regulatory restrictions on off-label
promotion, the FDA and other regulatory authorities allow
companies to engage in truthful, non-misleading, and
non-promotional speech concerning their products. We engage in
the support of medical education activities and communicate with
investigators and potential investigators regarding our clinical
trials. Although we believe that all of our communications
regarding Nexavar are in compliance with the relevant regulatory
requirements, the FDA or another regulatory authority may
disagree, and we may be subject to significant liability,
including civil and administrative remedies as well as criminal
sanctions.
We face product liability risks and may not be able to
obtain adequate insurance.
The sale of Nexavar and its and other products use in
clinical trials exposes us to liability claims. Although we are
not aware of any historical or anticipated product liability
claims against us, if we cannot successfully defend ourselves
against product liability claims, we may incur substantial
liabilities or be required to limit commercialization of Nexavar.
We believe that we have obtained reasonably adequate product
liability insurance coverage that includes the commercial sale
of Nexavar and our clinical trials. However, the cost of
insurance coverage is rising. We may not be able to maintain
insurance coverage at a reasonable cost. We may not be able to
obtain additional insurance coverage that will be adequate to
cover product liability risks that may arise should a future
product candidate receive marketing approval. Regardless of
merit or eventual outcome, product liability claims may result
in:
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decreased demand for a product;
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injury to our reputation;
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withdrawal of clinical trial volunteers; and
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loss of revenues.
|
Thus, whether or not we are insured, a product liability claim
or product recall may result in significant losses.
If we do not receive timely and accurate financial
information from Bayer regarding the development and sale of
Nexavar, we may be unable to accurately report our results of
operations.
Due to our collaboration with Bayer, we are highly dependent on
Bayer for timely and accurate information regarding any revenues
realized from sales of Nexavar and the costs incurred in
developing and selling it, in order to accurately report our
results of operations. If we do not receive timely and accurate
information or incorrectly estimate activity levels associated
with the co-promotion and development of Nexavar at a given
point in time, we could be required to record adjustments in
future periods and may be required to restate our results for
prior periods. Such inaccuracies or restatements could cause a
loss of investor confidence in our financial reporting or lead
to claims against us, resulting in a decrease in the trading
price of shares of our common stock.
Provisions in our collaboration agreement with Bayer may
prevent or delay a change in control.
Our collaboration agreement with Bayer provides that if we are
acquired by another entity by reason of merger, consolidation or
sale of all or substantially all of our assets, and Bayer does
not consent to the transaction, then for 60 days following
the transaction, Bayer may elect to terminate our co-development
and co-promotion rights under the collaboration agreement. If
Bayer were to exercise this right, Bayer would gain exclusive
development and marketing rights to the product candidates
developed under the collaboration agreement, including Nexavar.
If this happens, we, or our successor, would receive a royalty
based on any sales of Nexavar and other collaboration products,
rather than a share of any profits, which could substantially
reduce the economic value derived from the sales of Nexavar to
us or our successor. These provisions of our collaboration
agreement with Bayer may have the effect of delaying or
preventing a change in control, or a sale of all or
substantially all of our assets, or may reduce the number of
companies interested in acquiring us.
Our stock price is volatile.
Our stock price is volatile and is likely to continue to be
volatile. In the period beginning January 1, 2006 and
ending December 31, 2008, our stock price ranged from a
high of $59.50 and a low of $10.44. A variety of factors may
have a significant effect on our stock price, including:
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fluctuations in our results of operations;
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interim or final results of, or speculation about, clinical
trials of Nexavar;
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26
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development progress of our early stage compounds;
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decisions by regulatory agencies, or changes in regulatory
requirements;
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ability to accrue patients into clinical trials;
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developments in our relationship with Bayer;
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public concern as to the safety and efficacy of our product
candidates;
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changes in healthcare reimbursement policies;
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announcements by us or our competitors of technological
innovations or new commercial therapeutic products;
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government regulation;
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developments in patent or other proprietary rights or litigation
brought against us;
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sales by us of our common stock or debt securities;
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foreign currency fluctuations, which would affect our share of
collaboration profits or losses; and
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general market conditions.
|
Unstable market and economic conditions may have serious
adverse consequences on our business.
Our general business strategy may be adversely affected by the
recent economic downturn and volatile business environment and
continued unpredictable and unstable market conditions. If the
current equity and credit markets deteriorate further, or do not
improve, it may make any necessary debt or equity financing more
difficult, more costly, and more dilutive. We believe we are
well positioned with significant capital resources to meet our
current working capital and capital expenditure requirements.
However, a prolonged or profound economic downturn may result in
adverse changes to product reimbursement, pricing or sales
levels, which would harm our operating results. There is a risk
that one or more of our current service providers, manufacturers
and other partners may not survive these difficult economic
times, which would directly affect our ability to attain our
operating goals on schedule and on budget. Further dislocations
in the credit market may adversely impact the value
and/or
liquidity of marketable securities owned by the Company. Failure
to secure any necessary financing in a timely manner and on
favorable terms could have a material adverse effect on our
growth strategy, financial performance and stock price and could
require us to delay or abandon clinical development plans or
plans to acquire additional technology. There is a possibility
that our stock price may decline, due in part to the volatility
of the stock market and the general economic downturn, such that
we would lose our status as a Well-Known Seasoned Issuer, which
allows us to more rapidly and more cheaply raise funds in the
public markets.
Existing stockholders have significant influence over
us.
Our executive officers, directors and 5% stockholders own, in
the aggregate, approximately 39% 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, which it is not
currently exercising, to have its nominee elected to our board
of directors as long as we continue to collaborate on the
development of a compound. Because of these rights, ownership
and voting arrangements, our officers, directors, principal
stockholders and collaborator may be able to effectively control
the election of all members of the board of directors and
determine all corporate actions.
A portion of our investment portfolio is invested in
auction rate securities, and if auctions continue to fail for
amounts we have invested, our investment will not be liquid. If
the issuer of an auction rate security that we hold is unable to
successfully close future auctions and their credit rating
deteriorates, we may be required to adjust the carrying value of
our investment through an impairment charge to earnings.
A portion of our investment portfolio is invested in auction
rate securities. The underlying assets of these securities are
student loans substantially backed by the federal government.
Due to adverse developments in the credit
27
markets, beginning in February 2008, these securities have
experienced failures in the auction process. When an auction
fails for amounts we have invested, the security becomes
illiquid. In the event of an auction failure, we are not able to
access these funds until a future auction on these securities is
successful. We have reclassified these securities from current
to non-current marketable securities, and if the issuer is
unable to successfully close future auctions and their credit
rating deteriorates, we may be required to adjust the carrying
value of the marketable securities through an impairment charge
to earnings.
We are at risk of securities class action litigation due
to our expected stock price volatility.
In the past, stockholders have often brought securities class
action litigation against a company following a decline in the
market price of its securities. This risk is especially acute
for us, because biotechnology companies have experienced greater
than average stock price volatility in recent years and, as a
result, have been subject to, on average, a greater number of
securities class action claims than companies in other
industries. In December 2006, following our announcement that a
Phase 3 trial administering Nexavar or placebo tablets in
combination with the chemotherapeutic agents carboplatin and
paclitaxel in patients with advanced melanoma did not meet its
primary endpoint, our stock price declined significantly.
Similarly, following our announcement in February 2008 that one
of our Phase 3 trials for non-small cell lung cancer had been
stopped because an independent DMC analysis concluded that it
did not meet its primary endpoint of improved overall survival,
our stock price declined significantly. We may in the future be
the target of securities class action litigation. Securities
litigation could result in substantial costs, could divert
managements attention and resources, and could seriously
harm our business, financial condition and results of operations.
Our operating results could be adversely affected by
product sales occurring outside the United States and
fluctuations in the value of the United States dollar against
foreign currencies.
A majority of Nexavar sales are generated outside of the United
States, and a significant percentage of Nexavar commercial and
development expenses are incurred outside of the United States.
Fluctuations in foreign currency exchange rates affect our
operating results. Changes in exchange rates between these
foreign currencies and the U.S. Dollar will affect the
recorded levels of our assets and liabilities as foreign assets
and liabilities are translated into U.S. dollars for
presentation in our financial statements, as well as our net
sales, cost of goods sold, and operating margins. The primary
foreign currency in which we have exchange rate fluctuation
exposure is the European Union euro. As we expand, we could be
exposed to exchange rate fluctuation in other currencies.
Exchange rates between these currencies and U.S. dollars
have fluctuated significantly in recent years and may do so in
the future. Hedging foreign currencies can be difficult,
especially if the currency is not freely traded. We cannot
predict the impact of future exchange rate fluctuations on our
operating results. We currently do not hedge any foreign
currencies.
Provisions in Delaware law, our charter and executive
change of control agreements we have entered into 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 a Delaware
corporation 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
corporations outstanding voting stock, for three years
following the date that the stockholder acquired 15% or more of
the corporations stock unless:
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the board of directors approved the transaction where the
stockholder acquired 15% or more of the corporations stock;
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after the transaction in which the stockholder acquired 15% or
more of the corporations stock, the stockholder owned at
least 85% of the corporations outstanding voting stock,
excluding shares owned by directors, officers and employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held under the plan will
be tendered in a tender or exchange offer; or
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on or after this date, the merger or sale is approved by the
board of directors and the holders of at least two-thirds of the
outstanding voting stock that is not owned by the stockholder.
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28
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:
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our board is classified into three classes of directors as
nearly equal in size as possible with staggered three-year terms;
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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;
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all stockholder actions must be effected at a duly called
meeting of stockholders and not by written consent;
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|
special meetings of the stockholders may be called only by the
chairman of the board, the chief executive officer, the board or
10% or more of the stockholders entitled to vote at the
meeting; and
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no cumulative voting.
|
These provisions may have the effect of delaying or preventing a
change in control, even at stock prices higher than the then
current stock price.
We have entered into change in control severance agreements with
each of our executive officers. These agreements provide for the
payment of severance benefits and the acceleration of stock
option vesting if the executive officers employment is
terminated within 24 months of a change in control. The
change in control severance agreements may have the effect of
preventing a change in control.
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Item 1B.
|
Unresolved
Staff Comments
|
None
We occupy a total 60,000 square feet of office space in our
primary facility in Emeryville, California, which we began
occupying in December 2004. In 2004, we entered into an
operating lease for 23,000 square feet of office space at
this location and, subsequently in December 2006, we amended the
existing lease to occupy an additional 14,000 square feet
of office space. This lease expires in March 2013. In 2008, we
entered into another operating lease for an additional
23,000 square feet of office space in Emeryville,
California. This lease expires in November 2013.
We also lease an additional 9,000 square feet of space in a
secondary facility in Richmond, California. The lease for this
facility expires in September 2010 with renewal options at the
end of the lease for two subsequent five-year terms. We are
currently subleasing this facility. Please refer to Note 8
of the accompanying financial statements for further information
regarding our lease obligations.
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Item 3.
|
Legal
Proceedings
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We are not a party to any material legal proceedings.
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Item 4.
|
Submission
of Matters to a Vote of Securities Holders
|
No matters were submitted to a vote of our stockholders during
the quarter ended December 31, 2008.
29
PART II.
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Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock is traded on the NASDAQ Global Market (NASDAQ)
under the symbol ONXX. We commenced trading on
NASDAQ on May 9, 1996. The following table presents the
high and low closing sales prices per share of our common stock
reported on NASDAQ.
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Common Stock
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|
2008
|
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|
2007
|
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|
High
|
|
|
Low
|
|
|
High
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|
Low
|
|
|
First Quarter
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$
|
57.98
|
|
|
$
|
25.05
|
|
|
$
|
29.03
|
|
|
$
|
10.74
|
|
Second Quarter
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|
37.94
|
|
|
|
30.82
|
|
|
|
33.93
|
|
|
|
25.25
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|
Third Quarter
|
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44.79
|
|
|
|
36.13
|
|
|
|
44.73
|
|
|
|
26.77
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|
Fourth Quarter
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35.93
|
|
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|
22.40
|
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|
59.50
|
|
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|
41.55
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|
On February 20, 2009, the last reported sales price of our
common stock on NASDAQ was $28.10 per share.
Stock
Performance Graph
The following performance graph is not soliciting
material, is not deemed filed with the SEC and is not to
be incorporated by reference in any filing by us under the
Securities Act of 1933, as amended (the Securities
Act), or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation
language in any such filing. The stock price performance shown
on the graph is not necessarily indicative of future price
performance.
Holders
There were approximately 174 holders of record of our common
stock as of February 20, 2009.
30
Dividends
We have not paid cash dividends on our common stock and do not
plan to pay any cash dividends in the foreseeable future.
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
For the year ended December 31, 2008, we issued
72,551 shares of restricted stock awards, of which
20,106 shares were withheld for taxes.
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Item 6.
|
Selected
Financial Data
|
This section presents our selected historical financial data.
You should carefully read the financial statements and the notes
thereto included in this report and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
The Statement of Operations data for the years ended
December 31, 2008, 2007 and 2006 and the Balance Sheet data
as of December 31, 2008 and 2007 has been derived from our
audited financial statements included elsewhere in this report.
The Statement of Operations data for the years ended
December 31, 2005 and 2004 and the Balance Sheet data as of
December 31, 2006, 2005 and 2004 has been derived from our
audited financial statements that are not included in this
report. Historical results are not necessarily indicative of
future results. See the Notes to Financial Statements for an
explanation of the method used to determine the number of shares
used in computing basic and diluted net income (loss) per share.
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Year Ended December 31,
|
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|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
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|
Statement of Operations Data:
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|
|
|
|
|
|
|
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|
|
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Revenue:
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Revenue from collaboration agreement(1)
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|
$
|
194,343
|
|
|
$
|
90,429
|
|
|
$
|
29,274
|
|
|
$
|
-
|
|
|
$
|
-
|
|
License fee revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
1,000
|
|
|
|
500
|
|
Operating expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Research and development(1)
|
|
|
123,749
|
|
|
|
83,306
|
|
|
|
84,169
|
|
|
|
63,120
|
|
|
|
35,846
|
|
Selling, general and administrative
|
|
|
80,994
|
|
|
|
60,546
|
|
|
|
50,019
|
|
|
|
39,671
|
|
|
|
14,316
|
|
Restructuring
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Loss from operations
|
|
|
(10,400
|
)
|
|
|
(53,423
|
)
|
|
|
(104,664
|
)
|
|
|
(101,791
|
)
|
|
|
(49,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
12,695
|
|
|
|
19,256
|
|
|
|
11,983
|
|
|
|
6,617
|
|
|
|
3,164
|
|
Provision for income taxes
|
|
|
347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income (loss)
|
|
$
|
1,948
|
|
|
$
|
(34,167
|
)
|
|
$
|
(92,681
|
)
|
|
$
|
(95,174
|
)
|
|
$
|
(46,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.03
|
|
|
$
|
(0.67
|
)
|
|
$
|
(2.20
|
)
|
|
$
|
(2.64
|
)
|
|
$
|
(1.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share
|
|
|
55,915
|
|
|
|
51,177
|
|
|
|
42,170
|
|
|
|
36,039
|
|
|
|
34,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
56,765
|
|
|
|
51,177
|
|
|
|
42,170
|
|
|
|
36,039
|
|
|
|
34,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and current and non-current marketable
securities
|
|
$
|
458,046
|
|
|
$
|
469,650
|
|
|
$
|
271,403
|
|
|
$
|
284,680
|
|
|
$
|
209,624
|
|
Total assets
|
|
$
|
509,767
|
|
|
|
484,083
|
|
|
|
286,246
|
|
|
|
294,665
|
|
|
|
215,546
|
|
Working capital
|
|
|
428,755
|
|
|
|
469,215
|
|
|
|
256,699
|
|
|
|
241,678
|
|
|
|
197,873
|
|
Advance from collaboration partner, non-current
|
|
|
-
|
|
|
|
39,234
|
|
|
|
40,000
|
|
|
|
30,000
|
|
|
|
20,000
|
|
Accumulated deficit
|
|
|
(470,710
|
)
|
|
|
(472,658
|
)
|
|
|
(438,491
|
)
|
|
|
(345,810
|
)
|
|
|
(250,636
|
)
|
Total stockholders equity
|
|
$
|
475,200
|
|
|
$
|
432,237
|
|
|
$
|
222,780
|
|
|
$
|
223,240
|
|
|
$
|
179,988
|
|
|
|
|
(1)
|
|
As a result of the adoption of new accounting literature,
Emerging Issues Task Force,
07-1,
or
EITF
07-1,
Accounting for Collaborative Arrangements,
the
Companys statement of operations has a new presentation.
These specific line items have been impacted by the new
presentation. Refer to Note 1 in the Notes to Financial
Statements for additional information.
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties.
We use words such as may, will,
expect, anticipate,
estimate, intend, plan,
predict, potential, believe,
should and similar expressions to identify
forward-looking statements. These statements appearing
throughout our
10-K
are
statements regarding our intent, belief, or current
expectations, primarily regarding our operations. You should not
place undue reliance on these forward-looking statements, which
apply only as of the date of this Annual Report on
Form 10-K.
Our actual results could differ materially from those
anticipated in these forward-looking statements for many
reasons, including those set forth under Business
Item 1A Risk Factors and elsewhere in this
Annual Report on
Form 10-K.
Overview
We are a biopharmaceutical company dedicated to developing
innovative therapies that target the molecular mechanisms that
cause cancer. With our collaborators, we are developing
anticancer therapies with the goal of
changing the way cancer
is
treated
tm
.
We are applying our expertise to develop and commercialize
therapies designed to exploit the genetic differences between
cancer cells and normal cells.
Our first commercially available product,
Nexavar
®
(sorafenib) tablets, being developed with our collaborator,
Bayer HealthCare Pharmaceuticals Inc., or Bayer, is approved by
the United States Food and Drug Administration, or FDA, for the
treatment of patients with advanced kidney cancer and liver
cancer. Nexavar is a novel, orally available kinase inhibitor
and is one of a new class of anticancer treatments that target
both cancer cell proliferation and tumor growth through the
inhibition of key signaling pathways. In December 2005, Nexavar
became the first newly approved drug for patients with advanced
kidney cancer in over a decade. In November 2007, Nexavar was
approved as the first and is currently the only systemic therapy
for the treatment of patients with liver cancer. Nexavar is now
approved in more than 70 countries for the treatment of advanced
kidney cancer and in more than 60 countries for the treatment of
liver cancer. We and Bayer are also conducting clinical trials
of Nexavar in several important cancer types in addition to
advanced kidney cancer and liver cancer, including lung,
melanoma, breast, ovarian and colon cancers.
We and Bayer are commercializing Nexavar, for the treatment of
patients with advanced kidney cancer and liver cancer. Nexavar
has been approved and is marketed for these indications in the
United States and in the European Union, as well as other
territories worldwide. In the United States, we co-promote
Nexavar with Bayer. Outside of the United States, Bayer manages
all commercialization activities. In 2008, worldwide net sales
of Nexavar as recorded by Bayer were $677.8 million.
32
In collaboration with Bayer, we initially focused on
demonstrating Nexavars ability to benefit patients
suffering from a cancer for which there were no or few
established therapies. With the approval of Nexavar for the
treatment of advanced kidney cancer and liver cancer, the two
companies have established the Nexavar brand and created a
global commercial oncology presence. In order to benefit as many
patients as possible, we and Bayer are investigating the
administration of Nexavar with previously approved anticancer
therapies in more common cancers, with the objective of
enhancing the anti-tumor activity of existing therapies through
combination with Nexavar.
We and Bayer are developing and marketing Nexavar under our
collaboration and co-promotion agreements. We fund 50% of
the development costs for Nexavar worldwide, excluding Japan.
With Bayer, we co-promote Nexavar in the United States and share
equally in any profits or losses. Outside of the United States,
excluding Japan, Bayer has exclusive marketing rights and we
share profits equally. In Japan, Bayer funds all product
development, and we will receive a royalty on any sales. Our
agreements with Bayer also provide that we receive creditable
milestone-based payments totaling $40 million, all of which
have been received. These payments are repayable by us to Bayer
from a portion of our share of any quarterly collaboration
profits and royalties after deducting certain contractually
agreed upon expenditures. As of December 31, 2008,
$23.4 million of this amount was paid back to Bayer based
on the profitability of the collaboration thus far.
We have expanded our development pipeline through the
acquisition of rights to development-stage novel anticancer
agents. In November 2008, we entered into an agreement to
license worldwide development and commercialization rights to
ONX 0801, previously known as BGC 945, from BTG International
Limited, or BTG, a London-based specialty pharmaceuticals
company. ONX 0801 is in preclinical development and is believed
to work by combining two established approaches to improve
outcomes for cancer patients, selectively targeting tumor cells
through the alpha-folate receptor, which is overexpressed in a
number of tumor types, and inhibiting thymidylate synthase, a
key enzyme responsible for cell growth and division. In December
2008, we acquired options to license SB1518 (designated by Onyx
as ONX 0803) and SB1578 (designated by Onyx as ONX 0805),
which are both Janus Kinase 2, or JAK2, inhibitors, from S*BIO
Pte Ltd, or S*BIO, a Singapore-based company. The activation of
JAK2 stimulates blood cell production and the JAK2 pathway is
known to play a critical role in the proliferation of certain
types of cancer cells and in the anti-inflammatory pathway. ONX
0803 is in multiple Phase 1 studies and ONX 0805 is in
preclinical development.
With the exception of the year ended December 31, 2008, we
have incurred net losses since our inception. Our ability to
achieve continued and sustainable profitability is uncertain and
is dependent on a number of factors. These factors include, but
are not limited to, the level of patient demand for Nexavar, the
ability of Bayers distribution network to process and ship
product on a timely basis, investments in sales and marketing
efforts to support the sales of Nexavar, Bayer and our
investments in the research and development of Nexavar,
fluctuations in foreign exchange rates and expenditures we may
incur to acquire or develop and commercialize additional
products. Our operating results will likely fluctuate from
quarter to quarter and from year to year, and are difficult to
predict. Since inception, we have relied on public and private
financings, combined with milestone payments from our
collaborators, to fund our operations and may continue to do so
in future periods. As of December 31, 2008, our accumulated
deficit was approximately $470.7 million.
Our business is subject to significant risks, including the
risks inherent in our development efforts, the results of the
Nexavar clinical trials, the marketing of Nexavar as a treatment
for patients in approved indications, our dependence on
collaborative parties, uncertainties associated with obtaining
and enforcing patents, the lengthy and expensive regulatory
approval process and competition from other products. For a
discussion of these and some of the other risks and
uncertainties affecting our business, see Item 1A
Risk Factors of this Annual Report on
Form 10-K.
Critical
Accounting Policies and the Use of Estimates
The accompanying discussion and analysis of our financial
condition and results of operations are based upon our financial
statements and the related disclosures, which have been prepared
in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements
requires us to make estimates, assumptions and judgments that
affect the amounts reported in our financial statements and
accompanying notes. These estimates form the basis for making
judgments about the carrying values of assets and liabilities.
We consider
33
certain accounting policies related to revenue from
collaboration agreement, fair value of marketable securities,
stock-based compensation, research and development expenses and
the use of estimates to be critical policies. We base our
estimates and judgments on historical experience and on various
other assumptions that we believe to be reasonable under the
circumstances. Significant estimates used in 2008 included
assumptions used in the determination of the fair value of
marketable securities, stock-based compensation related to stock
options granted, revenue from collaboration agreement and
research and development expenses. Actual results could differ
materially from these estimates.
We believe the following policies to be the most critical to
understanding our financial condition and results of operations,
because they require us to make estimates, assumptions and
judgments about matters that are inherently uncertain.
Revenue from Collaboration Agreement:
On
December 12, 2007, the Financial Accounting Standards Board
or FASB, ratified Emerging Issues Task Force
07-1,
or
EITF 07-1,
Accounting for Collaborative Arrangements
.
EITF 07-1
is effective for fiscal years beginning after December 15,
2008 and shall be applied retrospectively for all collaborative
arrangements existing as of the effective date. We have elected
to early adopt
EITF 07-1,
as a result, effective January 1, 2006, our statement of
operations for all periods presented have been reclassified to
conform to the new presentation. As the commercial sales of
Nexavar began in late December 2005, there is no impact to
periods prior to January 1, 2006. This new presentation
impacts the classification of amounts included in specific line
items, but has no impact on net income (loss) or net income
(loss) per share. As a result of this new presentation, the
statement of operations now includes the line item Revenue
from collaboration agreement. This line item consists of
our share of the pre-tax commercial profit generated from the
collaboration with Bayer, reimbursement of our shared marketing
costs related to Nexavar and royalty revenue.
Our portion of shared collaboration research and development
expenses is not included in the line item Revenue from
collaboration agreement, but is reflected under operating
expenses. According to the terms of the collaboration agreement,
the companies share all research and development, marketing, and
non-U.S. sales
expenses. We and Bayer each bear our own U.S. sales force
and medical science liaison expenses. These costs related to our
U.S. sales force and medical science liaisons are recorded
in our selling, general and administrative expenses. Bayer
recognizes all revenue under the Nexavar collaboration and
incurs the majority of expenses relating to the development and
marketing of Nexavar. We are highly dependent on Bayer for
timely and accurate information regarding any revenues realized
from sales of Nexavar and the costs incurred in developing and
selling it, in order to accurately report our results of
operations. If we do not receive timely and accurate information
or incorrectly estimate activity levels associated with the
collaboration of Nexavar at a given point in time, we could be
required to record adjustments in future periods and may be
required to restate our results for prior periods.
See Note 1 of the accompanying footnotes to the financial
statements for the effect of the adoption of
EITF 07-1
for all periods presented.
Fair Value of Marketable Securities:
Effective
January 1, 2008, we adopted the provisions of Statements of
Financial Accounting Standards No. 157,
Fair Value
Measurements
, or SFAS No. 157, which defines fair
value and provides guidance for using fair value to measure
assets and liabilities. In accordance with
SFAS No. 157 and FAS Staff Position
157-2,
Effective Date of FASB Statement No. 157, we
adopted SFAS No. 157 with regard to all financial
assets and liabilities in our financial statements in the first
quarter of 2008 and have elected to delay the adoption of
SFAS No. 157 for non-financial assets and
non-financial liabilities until the first quarter of 2009.
SFAS No. 157 is applicable whenever other standards
require or permit assets or liabilities to be measured at fair
value but does not expand the use of fair value in any new
circumstances. Accordingly, the carrying amounts of certain of
our financial instruments, including cash equivalents and
marketable securities, continue to be valued at fair value on a
recurring basis.
As defined in SFAS No. 157, fair value is the price
that would be received to sell an asset or paid to transfer a
liability (an exit price) in an orderly transaction between
market participants at the measurement date. We utilize market
data or assumptions that we believe market participants would
use in pricing assets, including assumptions about risk and the
risks inherent in the inputs to the valuation technique.
34
SFAS No. 157 describes three levels of inputs that may
be used to measure fair value, as follows:
|
|
|
|
|
Level 1 Quoted prices in active markets for
identical assets or liabilities.
|
|
|
|
|
|
Level 2 Inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities.
|
|
|
|
|
|
Level 3 Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities.
|
SFAS No. 157 introduced new disclosures about how we value
certain assets. Much of the disclosure focuses on the inputs
used to measure fair value, particularly in instances in which
the measurement uses significant unobservable inputs.
Stock Based-Compensation:
Effective
January 1, 2006, we adopted the Statement of Financial
Accounting Standards, or SFAS, Share-Based Payment,
or SFAS 123(R), which requires the measurement and
recognition of compensation expense for all stock-based payments
made to employees and directors including employee stock option
awards and employee stock purchases made under our Employee
Stock Purchase Plan, or ESPP, based on estimated fair value. We
previously applied the provisions of Accounting Principles Board
Opinion, or APB, Accounting for Stock Issued to
Employees, or APB No. 25 and related Interpretations and
provided the required pro forma disclosures under SFAS 123,
Accounting for Stock-Based Compensation, or
SFAS 123.
We adopted SFAS 123(R) using the modified prospective
transition method beginning January 1, 2006. Accordingly,
during the year ended December 31, 2006, we recorded
stock-based compensation expense for awards granted prior to but
not yet vested as of January 1, 2006 as if the fair value
method required for pro forma disclosure under SFAS 123
were in effect for expense recognition purposes adjusted for
estimated forfeitures. For these awards, the Company has
continued to recognize compensation expense using the
accelerated amortization method under FASB Interpretation
No. 28, Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans. For
stock-based awards granted after January 1, 2006, we
recognized compensation expense based on the estimated grant
date fair value method required under SFAS 123(R). The
compensation expense for these awards was recognized using a
straight-line amortization method. The net income for the year
ended December 31, 2008 includes employee stock-based
compensation expense of $18.8 million, or $0.33 per diluted
share. The net loss for the years ended December 31, 2007
and 2006 includes employee stock-based compensation expense of
$14.1 million, or $0.28 per diluted share, and
$14.0 million, or $0.33 per diluted share, respectively. As
of December 31, 2008, the total unrecorded stock-based
compensation expense for unvested stock options, net of expected
forfeitures, was $36.6 million, which is expected to be
amortized over a weighted-average period of 2.6 years.
On November 10, 2005, the FASB, issued FASB Staff Position
No. FAS 123(R)-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards.
We have elected to adopt the alternative transition method
provided in the FASB Staff Position for calculating the tax
effects, if any, of stock-based compensation expense pursuant to
SFAS 123(R). The alternative transition method includes
simplified methods to establish the beginning balance of the
additional paid-in capital pool (APIC pool) related to the tax
effects of employee stock-based compensation, and to determine
the subsequent impact to the APIC pool and the consolidated
statements of operations and cash flows of the tax effects of
employee stock-based compensation awards that are outstanding
upon adoption of SFAS 123(R).
While fair value may be readily determinable for awards of
stock, market quotes are not available for long-term,
nontransferable stock options because these instruments are not
traded. We currently use the Black-Scholes option-pricing model
to estimate the fair value of stock options. Option valuation
models require the input of highly subjective assumptions,
including, but not limited to, stock price volatility and stock
option exercise behavior. We expect to continue to use the
Black-Scholes model for valuing our stock-based compensation
expense. However, our estimate of future stock-based
compensation expense will be affected by a number of items
including our stock price, the number of stock options our board
of directors may grant in future periods, as well as a number of
complex and subjective valuation adjustments and the related tax
effect. These valuation assumptions include, but are not limited
to, the volatility of our stock price, expected life and stock
option exercise behaviors. Actual results could differ
materially from these estimates.
35
Research and Development Expense:
In accordance
with FASB Statement of Financial Accounting Standards, or FAS,
No. 2, Accounting for Research and Development
Costs, research and development costs are charged to
expense when incurred. The major components of research and
development costs include clinical manufacturing costs, clinical
trial expenses, non-refundable upfront payments, consulting and
other third-party costs, salaries and employee benefits,
stock-based compensation expense, supplies and materials and
allocations of various overhead and occupancy costs.
Non-refundable option payments, including those made under our
agreement with S*BIO, that do not have any future alternative
use are recorded as research and development expense. Not all
research and development costs are incurred by us. A significant
portion of our research and development expenses, approximately
55% in 2008, 82% in 2007 and 79% in 2006, relates to our cost
sharing arrangement with Bayer and represents our share of the
research and development costs incurred by Bayer. As a result of
the cost sharing arrangement between us and Bayer, there was a
net reimbursable amount of $50.7 million,
$57.9 million and $53.2 million to Bayer for the years
ended December 31, 2008, 2007 and 2006, respectively. Such
amounts were recorded based on invoices and estimates we receive
from Bayer. When such invoices have not been received, we must
estimate the amounts owed to Bayer based on discussions with
Bayer. If we underestimate or overestimate the amounts owed to
Bayer, we may need to adjust these amounts in a future period,
which could have an effect on earnings in the period of
adjustment.
In instances where we enter into agreements with third parties
for clinical trials and other consulting activities, costs are
expensed upon the earlier of when non-refundable amounts are due
or as services are performed. Amounts due under such
arrangements may be either fixed fee or fee for service, and may
include upfront payments, monthly payments, and payments upon
the completion of milestones or receipt of deliverables.
Our cost accruals for clinical trials are based on estimates of
the services received and efforts expended pursuant to contracts
with numerous clinical trial sites, cooperative groups and
clinical research organizations. In the normal course of
business we contract with third parties to perform various
clinical trial activities in the on-going development of
potential products. The financial terms of these agreements are
subject to negotiation and variation from contract to contract
and may result in uneven payment flows. Payments under the
contracts depend on factors such as the achievement of certain
events, the successful enrollment of patients, and the
completion of portions of the clinical trial or similar
conditions. The objective of our accrual policy is to match the
recording of expenses in our financial statements to the actual
services received and efforts expended. As such, expense
accruals related to clinical trials are recognized based on our
estimate of the degree of completion of the event or events
specified in the specific clinical study or trial contract. We
monitor service provider activities to the extent possible;
however, if we underestimate activity levels associated with
various studies at a given point in time, we could be required
to record significant additional research and development
expenses in future periods.
Income Taxes:
We use the asset and liability
method to account for income taxes as required by
FAS No. 109, Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and
tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
In July 2006, the Financial Accounting Standards Board, or FASB,
issued Financial Interpretation No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, or FIN 48, which
clarifies the criteria that must be met prior to recognition of
the financial statement benefit of a position taken in a tax
return. FIN 48 provides a benefit recognition model with a
two-step approach consisting of a
more-likely-than-not recognition criteria, and a
measurement attribute that measures a given tax position as the
largest amount of tax benefit that is greater than 50% likely of
being realized upon ultimate settlement. FIN 48 also
requires the recognition of liabilities created by differences
between tax positions taken in a tax return and amounts
recognized in the financial statements. FIN 48 is effective
as of the beginning of the first annual period beginning after
December 15, 2006, and became effective for us on
January 1, 2007. The adoption of FIN 48 had no impact
on our financial condition, results of operations, or cash flows
for the year ended December 31, 2008, as the we had no
unrecognized tax benefits.
36
We have accumulated approximately $722.1 million in net
operating losses, which equates to approximately
$144.3 million in deferred tax assets, relating to
U.S. federal and state income taxes through
December 31, 2008. The federal net operating losses, which
we can use to offset future federal taxable income, expire
between the years 2010 and 2027, and the state net operating
loss, which we can use to offset future state taxable income
expire between the years 2014 and 2029. However, utilization of
the net operating losses may be limited under U.S. Internal
Revenue Code Section 382 and our ability to generate net
income before they expire. We have also accumulated
approximately an additional $68.9 million in other deferred
tax assets based on temporary differences between book and tax
reporting. We continue to fully reserve our net operating losses
and other deferred tax assets despite achieving full year
profitability in 2008, since we have had a history of losses
since inception. We will consider reversing a significant
portion of the valuation reserve once we have demonstrated
sustained profitability and our internal forecasts support the
utilization of the net operating losses prior to their
expiration. If we determine that the reversal of a significant
portion of the valuation reserve is appropriate, a significant
one-time benefit will be recognized against our income tax
provision in the period of the reversal. In addition, as of
December 31, 2008, approximately $56.0 million of the
deferred tax assets related to our net operating losses consists
of deductions for employee stock options for which the tax
benefit will be credited to additional paid-in capital if and
when realized. We assess the appropriateness of the valuation
allowance at the end of each reporting period.
Results
of Operations
Years
Ended December 31, 2008, 2007 and 2006
Revenue.
Nexavar, our only marketed product,
was approved in the United States in December 2005. In
accordance with our collaboration agreement with Bayer, Bayer
recognizes all revenue from the sale of Nexavar. As such, for
the years ended December 31, 2008, 2007 and 2006, we
reported no revenue related to Nexavar. Nexavar net sales as
recorded by Bayer were $677.8 million, $371.7 million
and $165.0 million for the years ended December 31,
2008, 2007 and 2006, respectively, primarily from sales in the
United States and the European Union.
Revenue from Collaboration Agreement.
Nexavar
is currently marketed and sold in more than 70 countries for the
treatment of advanced kidney cancer and in more than 60
countries for the treatment of liver cancer. We co-promote
Nexavar in the United States with Bayer under collaboration and
co-promotion agreements. In March 2006, we and Bayer entered
into a co-promotion agreement to co-promote Nexavar in the
United States. This agreement amends the collaboration agreement
and supersedes the provisions of that agreement that relate to
the co-promotion of Nexavar in the United States. Outside of the
United States, the terms of the collaboration agreement continue
to govern. Under the terms of the co-promotion agreement and
consistent with the collaboration agreement, we and Bayer share
equally in the profits or losses of Nexavar, if any, in the
United States, subject only to our continued co-funding of the
development costs of Nexavar worldwide outside of Japan and our
continued co-promotion of Nexavar in the United States. The
collaboration was created through a contractual arrangement, not
through a joint venture or other legal entity.
Outside of the United States, excluding Japan, Bayer incurs all
of the sales and marketing expenditures, and we reimburse Bayer
for half of those expenditures. In addition, for sales generated
outside of the United States, excluding Japan, we reimburse
Bayer a fixed percentage of sales for their marketing
infrastructure. Research and development expenditures on a
worldwide basis, excluding Japan, are equally shared by both
companies regardless of whether we or Bayer incurs the expense.
In Japan, Bayer is responsible for all development and marketing
costs and we receive a royalty on net sales of Nexavar.
In the United Sates, Bayer provides all product distribution and
all marketing support services for Nexavar, including managed
care, customer service, order entry and billing. We compensate
Bayer for distribution expenses based on a fixed percentage of
gross sales of Nexavar in the United States. We reimburse Bayer
for half of its expenses for marketing services provided by
Bayer for the sale of Nexavar in the United States. We and Bayer
share equally in any other out-of-pocket marketing expenses
(other than expenses for sales force and medical science
liaisons) that we and Bayer incur in connection with the
marketing and promotion of Nexavar in the United States. Bayer
manufactures all Nexavar sold and is reimbursed at an agreed
transfer price per unit for the cost of goods sold in the United
States.
37
In the United States, we contribute half of the overall number
of sales force personnel required to market and promote Nexavar
and half of the medical science liaisons to support Nexavar. We
and Bayer each bear our own sales force and medical science
liaison expenses. These expenses are not included in the
calculation of the profits or losses of the collaboration.
Revenue from collaboration agreement consists of our share of
the pre-tax commercial profit generated from our collaboration
with Bayer, reimbursement of our shared marketing costs related
to Nexavar and royalty revenue. Under the collaboration, Bayer
recognizes all sales of Nexavar worldwide. We record revenue
from collaboration agreement on a quarterly basis. Revenue from
collaboration agreement is derived by calculating net sales of
Nexavar to third-party customers and deducting the cost of goods
sold, distribution costs, marketing costs (including without
limitation, advertising and education expenses, selling and
promotion expenses, marketing personnel expenses, and Bayer
marketing services expenses), Phase 4 clinical trial costs and
allocable overhead costs. Reimbursement by Bayer of our shared
marketing costs related to Nexavar and royalty revenue are also
included in the Revenue from collaboration agreement
line item.
Our portion of shared collaboration research and development
expenses is not included in this line item, but is reflected
under operating expenses. According to the terms of the
collaboration agreement, the companies share all research and
development, marketing and non-US sales expenses. United States
sales force and medical science liaison expenditures incurred by
both companies are borne by each company separately and are not
included in the calculation. Some of the revenue and expenses
recorded to derive the revenue from collaboration agreement
during the period presented are estimates of both parties and
are subject to further adjustment based on each partys
final review should actual results differ from these estimates.
If we do not receive timely and accurate information or
incorrectly estimate activity levels associated with the
collaboration of Nexavar at a given point in time, we could be
required to record adjustments in future periods and may be
required to restate our results for prior periods. Revenue from
collaboration agreement increases with increased Nexavar net
revenue, or decreases with decreased Nexavar net revenue, over
and above the associated cost of goods sold, distribution,
selling and general administrative expenses. Increases to the
associated costs of goods sold, distribution, selling and
general and administrative expenses will decrease revenue from
collaboration agreement and decreases to these costs will
increase revenue from collaboration agreement. We expect Nexavar
sales and Bayers and our shared cost of goods sold,
distribution, selling and general administrative expense to
increase with the approval of liver cancer and as Bayer
continues to expand Nexavar marketing and sales activities
outside of the United States.
Revenue from collaboration agreement was $194.3 million,
$90.4 million and $29.3 million for the years ended
December 31, 2008, 2007 and 2006, respectively. The
increase in revenue from collaboration agreement is primarily a
result of increased net product revenue on sales of Nexavar as
recorded by Bayer of $677.8 million for the year ended
December 31, 2008 as compared to $371.7 million for
the year ended December 31, 2007 and $165.0 million
for the year ended December 31, 2006. The increase in net
product revenue was offset by increased costs to sell,
distribute and market in countries around the world. Revenue
from collaboration agreement is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Nexavar product revenue, net (as recorded by Bayer)
|
|
$
|
677,806
|
|
|
$
|
371,736
|
|
|
$
|
164,994
|
|
Revenue subject to profit sharing (as recorded by Bayer)
|
|
|
637,459
|
|
|
|
371,736
|
|
|
|
164,994
|
|
Combined cost of goods sold, distribution, selling, general and
administrative
|
|
|
298,792
|
|
|
|
223,682
|
|
|
|
123,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined collaboration commercial profit
|
|
|
338,667
|
|
|
|
148,054
|
|
|
|
41,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onyxs share of collaboration commercial profit
|
|
|
169,334
|
|
|
|
74,027
|
|
|
|
20,995
|
|
Reimbursement of Onyxs shared marketing expenses
|
|
|
22,185
|
|
|
|
16,402
|
|
|
|
8,279
|
|
Royalty income
|
|
|
2,824
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
194,343
|
|
|
$
|
90,429
|
|
|
$
|
29,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
License Revenue.
License revenue was zero in
2008 and 2007 and $250,000 in 2006. License revenue in 2006
represents $100,000 recognized for selling the rights to certain
viruses from our now discontinued therapeutic virus program to
Shanghai Sunway Biotech Co. Ltd and $150,000 recognized for
licensing rights to certain cytopathic viruses for therapy and
prophylaxis of neoplasia to DNAtriX. We have no ongoing
performance obligations under these agreements.
Research and Development Expenses.
Research
and development expenses were $123.7 million, including
stock-based
compensation of $2.7 million, in 2008, an increase of
$40.4 million, or 48%, from $83.3 million, including
stock-based compensation expense of $4.2 million, in 2007.
The increase in research and development was primarily due to
$33.8 million of upfront payments related to our
development and license agreement with BTG and development
collaboration, option and license agreement with S*BIO and costs
related to the Phase 2 breast trials. We expect that Bayer and
we will continue to expand our investment in the development of
Nexavar by conducting clinical trials to test Nexavars
efficacy in more prevalent tumor types in future periods.
Additionally, we expect our research and development activities
to also include developing ONX 0801 further.
Research and development expenses were $83.3 million,
including stock-based compensation expense of $4.2 million,
in 2007, a net decrease of $0.9 million, or 1%, from
$84.2 million, including stock-based compensation expense
of $2.6 million, in 2006. The decrease in research and
development was due to offsetting factors. The 2007 costs
include increased costs for the startup of the Phase 2 breast
trials. Offsetting this increase for a net decrease in research
and development expenses is reduced costs in melanoma spending
as patients come off study from this program.
A significant portion of our research and development expenses,
approximately 55% in 2008, 82% in 2007 and 79% in 2006, relates
to our cost sharing arrangement with Bayer and represents our
share of the research and development costs incurred by Bayer.
As a result of the cost sharing arrangement between us and
Bayer, there was a net reimbursable amount of
$50.7 million, $57.9 million and $53.2 million to
Bayer for the years ended December 31, 2008, 2007 and 2006,
respectively. Such amounts were recorded based on invoices and
estimates we receive from Bayer. When such invoices have not
been received, we must estimate the amounts owed to Bayer based
on discussions with Bayer. If we underestimate or overestimate
the amounts owed to Bayer, we may need to adjust these amounts
in a future period, which could have an effect on earnings in
the period of adjustment.
The major components of research and development costs include
clinical manufacturing costs, clinical trial expenses,
non-refundable upfront payments, consulting and other
third-party costs, salaries and employee benefits, stock-based
compensation expense, supplies and materials and allocations of
various overhead and occupancy costs. The scope and magnitude of
future research and development expenses are difficult to
predict at this time given the number of studies that will need
to be conducted for any of our potential product candidates. In
general, biopharmaceutical development involves a series of
steps beginning with identification of a potential target and
includes proof of concept in animals and Phase 1, 2 and 3
clinical studies in humans, each of which is typically more
expensive than the previous step.
The following table summarizes our principal product development
initiatives, including the related stages of development for
each product in development and the research and development
expenses recognized in connection with each product. The
information in the column labeled Phase of Development -
Estimated Completion is only our estimate of the timing of
completion of the current in-process development phases based on
current information. The actual timing of completion of those
phases could differ materially from the estimates provided in
the table. We cannot reasonably estimate the timing of
completion of each clinical phase of our development programs
due to the risks and uncertainties associated with developing
pharmaceutical product candidates. The clinical development
portion of these programs may span as many as seven to ten
years, and estimation of completion dates or costs to complete
would be highly speculative and subjective due to the numerous
risks and uncertainties associated with developing
biopharmaceutical products, including significant and changing
government regulation, the uncertainty of future preclinical and
clinical study results and uncertainties associated with process
development and
39
manufacturing as well as marketing. For a discussion of the
risks and uncertainties associated with the timing and cost of
completing a product development phase, see Item 1A
Risk Factors of this Annual Report on
Form 10-K.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
|
Products/
|
|
|
|
Collabo-
|
|
Phase of Development
|
|
|
|
|
December 31,
|
|
|
|
|
Product Candidates
|
|
Description
|
|
rator
|
|
Estimated Completion
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Nexavar
(sorafenib) Tablets(1)
|
|
Small molecule inhibitor of tumor cell proliferation and
angiogenesis, targeting RAF, VEGFR-2, PDGFR- ß, KIT, FLT-3,
and RET
|
|
Bayer
|
|
Phase 1 2004
Phase 2 Unknown
Phase 3 Unknown
|
|
$
|
89.8
|
(2)
|
|
$
|
83.3
|
(2)
|
|
$
|
84.2(2
|
)
|
ONX 0801
|
|
Compound targeting apha-folate receptor and inhibiting
thymidylate synthase
|
|
BTG
|
|
Pre-clinical
|
|
|
13.1
|
(3)
|
|
|
-
|
|
|
|
-
|
|
ONX 0803, ONX 0805
|
|
Janus Kinase 2 Inhibitors
|
|
S*BIO
|
|
Phase 1 unknown Pre-clinical
|
|
|
20.8
|
(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
123.7
|
|
|
$
|
83.3
|
|
|
$
|
84.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Aggregate research and development costs to-date through
December 31, 2008 incurred by us since fiscal year 2000 for
the Nexavar project is $392.1 million.
|
|
(2)
|
|
Costs reflected include our share of product development costs
incurred by Bayer for Nexavar.
|
|
(3)
|
|
Costs refer to the upfront payment made to BTG under our
development and license agreement.
|
|
(4)
|
|
Costs refer to the upfront payment made to S*BIO under our
development collaboration, option and license agreement.
|
Selling, General and Administrative
Expenses.
Selling, general and administrative
expenses were $81.0 million, including stock-based
compensation expense of $17.8 million, in 2008, a net
increase of $20.5 million, or 34%, from $60.5 million,
including stock-based compensation expense of
$11.4 million, in 2007. The increase in selling, general
and administrative expenses is primarily due to us incurring
more of the shared marketing expenses in the United States and
an increase in headcount in our commercial and administrative
functions, including executive and corporate development, needed
to support our growth and other salary related expenses,
including bonuses. Additionally, the twelve months ended
December 31, 2008 included non-recurring employee related
expenses consisting of $2.3 million for modifications of
previously granted stock-based awards to employees and
$2.0 million for compensation, search fees and other
expenses related to the transition of the chief executive
officer.
Selling, general and administrative expenses were
$60.5 million in 2007, including stock-based compensation
expense of $11.4 million, a net increase of
$10.5 million, or 21%, from $50.0 million, including
stock-based compensation expense of $11.8 million, in 2006.
The increase was primarily due to us incurring more of the
shared marketing expenses in the United States and a planned
increase in personnel in our commercial and administrative
functions needed to support our growth and other salary related
expenses, including bonuses.
Selling, general and administrative expenses consist primarily
of salaries, employee benefits, stock-based compensation
expense, selling and promotions, consulting, other third party
costs, corporate functional expenses and allocations for
overhead and occupancy costs.
Investment Income.
We had investment income of
$12.7 million in 2008, a decrease of $6.6 million from
2007, primarily due to lower interest rates from the change in
the asset allocation of our investment portfolio.
We had investment income of $19.3 million in 2007, an
increase of $7.3 million from 2006, primarily due to higher
average cash balances in 2007 compared to 2006. Our average cash
balances in 2007 benefited from our June 2007 sale
40
of equity securities from which we received approximately
$174.2 million in net cash proceeds, and our April 2007
sale of equity securities to Azimuth Opportunity Ltd., or
Azimuth, from which we received approximately $30.8 million.
Income
Taxes
With the exception of the year ended December 31, 2008, we
have incurred significant losses since our inception and, as a
result, we have not recorded a provision for income taxes for
any of the periods presented prior to December 31, 2007.
For the year ended December 31, 2008 we recorded a
provision for income taxes of $0.3 million related to
continuing operations. Our tax expense was related primarily to
federal alternative minimum tax and state income taxes. As of
December 31, 2008, our net operating loss carryforwards for
federal and state income tax purposes were approximately
$407.8 million and $314.2 million, respectively. We
also had federal and state research and development tax credit
and orphan drug credit carryforwards of approximately
$37.9 million and $4.0 million, respectively.
Realization of these deferred tax assets is dependent upon
future earnings, if any, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. If not utilized, the net
operating loss and credit carryforwards will begin to expire in
2010 and 2009, respectively. Additionally, utilization of net
operating losses and credits may be subject to substantial
annual limitations due to ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar
state provisions. The annual limitations may result in the
expiration of our net operating loss and credit carryforwards
before they can be used. Please refer to Note 13 of the
accompanying financial statements for further information
regarding income taxes.
Related
Party Transactions
We have a loan receivable from an employee of which $170,000 was
outstanding at December 31, 2008. This loan is due in five
annual payments, beginning in 2009, and bears interest at 2.85%
per annum.
We had a loan with a former employee of which approximately
$228,000 was outstanding at December 31, 2006. This loan
bore interest at 4.82% per annum. In 2007, $87,000 of principal
and interest was forgiven and the remaining loan balance of
$152,000 was repaid in October 2007 in accordance with the terms
of the loan agreement.
Liquidity
and Capital Resources
Since our inception, we have incurred significant losses, and we
have relied primarily on public and private financing, combined
with milestone payments we have received from our collaborators,
to fund our operations.
At December 31, 2008, we had cash, cash equivalents, and
current and non-current marketable securities of
$458.0 million, compared to $469.7 million at
December 31, 2007 and $271.4 million at
December 31, 2006. The $11.7 million decrease in cash,
cash equivalents, and marketable securities in 2008 is primarily
due to $38.0 million of upfront payments related to our
development and license agreement with BTG and development
collaboration, option and license agreement with S*BIO partially
offset by the remaining cash provided by operations and net cash
proceeds from the exercise of stock options for the year ended
December 31, 2008.
The increase in cash, cash equivalents, and marketable
securities in 2007 of $198.3 million is primarily due to
our public offering completed in June 2007, which raised cash
proceeds, net of underwriting discounts and commissions, of
$174.2 million, our April 2007 sale of equity securities to
Azimuth from which we received approximately $30.8 million
in net cash proceeds and the exercise of stock options during
the twelve-month period ended December 31, 2007 from which
we received $21.9 million. This increase was partially
offset by $26.4 million of cash used to fund our operations.
Our cash used in operations was $8.4 million in 2008,
$26.4 million in 2007 and $100.2 million in 2006. In
2008 and 2007, the cash used in operations primarily related to
net losses for the 2008 and 2007 year-ends, respectively.
Expenditures for capital equipment amounted to approximately
$1.6 million in 2008, $2.7 million in 2007 and
$619,000 in 2006. Capital expenditures in 2008 and 2007 were
primarily for equipment to accommodate our employee growth.
In September 2006, we secured a commitment for up to
$150 million in a common stock purchase agreement with
Azimuth. During the two-year term of the commitment, we were
able to sell, at our discretion, registered shares of our common
stock to Azimuth at a discount to the market price ranging from
3.30% to 5.05%. Under this
41
commitment, Azimuth purchased an aggregate of
5,573,010 shares of our common stock, or $106 million.
In April 2007, Azimuth purchased 1,246,912 shares of our
common stock for a purchase price of $31.0 million
resulting in approximately $30.8 million in net cash
proceeds received by us. In October and November 2006, Azimuth
purchased an aggregate of 4,326,098 shares of our common
stock under the purchase agreement for an aggregate purchase
price of $75.0 million, resulting in approximately
$74.4 million in net cash proceeds received by us.
Our investment portfolio includes $45.0 million of AAA
rated securities with an auction reset feature (auction
rate securities) collateralized by student loans. Since
February 2008, securities of this type have experienced failures
in the auction process. As a result of the auction failures,
interest rates on these securities reset at penalty rates linked
to Libor or Treasury bill rates. The penalty rates are generally
higher than interest rates set at auction. Based on the overall
failure rate of these auctions, the frequency of the failures,
the underlying maturities of the securities, a portion of which
are greater than 30 years, and our belief that the market
for these student loan collateralized instruments may take in
excess of twelve months to fully recover, we have classified
$39.6 million of these auction rate securities as
non-current marketable securities on the accompanying balance
sheet. We have reduced the carrying value of these marketable
securities by $5.4 million through accumulated other
comprehensive income or loss instead of earnings, which we
believe reflects a temporary decline in fair value of these
securities. Further adverse developments in the credit market
could result in an impairment charge through earnings in the
future. Of the $45.0 million invested in failed auction
rate securities, we estimate the fair value to be
$39.6 million, which is based on a discounted cash flow
model. The discounted cash flow model used to value these
securities is based on a specific term and liquidity
assumptions. An increase in either of these assumptions could
result in a $1.0 million decrease in value. Alternatively,
a decrease in either of the assumptions could result in a
$1.1 million increase in value.
Currently, we believe the marketable securities classified as
non-current are not other-than-temporarily impaired as all of
them are substantially backed by the federal government, but it
is not clear in what period of time they will be settled. We
believe that, even after reclassifying these securities to
non-current and the possible requirement to hold all such
securities for an indefinite period of time, our remaining cash
and cash equivalents and current marketable securities will be
sufficient to meet our anticipated cash needs for at least the
next twelve months.
We believe that our existing capital resources and interest
thereon will be sufficient to fund our current and planned
operations beyond 2010. However, if we change our development
plans, including acquiring or developing additional product
candidates or complementary businesses, we may need additional
funds sooner than we expect. We anticipate that our
co-development costs for the Nexavar program may increase over
the next several years as we continue to fund our share of the
clinical development program and prepare for the potential
product launches throughout the world. In addition, we
anticipate that we will incur expenses for the development of
ONX 0801 and, if we exercise one or both of our options, ONX
0803 and ONX 0805, we will be required to pay significant
license fees and will incur development expenses. While these
costs are unknown at the current time, we may need to raise
additional capital to continue the co-funding of the program in
future periods beyond 2010. We intend to seek any required
additional funding through collaborations, public and private
equity or debt financings, capital lease transactions or other
available financing sources. Additional financing may not be
available on acceptable terms, if 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 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.
Contractual
Obligations and Commitments
Our contractual obligations for the next five years and
thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
Less than
|
|
1-3
|
|
3-5
|
|
After
|
Contractual Obligations
|
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
5 Years
|
|
|
(In thousands)
|
|
Operating leases, net of sublease income
|
|
$
|
8,769
|
|
|
$
|
1,819
|
|
|
$
|
3,924
|
|
|
$
|
3,026
|
|
|
$
|
0
|
|
Advance from collaboration partner
|
|
$
|
16,633
|
|
|
$
|
16,633
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
42
In 2006, we amended our existing operating lease to occupy
14,000 square feet of office space in addition to the
23,000 square feet already occupied in Emeryville,
California, which serves as our corporate headquarters. The
lease expires on March 31, 2013. In 2008, we entered into
another operating lease to occupy an additional
23,000 square feet of office space in Emeryville,
California. This lease expires on November 30, 2013. We
also have a lease for 9,000 square feet of space in a
secondary facility in Richmond, California, which we are
currently subleasing through September 2010.
We previously received $40.0 million in development
payments from Bayer pursuant to the collaboration agreement.
These development payments contain no provision for interest and
are repayable to Bayer from a portion of our share of
collaboration profits after deducting certain contractually
agreed upon expenditures. As of December 31, 2008,
$23.4 million of these development payments have been
repaid to Bayer leaving a remaining balance of
$16.6 million, which has been reclassified as a current
liability on the accompanying balance sheet.
Item 7A. Quantitative and Qualitative
Disclosures about Market Risk
Interest
Rate and Market Risk
The primary objective of our investment activities is to
preserve principal while at the same time maximize the income we
receive from our investments without significantly increasing
risk. Our exposure to market rate risk for changes in interest
rates relates primarily to our investment portfolio. This means
that a change in prevailing interest rates may cause the
principal amount of the investments to fluctuate. By policy, we
minimize risk by placing 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
maintain our portfolio of cash equivalents and marketable
securities in a variety of securities, including commercial
paper, money market funds, auction rate notes, investment grade
government and non-government debt securities. Through our money
managers, we maintain risk management control systems to monitor
interest rate risk. The risk management control systems use
analytical techniques, including sensitivity analysis. If market
interest rates were to increase by 100 basis points, or 1%,
as of December 31, 2008, the fair value of our portfolio
would decline by approximately $893,000.
The table below presents the amounts and related weighted
interest rates of our cash equivalents and marketable securities
at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Fair Value
|
|
Interest
|
|
|
|
Fair Value
|
|
Interest
|
|
|
Maturity
|
|
($ in millions)
|
|
Rate
|
|
Maturity
|
|
($ in millions)
|
|
Rate
|
|
Cash equivalents, fixed rate
|
|
|
0 3 months
|
|
|
$
|
233.8
|
|
|
|
0.53
|
%
|
|
|
0 2 months
|
|
|
$
|
160.0
|
|
|
|
4.79
|
%
|
Marketable securities, fixed rate
|
|
|
0 12 months
|
|
|
$
|
222.9
|
|
|
|
0.87
|
%
|
|
|
0 12 months
|
|
|
$
|
308.0
|
|
|
|
4.75
|
%
|
Our investment portfolio includes $45.0 million of AAA
rated securities with an auction reset feature (auction
rate securities) collateralized by student loans. Since
February 2008, securities of this type have experienced failures
in the auction process. As a result of the auction failures,
interest rates on these securities reset at penalty rates linked
to Libor or Treasury bill rates. The penalty rates are generally
higher than interest rates set at auction. Based on the overall
failure rate of these auctions, the frequency of the failures,
the underlying maturities of the securities, and our belief that
the market for these student loan collateralized instruments may
take in excess of twelve months to fully recover, we have
classified $39.6 million of these auction rate securities
as non-current marketable securities on the accompanying balance
sheet. We have reduced the carrying value of these marketable
securities by $5.4 million through accumulated other
comprehensive income or loss instead of earnings, which we
believe reflects a temporary decline in fair value of these
securities.
A majority of Nexavar sales are generated outside of the United
States, and a significant percentage of Nexavar commercial and
development expenses are incurred outside of the United States.
Fluctuations in foreign currency exchange rates affect our
operating results. Changes in exchange rates between these
foreign currencies and the U.S. Dollar will affect the
recorded levels of our assets and liabilities as foreign assets
and liabilities are translated into U.S. dollars for
presentation in our financial statements, as well as our net
sales, cost of goods sold, and operating margins. The primary
foreign currency in which we have exchange rate fluctuation
exposure is the European Union euro. As we expand, we could be
exposed to exchange rate fluctuation in other currencies.
Exchange rates between these currencies and U.S. dollars
have fluctuated significantly in recent years and may do so in
the future. We did not
43
hold any derivative instruments as of December 31, 2008,
and we have not held derivative instruments in the past.
However, our investment policy does allow us to use derivative
financial instruments for the purposes of hedging foreign
currency denominated obligations. Our cash flows are denominated
in United States dollars.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Our Financial Statements and notes thereto appear on pages 53 to
78 of this Annual Report on
Form 10-K.
|
|
Item 9.
|
Changes
In and Disagreements With Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation of Disclosure Controls and
Procedures:
The Companys chief executive
officer and principal financial officer reviewed and evaluated
the Companys disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended). Based on
that evaluation, the Companys chief executive officer and
principal financial officer concluded that the Companys
disclosure controls and procedures were effective as of
December 31, 2008 to ensure the information required to be
disclosed by the Company in this Annual Report on
Form 10-K
is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms.
Managements Report on Internal Control over Financial
Reporting:
The Companys management is responsible for
establishing and maintaining adequate internal control over
financial reporting (as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended). Under
the supervision and with the participation of the Companys
management, including the chief executive officer and principal
financial officer, the Company conducted an evaluation of the
effectiveness of internal control over financial reporting as of
December 31, 2008. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. The Companys
management has concluded that, as of December 31, 2008, the
Companys internal control over financial reporting is
effective based on these criteria.
The effectiveness of our internal control over financial
reporting as of December 31, 2008 has been audited by
Ernst & Young LLP, our independent registered public
accounting firm, as stated in their attestation report, which is
included herein.
Changes in Internal Control over Financial
Reporting:
There were no changes in the
Companys internal control over financial reporting during
the quarter ended December 31, 2008 that have materially
affected, or are reasonably likely to materially affect the
Companys internal control over financial reporting.
Inherent Limitations on Effectiveness of
Controls:
Internal control over financial
reporting may not prevent or detect all errors and all fraud.
Also, projections of any evaluation of effectiveness of internal
control to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may
deteriorate.
44
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Onyx Pharmaceuticals, Inc.
We have audited Onyx Pharmaceuticals, Inc.s internal
control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Onyx Pharmaceuticals, Inc.s management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Onyx Pharmaceuticals, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
balance sheets of Onyx Pharmaceuticals, Inc. as of
December 31, 2008 and 2007 and the related statements of
operations, stockholders equity and cash flows for each of
the three years in the period ended December 31, 2008 of
Onyx Pharmaceuticals, Inc. and our report dated
February 24, 2009 expressed an unqualified opinion thereon.
Palo Alto, California
February 24, 2009
45
|
|
Item 9B.
|
Other
information
|
Not applicable.
PART III.
Certain information required by Part III is omitted from
this Annual Report on
Form 10-K
because the registrant will file with the U.S. Securities
and Exchange Commission a definitive proxy statement pursuant to
Regulation 14A in connection with the solicitation of
proxies for the Companys Annual Meeting of Stockholders to
be held on May 26, 2009 (the 2009 Definitive Proxy
Statement) not later than 120 days after the end of
the fiscal year covered by this Annual Report on
Form 10-K,
and certain information included therein is incorporated herein
by reference.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item 10 is incorporated by
reference from our 2009 Definitive Proxy Statement.
|
|
Item 11.
|
Executive
Compensation
|
The information required under this Item 11 is incorporated
by reference from our 2009 Definitive Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required under this Item 12 with respect to
security ownership of certain beneficial owners and management
is incorporated by reference from our 2009 Definitive Proxy
Statement.
Securities
Authorized for Issuance Under Equity Compensation Plans as of
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of securities
|
|
|
|
securities to be
|
|
|
|
|
|
remaining available for
|
|
|
|
issued upon exercise
|
|
|
Weighted-average
|
|
|
future issuance under
|
|
|
|
of outstanding
|
|
|
exercise price of
|
|
|
equity compensation plans
|
|
|
|
options, warrants
|
|
|
outstanding options,
|
|
|
(excluding securities
|
|
|
|
and rights
|
|
|
warrants and rights
|
|
|
reflected in column a)
|
|
Plan Category(1)
|
|
Column a
|
|
|
Column b
|
|
|
Column c
|
|
|
Equity compensation plans approved by security holders
|
|
|
4,575,937
|
|
|
$
|
28.72
|
|
|
|
4,671,008
|
(2)
|
|
|
|
(1)
|
|
We have no equity compensation plans not approved by security
holders.
|
|
(2)
|
|
This amount includes 479,762 shares that remain available
for purchase under our Employee Stock Purchase Plan. Under the
2005 Equity Incentive Plan, shares available for issuance should
be reduced by one and three tenths (1.3) shares for each share
of common stock available for issuance pursuant to a stock
purchase award, stock bonus award, stock unit award or other
stock award granted. With this adjustment, the total amount
available for future issuance would be reduced to
3,703,797 shares.
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required under this Item 13 is incorporated
by reference from our 2009 Definitive Proxy Statement.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required under this Item 14 is incorporated
by reference from our 2009 Definitive Proxy Statement.
Consistent with Section 10A (i)(2) of the Securities
Exchange Act of 1934, as added by Section 202 of the
Sarbanes-Oxley Act of 2002, we are responsible for listing the
non-audit services approved by our Audit Committee to be
performed by Ernst & Young LLP, our external auditor.
Non-audit services are defined as services other than those
provided in connection with an audit or a review of our
financial statements. Ernst & Young LLP did not
provide any non-audit services related to the year ended
December 31, 2008.
46
PART IV.
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) Documents filed as part of this report.
|
|
(1)
|
Index to
Financial Statements
|
The Financial Statements required by this item are submitted in
a separate section beginning on page 52 of this Report.
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statement of Stockholders Equity
Statements of Cash Flows
Notes to Financial Statements
|
|
(2)
|
Financial
Statement Schedules
|
Financial statement schedules have been omitted because the
information required to be set forth therein is not applicable.
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
3
|
.1(1)
|
|
Restated Certificate of Incorporation of the Company.
|
|
3
|
.2(2)
|
|
Amended and Restated Bylaws of the Company.
|
|
3
|
.3(3)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
|
3
|
.4(4)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
|
4
|
.1
|
|
Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
|
|
4
|
.2(1)
|
|
Specimen Stock Certificate.
|
|
10
|
.1(i)(5)*
|
|
Collaboration Agreement between Bayer Corporation (formerly
Miles, Inc.) and the Company dated April 22, 1994.
|
|
10
|
.1(ii)(5)*
|
|
Amendment to Collaboration Agreement between Bayer Corporation
and the Company dated April 24, 1996.
|
|
10
|
.1(iii)(5)*
|
|
Amendment to Collaboration Agreement between Bayer Corporation
and the Company dated February 1, 1999.
|
|
10
|
.2(i)(5)*
|
|
Amended and Restated Research, Development and Marketing
Collaboration Agreement dated May 2, 1995 between the
Company and Warner-Lambert Company.
|
|
10
|
.2(ii)(6)*
|
|
Research, Development and Marketing Collaboration Agreement
dated July 31, 1997 between the Company and Warner-Lambert
Company.
|
|
10
|
.2(iii)(6)*
|
|
Amendment to the Amended and Restated Research, Development and
Marketing Collaboration Agreement, dated December 15, 1997,
between the Company and Warner-Lambert Company.
|
|
10
|
.2(iv)(6)*
|
|
Second Amendment to the Amended and Restated Research,
Development and Marketing Agreement between Warner-Lambert and
the Company dated May 2, 1995.
|
|
10
|
.2(v)(6)*
|
|
Second Amendment to Research, Development and Marketing
Collaboration Agreement between Warner-Lambert and the Company
dated July 31, 1997.
|
|
10
|
.2(vi)(7)*
|
|
Amendment #3 to the Research, Development and Marketing
Collaboration Agreement between the Company and Warner-Lambert
dated August 6, 2001.
|
47
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.2(vii)(8)*
|
|
Amendment #3 to the Amended and Restated Research, Development
and Marketing Collaboration Agreement between the Company and
Warner-Lambert dated August 6, 2001.
|
|
10
|
.3(9)*
|
|
Technology Transfer Agreement dated April 24, 1992 between
Chiron Corporation and the Company, as amended in the Chiron
Onyx HPV Addendum dated December 2, 1992, in the Amendment
dated February 1, 1994, in the Letter Agreement dated
May 20, 1994 and in the Letter Agreement dated
March 29, 1996.
|
|
10
|
.4(1)+
|
|
Letter Agreement between Dr. Gregory Giotta and the Company
dated May 26, 1995.
|
|
10
|
.5(1)+
|
|
1996 Equity Incentive Plan.
|
|
10
|
.6(1)+
|
|
1996 Non-Employee Directors Stock Option Plan.
|
|
10
|
.7(10)+
|
|
1996 Employee Stock Purchase Plan.
|
|
10
|
.8(1)+
|
|
Form of Indemnity Agreement to be signed by executive officers
and directors of the Company.
|
|
10
|
.9(11)+
|
|
Form of Executive Change in Control Severance Benefits Agreement.
|
|
10
|
.10(i)(12)*
|
|
Collaboration Agreement between the Company and Warner-Lambert
Company dated October 13, 1999.
|
|
10
|
.10(ii)(7)*
|
|
Amendment #1 to the Collaboration Agreement between the Company
and Warner-Lambert dated August 6, 2001.
|
|
10
|
.10(ii)(13)*
|
|
Second Amendment to the Collaboration Agreement between the
Company and Warner-Lambert Company dated September 16, 2002.
|
|
10
|
.11(14)
|
|
Stock and Warrant Purchase Agreement between the Company and the
investors dated May 6, 2002.
|
|
10
|
.12(i)(15)
|
|
Sublease between the Company and Siebel Systems dated
August 5, 2004.
|
|
10
|
.12(ii)(16)
|
|
First Amendment to Sublease between the Company and Oracle USA
Inc., dated November 3, 2006.
|
|
10
|
.13(i)(17)+
|
|
2005 Equity Incentive Plan.
|
|
10
|
.13(ii)(16)+
|
|
Form of Stock Option Agreement pursuant to the 2005 Equity
Incentive Plan.
|
|
10
|
.13(iii)(16)+
|
|
Form of Stock Option Agreement pursuant to the 2005 Equity
Incentive Plan and the Non-Discretionary Grant Program for
Directors.
|
|
10
|
.13(iv)(18)+
|
|
Form of Stock Bonus Award Grant Notice and Agreement between the
Company and certain award recipients.
|
|
10
|
.14(5)*
|
|
United States Co-Promotion Agreement by and between the Company
and Bayer Pharmaceuticals Corporation, dated March 6, 2006.
|
|
10
|
.15(19)+
|
|
Letter Agreement between Laura A. Brege and the Company, dated
May 19, 2006.
|
|
10
|
.16(18)+
|
|
Letter Agreement between Gregory W. Schafer and the Company,
dated July 7, 2006.
|
|
10
|
.17(20)
|
|
Common Stock Purchase Agreement between the Company and Azimuth
Opportunity Ltd., dated September 29, 2006.
|
|
10
|
.18(21)+
|
|
Retirement Agreement between the Company and Edward F. Kenney,
dated April 13, 2007.
|
|
10
|
.19(22)+
|
|
Bonuses for Fiscal Year 2007 and Base Salaries for Fiscal Year
2008 for Named Executive Officers.
|
|
10
|
.20(23)+
|
|
Employment Agreement between the Company and N. Anthony
Coles, M.D., dated as of February 22, 2008.
|
|
10
|
.21(23)+
|
|
Executive Change in Control Severance Benefits Agreement between
the Company and N. Anthony Coles, M.D., dated as of
February 22, 2008.
|
|
10
|
.22(23)+
|
|
Retirement Agreement between the Company and Hollings C. Renton,
dated as of February 22, 2008.
|
|
10
|
.23(24)+
|
|
Separation Agreement between the Company and Henry J.
Fuchs, M.D., dated December 1, 2008.
|
|
10
|
.24(i)(25)+
|
|
Separation and Consulting Agreement between the Company and
Gregory W. Schafer, dated June 23, 2008.
|
48
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.24(ii)(2)+
|
|
Amendment to Separation and Consulting Agreement between the
Company and Gregory W. Schafer, dated December 5, 2008.
|
|
10
|
.25(2)+
|
|
Onyx Pharmaceuticals, Inc. Executive Severance Benefit Plan.
|
|
10
|
.26(26)+
|
|
Letter Agreement between the Company and Matthew K. Fust, dated
December 12, 2008.
|
|
10
|
.27**
|
|
Development and License Agreement between the Company and BTG
International Limited, dated as of November 6, 2008.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney. Reference is made to the signature page.
|
|
31
|
.1
|
|
Certification of Principal Executive Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a).
|
|
31
|
.2
|
|
Certification of Principal Financial Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a).
|
|
32
|
.1
|
|
Certifications required by
Rule 13a-14(b)
or
Rule 15d-14(b)and
Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. 1350).
|
|
|
|
*
|
|
Confidential treatment has been received for portions of this
document.
|
|
**
|
|
Confidential treatment has been sought for portions of this
document.
|
|
+
|
|
Indicates management contract or compensatory plan or
arrangement.
|
|
(1)
|
|
Filed as an exhibit to Onyxs Registration Statement on
Form SB-2
(No.
333-3176-LA).
|
|
(2)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 5, 2008.
|
|
(3)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2000.
|
|
(4)
|
|
Filed as an exhibit to the Companys Registration Statement
on
Form S-3
(No. 333-134565)
filed on May 30, 2006.
|
|
(5)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission.
|
|
(6)
|
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2002. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission.
|
|
(7)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2001.
|
|
(8)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission.
|
|
(9)
|
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2001. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission.
|
|
(10)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on May 25, 2007.
|
|
(11)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 10, 2008.
|
|
(12)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on March 1, 2000.
|
|
(13)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002.
|
|
(14)
|
|
Filed as an exhibit to Onyxs Registration Statement on
Form S-3
filed on June 5, 2002
(No. 333-89850).
|
49
|
|
|
(15)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004.
|
|
(16)
|
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2006.
|
|
(17)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on May 15, 2008
|
|
(18)
|
|
Filed as an exhibit to the registrants Current Report on
Form 8-K
filed on July 12, 2006.
|
|
(19)
|
|
Filed as an exhibit to the registrants Current Report on
Form 8-K
filed on June 12, 2006.
|
|
(20)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on September 29, 2006.
|
|
(21)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007.
|
|
(22)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on February 8, 2008.
|
|
(23)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on February 26, 2008.
|
|
(24)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 1, 2008.
|
|
(25)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 23, 2008.
|
|
(26)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 23, 2008.
|
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this Annual Report on
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Emeryville, County of Alameda, State
of California, on the 25th day of February, 2009.
Onyx Pharmaceuticals, inc.
N. Anthony Coles
President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints N. Anthony
Coles and Matthew K. Fust or either of them, his or her
attorney-in-fact, each with the power of substitution, for him
or her in any and all capacities, to sign any amendments to this
Annual Report on
Form 10-K,
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his or her substitute or substitutes,
may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the
dates stated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/
N.
ANTHONY COLES
N.
Anthony Coles
|
|
President and Chief Executive Officer (Principal Executive
Officer)
|
|
February 25, 2009
|
|
|
|
|
|
/s/
MATTHEW
K. FUST
Matthew
K. Fust
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
February 25, 2009
|
|
|
|
|
|
/s/
PAUL
GODDARD
Paul
Goddard, Ph.D.
|
|
Director
|
|
February 25, 2009
|
|
|
|
|
|
/s/
ANTONIO
GRILLO-LOPEZ
Antonio
Grillo-Lopez, M.D.
|
|
Director
|
|
February 25, 2009
|
|
|
|
|
|
/s/
MAGNUS
LUNDBERG
Magnus
Lundberg
|
|
Director
|
|
February 25, 2009
|
|
|
|
|
|
/s/
CORINNE
H. LYLE
Corinne
H. Lyle
|
|
Director
|
|
February 25, 2009
|
|
|
|
|
|
/s/
WENDELL
WIERENGA
Wendell
Wierenga, Ph.D.
|
|
Director
|
|
February 25, 2009
|
|
|
|
|
|
/s/
THOMAS
G. WIGGANS
Thomas
G. Wiggans
|
|
Director
|
|
February 25, 2009
|
51
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Onyx Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Onyx
Pharmaceuticals, Inc. as of December 31, 2008 and 2007, and
the related statements of operations, stockholders equity,
and cash flows for each of the three years in the period ended
December 31, 2008. These financial statements are the
responsibility of Onyx Pharmaceuticals, Inc.s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Onyx Pharmaceuticals, Inc. at December 31, 2008 and
2007, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2008, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Onyx
Pharmaceuticals, Inc.s internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 24, 2009 expressed
an unqualified opinion thereon.
Palo Alto, California
February 24, 2009
52
ONYX
PHARMACEUTICALS, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
235,152
|
|
|
$
|
161,653
|
|
Marketable securities
|
|
|
183,272
|
|
|
|
307,997
|
|
Receivable from collaboration partner
|
|
|
35,836
|
|
|
|
4,702
|
|
Prepaid expenses and other current assets
|
|
|
7,799
|
|
|
|
6,304
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
462,059
|
|
|
|
480,656
|
|
Marketable securities, non-current
|
|
|
39,622
|
|
|
|
-
|
|
Property and equipment, net
|
|
|
3,363
|
|
|
|
3,146
|
|
Other assets
|
|
|
4,723
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
509,767
|
|
|
$
|
484,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
93
|
|
|
$
|
271
|
|
Advance from collaboration partner
|
|
|
16,633
|
|
|
|
-
|
|
Accrued liabilities
|
|
|
4,523
|
|
|
|
2,065
|
|
Accrued clinical trials and related expenses
|
|
|
6,041
|
|
|
|
3,323
|
|
Accrued compensation
|
|
|
6,014
|
|
|
|
5,782
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,304
|
|
|
|
11,441
|
|
Advance from collaboration partner, non-current
|
|
|
-
|
|
|
|
39,234
|
|
Deferred rent and lease incentives
|
|
|
1,263
|
|
|
|
1,171
|
|
Commitments and contingencies (Notes 8 and 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 100,000,000 shares
authorized; 56,560,244 and 55,324,887 shares issued and
outstanding as of December 31, 2008 and 2007, respectively
|
|
|
57
|
|
|
|
56
|
|
Additional paid-in capital
|
|
|
950,628
|
|
|
|
904,506
|
|
Receivable from option exercises
|
|
|
(455
|
)
|
|
|
(23
|
)
|
Accumulated other comprehensive gain (loss)
|
|
|
(4,320
|
)
|
|
|
356
|
|
Accumulated deficit
|
|
|
(470,710
|
)
|
|
|
(472,658
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
475,200
|
|
|
|
432,237
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
509,767
|
|
|
$
|
484,083
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
53
ONYX
PHARMACEUTICALS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
( In thousands, except per share amounts )
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
194,343
|
|
|
$
|
90,429
|
|
|
$
|
29,274
|
|
License fee revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
194,343
|
|
|
|
90,429
|
|
|
|
29,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
123,749
|
|
|
|
83,306
|
|
|
|
84,169
|
|
Selling, general and administrative
|
|
|
80,994
|
|
|
|
60,546
|
|
|
|
50,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
204,743
|
|
|
|
143,852
|
|
|
|
134,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(10,400
|
)
|
|
|
(53,423
|
)
|
|
|
(104,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
12,695
|
|
|
|
19,256
|
|
|
|
11,983
|
|
Provision for income taxes
|
|
|
347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,948
|
|
|
$
|
(34,167
|
)
|
|
$
|
(92,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.03
|
|
|
$
|
(0.67
|
)
|
|
$
|
(2.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
0.03
|
|
|
$
|
(0.67
|
)
|
|
$
|
(2.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share
|
|
|
55,915
|
|
|
|
51,177
|
|
|
|
42,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
56,765
|
|
|
|
51,177
|
|
|
|
42,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
54
ONYX
PHARMACEUTICALS, INC.
STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Stock
|
|
|
Comprehensive
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Option
|
|
|
Income
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Exercises
|
|
|
(Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
(In thousands, except shares and per share amounts)
|
|
|
Balances at December 31, 2005
|
|
|
41,210,734
|
|
|
$
|
41
|
|
|
$
|
569,800
|
|
|
$
|
(24
|
)
|
|
$
|
(767
|
)
|
|
$
|
(345,810
|
)
|
|
$
|
223,240
|
|
Exercise of stock options
|
|
|
347,287
|
|
|
|
-
|
|
|
|
2,520
|
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,544
|
|
Issuance of common stock in connection with Azimuth common stock
purchase agreement
|
|
|
4,326,098
|
|
|
|
5
|
|
|
|
74,353
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,358
|
|
Stock-based compensation, related to stock option grants
|
|
|
-
|
|
|
|
-
|
|
|
|
13,957
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,957
|
|
Issuance of common stock pursuant to employee stock purchase plan
|
|
|
22,584
|
|
|
|
-
|
|
|
|
602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
602
|
|
Vesting of restricted stock awards
|
|
|
6,667
|
|
|
|
-
|
|
|
|
170
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
170
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
590
|
|
|
|
-
|
|
|
|
590
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(92,681
|
)
|
|
|
(92,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
45,913,370
|
|
|
|
46
|
|
|
|
661,402
|
|
|
|
-
|
|
|
|
(177
|
)
|
|
|
(438,491
|
)
|
|
|
222,780
|
|
Exercise of stock options
|
|
|
1,477,661
|
|
|
|
1
|
|
|
|
21,909
|
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
21,887
|
|
Issuance of common stock in connection with Azimuth common stock
purchase agreement
|
|
|
1,246,912
|
|
|
|
2
|
|
|
|
30,754
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,756
|
|
Issuance of common stock in connection with follow-on public
offering
|
|
|
6,600,000
|
|
|
|
7
|
|
|
|
174,149
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174,156
|
|
Stock-based compensation, related to stock option grants
|
|
|
-
|
|
|
|
-
|
|
|
|
14,073
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,073
|
|
Issuance of common stock pursuant to employee stock purchase plan
|
|
|
73,611
|
|
|
|
-
|
|
|
|
954
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
954
|
|
Vesting of restricted stock awards
|
|
|
13,333
|
|
|
|
-
|
|
|
|
1,265
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,265
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
533
|
|
|
|
-
|
|
|
|
533
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,167
|
)
|
|
|
(34,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
55,324,887
|
|
|
|
56
|
|
|
|
904,506
|
|
|
|
(23
|
)
|
|
|
356
|
|
|
|
(472,658
|
)
|
|
|
432,237
|
|
Exercise of stock options
|
|
|
1,145,281
|
|
|
|
1
|
|
|
|
25,060
|
|
|
|
(432
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
24,629
|
|
Stock-based compensation, related to stock option grants
|
|
|
-
|
|
|
|
-
|
|
|
|
16,779
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,779
|
|
Tax benefit associated with stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
Issuance of common stock pursuant to employee stock purchase plan
|
|
|
37,631
|
|
|
|
-
|
|
|
|
1,386
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,386
|
|
Vesting of restricted stock awards
|
|
|
72,551
|
|
|
|
-
|
|
|
|
3,362
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,362
|
|
Repurchase of restricted stock awards
|
|
|
(20,106
|
)
|
|
|
-
|
|
|
|
(577
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(577
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,676
|
)
|
|
|
-
|
|
|
|
(4,676
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,948
|
|
|
|
1,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
56,560,244
|
|
|
$
|
57
|
|
|
$
|
950,628
|
|
|
$
|
(455
|
)
|
|
$
|
(4,320
|
)
|
|
$
|
(470,710
|
)
|
|
$
|
475,200
|
|
|
|
|
|
|
|
See accompanying notes.
55
ONYX
PHARMACEUTICALS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,948
|
|
|
$
|
(34,167
|
)
|
|
$
|
(92,681
|
)
|
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains on sale of marketable securities
|
|
|
(483
|
)
|
|
|
-
|
|
|
|
-
|
|
Depreciation and amortization
|
|
|
1,333
|
|
|
|
1,030
|
|
|
|
758
|
|
Forgiveness of note receivable
|
|
|
-
|
|
|
|
(87
|
)
|
|
|
-
|
|
Stock-based compensation
|
|
|
20,506
|
|
|
|
15,624
|
|
|
|
14,406
|
|
Excess tax benefit from share-based awards
|
|
|
(112
|
)
|
|
|
-
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable from collaboration partner
|
|
|
(31,134
|
)
|
|
|
4,579
|
|
|
|
(4,931
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,383
|
)
|
|
|
(2,710
|
)
|
|
|
352
|
|
Other assets
|
|
|
(4,442
|
)
|
|
|
144
|
|
|
|
(190
|
)
|
Accounts payable
|
|
|
(178
|
)
|
|
|
(26
|
)
|
|
|
(284
|
)
|
Payable to collaboration partner
|
|
|
-
|
|
|
|
(8,391
|
)
|
|
|
(22,432
|
)
|
Accrued liabilities
|
|
|
2,458
|
|
|
|
(862
|
)
|
|
|
1,851
|
|
Accrued clinical trials and related expenses
|
|
|
2,718
|
|
|
|
(4,940
|
)
|
|
|
2,696
|
|
Accrued compensation
|
|
|
232
|
|
|
|
2,461
|
|
|
|
210
|
|
Deferred rent and lease incentives
|
|
|
92
|
|
|
|
904
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(8,445
|
)
|
|
|
(26,441
|
)
|
|
|
(100,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(420,344
|
)
|
|
|
(499,470
|
)
|
|
|
(360,272
|
)
|
Sales of marketable securities
|
|
|
96,839
|
|
|
|
-
|
|
|
|
-
|
|
Maturities of marketable securities
|
|
|
404,415
|
|
|
|
368,996
|
|
|
|
422,488
|
|
Capital expenditures
|
|
|
(1,550
|
)
|
|
|
(2,698
|
)
|
|
|
(619
|
)
|
Notes receivable from related parties
|
|
|
-
|
|
|
|
152
|
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
79,360
|
|
|
|
(133,020
|
)
|
|
|
61,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(577
|
)
|
|
|
-
|
|
|
|
-
|
|
Advance from (payment to) collaboration partner
|
|
|
(22,601
|
)
|
|
|
(766
|
)
|
|
|
10,000
|
|
Net proceeds from issuances of common stock
|
|
|
25,650
|
|
|
|
227,467
|
|
|
|
77,225
|
|
Excess tax benefit from stock-based awards
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,584
|
|
|
|
226,701
|
|
|
|
87,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
73,499
|
|
|
|
67,240
|
|
|
|
48,349
|
|
Cash and cash equivalents at beginning of period
|
|
|
161,653
|
|
|
|
94,413
|
|
|
|
46,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
235,152
|
|
|
$
|
161,653
|
|
|
$
|
94,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes
|
|
$
|
641
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
56
ONYX
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31,
2008
|
|
Note 1.
|
Summary
of Significant Accounting Policies
|
The
Company
Onyx Pharmaceuticals, Inc. (Onyx or the
Company) was incorporated in California in February 1992
and reincorporated in Delaware in May 1996. Onyx is a
biopharmaceutical company dedicated to developing innovative
therapies that target the molecular mechanisms that cause
cancer. With the Companys collaborators, the Company is
developing anticancer therapies with the goal of
changing the
way cancer is treated
tm
.
The Company is applying its expertise to develop and
commercialize therapies designed to exploit the genetic
differences between cancer cells and normal cells.
The Companys first commercially available product,
Nexavar
®
(sorafenib) tablets, being developed with the Companys
collaborator Bayer HealthCare Pharmaceuticals, Inc., or Bayer,
is approved by the United States Food and Drug Administration,
or FDA, for the treatment of patients with advanced kidney
cancer and liver cancer.
The Company has expanded its development pipeline through the
acquisition of rights to development-stage, novel anticancer
agents. In November 2008, the Company entered into an agreement
to license worldwide development and commercialization rights to
ONX 0801, previously known as BGC 945, from BTG International
Limited, or BTG, a London-based specialty pharmaceuticals
company. In December 2008, the Company acquired options to
license SB1518 (designated by the Company as ONX 0803) and
SB1578 (designated by the Company as ONX 0805), which are both
Janus Kinase 2, or JAK2, inhibitors, from S*BIO Pte Ltd, or
S*BIO, a Singapore-based company.
Change
in Accounting Principle
On December 12, 2007, the Financial Accounting Standards
Board, or FASB, ratified Emerging Issues Task Force,
07-1,
or
EITF 07-1,
Accounting for Collaborative Arrangements
.
EITF 07-1
is effective for fiscal years beginning after December 15,
2008 and shall be applied retrospectively for all collaborative
arrangements existing as of the effective date. The Company has
elected to early adopt
EITF 07-1,
as a result, effective January 1, 2006, the Companys
statement of operations for all periods presented have been
reclassified to conform to the new presentation. As the
commercial sales of Nexavar began in late December 2005, there
is no impact to periods prior to January 1, 2006. This new
presentation impacts the classification of amounts included in
specific line items, but has no impact on net income (loss) or
net income (loss) per share. As a result of this new
presentation, the statement of operations now includes the line
item Revenue from collaboration agreement. This line
item consists of the Companys share of the pre-tax
commercial profit generated from the collaboration with Bayer,
reimbursement of the Companys shared marketing costs
related to Nexavar and royalty revenue.
The Companys portion of shared collaboration research and
development expenses is not included in the line item
Revenue from collaboration agreement, but is
reflected under operating expenses. According to the terms of
the collaboration agreement, the companies share all research
and development, marketing, and
non-U.S. sales
expenses. The Company and Bayer each bear its own
U.S. sales force and medical science liaison expenses.
These costs related to the Companys U.S. sales force
and medical science liaisons are recorded in the Companys
selling, general and administrative expenses. Bayer recognizes
all revenue under the Nexavar collaboration and incurs the
majority of expenses relating to the development and marketing
of Nexavar. If the Company does not receive timely and accurate
information or incorrectly estimates activity levels associated
with the collaboration of Nexavar at a given point in time, the
Company could be required to record adjustments in future
periods and may be
57
required to restate its results for prior periods. The following
table illustrates the effect of adopting
EITF 07-1
on the Companys previously reported statements of
operations for the years ended December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
As Previously
|
|
|
2007
|
|
|
As Previously
|
|
|
2006
|
|
|
|
Reported
|
|
|
As Revised
|
|
|
Reported
|
|
|
As Revised
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
-
|
|
|
$
|
90,429
|
|
|
$
|
-
|
|
|
$
|
29,274
|
|
License revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
250
|
|
Net revenue (expense) from unconsolidated joint business
|
|
|
32,536
|
|
|
|
-
|
|
|
|
(23,915
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
25,413
|
|
|
|
83,306
|
|
|
|
30,980
|
|
|
|
84,169
|
|
Selling, general and administrative
|
|
|
60,546
|
|
|
|
60,546
|
|
|
|
50,019
|
|
|
|
50,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(53,423
|
)
|
|
|
(53,423
|
)
|
|
|
(104,664
|
)
|
|
|
(104,664
|
)
|
Investment income, net
|
|
|
19,256
|
|
|
|
19,256
|
|
|
|
11,983
|
|
|
|
11,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(34,167
|
)
|
|
$
|
(34,167
|
)
|
|
$
|
(92,681
|
)
|
|
$
|
(92,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(0.67
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(2.20
|
)
|
|
$
|
(2.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net loss per share
|
|
|
51,177
|
|
|
|
51,177
|
|
|
|
42,170
|
|
|
|
42,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Recognition
Revenue is recognized when the related costs are incurred and
the four basic criteria of revenue recognition are met:
(1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services rendered;
(3) the fee is fixed or determinable; and
(4) collectability is reasonably assured. Determination of
criteria (3) and (4) are based on managements
judgments regarding the nature of the fee charged for products
or services delivered and the collectability of those fees.
Contract Revenue from Collaborations.
Revenue
from nonrefundable, up-front license or technology access
payments under license and collaboration agreements that are not
dependent on any future performance by the Company under the
arrangements is recognized when such amounts are received. If
the Company has continuing obligations to perform, such fees are
recognized over the period of continuing performance obligation.
Creditable milestone-based payments that the Company received
from its collaboration with Bayer were not recorded as revenue.
These amounts are interest-free and are repayable to Bayer from
a portion of any of the Companys quarterly future profits
and royalties after deducting certain contractually agreed upon
expenditures and were recorded in the caption Advance from
collaboration partner on the Companys accompanying
balance sheet.
Revenue
from Collaboration Agreement
As a result of the adoption of EITF 07-1, the Companys
statement of operations for all periods presented have been
reclassified to conform to the new presentation and now include
the line item Revenue from collaboration agreement.
Revenue from collaboration agreement consists of the
Companys share of the pre-tax commercial profit generated
from the collaboration with Bayer, reimbursement of the
Companys shared marketing costs related to Nexavar and
royalty revenue. Under the terms of the collaboration, Bayer
recognizes all revenue from the sale of Nexavar and both
companies share all research and development, marketing, and
non-U.S. sales
expenses, excluding Japan. Some of the revenue and expenses
recorded to derive revenue from collaboration agreement during
the period presented are estimates of both parties and are
subject to further adjustment based on each partys final
review should actual results differ materially from these
estimates. If the Company does not receive timely and accurate
information or incorrectly estimates activity levels associated
with the collaboration of Nexavar at a given point in time, the
Company could be required to record adjustments in future
periods and may be required to restate its results for prior
periods.
58
Use of
Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Research
and Development
In accordance with FASB Statement of Financial Accounting
Standards, or FAS, No. 2, Accounting for Research and
Development Costs, research and development costs are
charged to expense when incurred. The major components of
research and development costs include clinical manufacturing
costs, clinical trial expenses, non-refundable upfront payments,
consulting and other third-party costs, salaries and employee
benefits, stock-based compensation expense, supplies and
materials, and allocations of various overhead and occupancy
costs. Non-refundable option payments, including those made
under our agreement with S*BIO, that do not have any future
alternative use are recorded as research and development
expense. Not all research and development costs are incurred by
the Company. A significant portion of the Companys
research and development expenses, approximately 55% in 2008,
82% in 2007 and 79% in 2006, relates to the Companys cost
sharing arrangement with Bayer and represents the Companys
share of the research and development costs incurred by Bayer.
As a result of the cost sharing arrangement between the Company
and Bayer, there was a net reimbursable amount of
$50.7 million, $57.9 million and $53.2 million to
Bayer for the years ended December 31, 2008, 2007 and 2006,
respectively. Such amounts were recorded based on invoices and
estimates the Company receives from Bayer. When such invoices
have not been received, the Company must estimate the amounts
owed to Bayer based on discussions with Bayer. If the Company
underestimates or overestimates the amounts owed to Bayer, the
Company may need to adjust these amounts in a future period,
which could have an effect on earnings in the period of
adjustment.
In instances where the Company enters into agreements with third
parties for clinical trials and other consulting activities,
costs are expensed upon the earlier of when non-refundable
amounts are due or as services are performed. Amounts due under
such arrangements may be either fixed fee or fee for service and
may include upfront payments, monthly payments, and payments
upon the completion of milestones or receipt of deliverables.
The Companys cost accruals for clinical trials are based
on estimates of the services received and efforts expended
pursuant to contracts with numerous clinical trial sites,
cooperative groups and clinical research organizations. In the
normal course of business the Company contracts with third
parties to perform various clinical trial activities in the
on-going development of potential products. The financial terms
of these agreements are subject to negotiation and variation
from contract to contract and may result in uneven payment
flows. Payments under the contracts depend on factors such as
the achievement of certain events, the successful enrollment of
patients, and the completion of portions of the clinical trial
or similar conditions. The objective of the Companys
accrual policy is to match the recording of expenses in its
financial statements to the actual services received and efforts
expended. As such, expense accruals related to clinical trials
are recognized based on the Companys estimate of the
degree of completion of the event or events specified in the
specific clinical study or trial contract. The Company monitors
service provider activities to the extent possible; however, if
the Company underestimates activity levels associated with
various studies at a given point in time, the Company could be
required to record significant additional research and
development expenses in future periods.
Cash
Equivalents and Marketable Securities
The Company considers all highly liquid investments with a
maturity from the date of purchase of three months or less to be
cash equivalents. All other liquid investments are classified as
marketable securities. These instruments consist primarily of
corporate debt securities, corporate commercial paper, debt
securities of United States government agencies, auction rate
notes and money market funds. Concentration of risk is limited
by diversifying investments among a variety of industries and
issuers.
Management determines the appropriate classification of
securities at the time of purchase. The Company classifies its
investments as available-for-sale securities, as defined by SFAS
No. 115, Accounting for Certain Investments in Debt and
Equity Securities, or SFAS No. 115. Available-for-sale
securities are carried at fair value based on quoted market
prices, with any unrealized gains and losses reported in
accumulated other comprehensive income (loss). Unrealized losses
are charged against investment income when a decline
in fair value is determined to be
59
other-than-temporary.
The Company reviews several factors to determine whether a loss
is other-than-temporary. These factors include but are not
limited to: (i) the extent to which the fair value is less
than cost and the cause for the fair value decline,
(ii) the financial condition and near-term prospects of the
issuer, (iii) the length of time a security is in an
unrealized loss position and (iv) the Companys
ability to hold the security for a period of time sufficient to
allow for any anticipated recovery in fair value.
Available-for-sale
securities with remaining maturities of greater than one year
are classified as
long-term.
The amortized cost of securities in this category is adjusted
for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income. The
cost of securities sold or the amount reclassified out of
accumulated other comprehensive income into earnings is based on
the specific identification method. Realized gains and losses
and declines in value judged to be other than temporary are
included in the statements of operations. There was a realized
gain of $483,000 for the year ended December 31, 2008 and
no realized gains or losses in each of the years ended
December 31, 2007 and 2006. Interest and dividends on
securities classified as available-for-sale are included in
investment income.
Fair
Values of Financial Instruments
Effective January 1, 2008, the Company adopted the
provisions of Statements of Financial Accounting Standards
No. 157,
Fair Value Measurements
, or
SFAS No. 157, which defines fair value and provides
guidance for using fair value to measure assets and liabilities.
In accordance with SFAS No. 157 and FAS Staff
Position
157-2,
Effective Date of FASB Statement No. 157, the
Company adopted SFAS No. 157 with regard to all
financial assets and liabilities in its financial statements in
the first quarter of 2008 and has elected to delay the adoption
of SFAS No. 157 for non-financial assets and
non-financial liabilities until the first quarter of 2009.
SFAS No. 157 is applicable whenever other standards
require or permit assets or liabilities to be measured at fair
value but does not expand the use of fair value in any new
circumstances. Accordingly, the carrying amounts of certain
financial instruments of the Company, including cash equivalents
and marketable securities, continue to be valued at fair value
on a recurring basis.
SFAS No. 157 introduced new disclosures about how the
Company values certain assets. Much of the disclosure focuses on
the inputs used to measure fair value, particularly in instances
in which the measurement uses significant unobservable inputs.
The fair value estimates presented in this report reflect the
information available to the Company as of December 31,
2008. See Note 4, Marketable Securities.
Other
Long-Term Assets
In December 2008 the Company entered into an options agreement
with S*BIO, for which the Company made a $25 million
payment to S*BIO, comprised of an up-front payment and an equity
investment in ordinary shares of S*BIO. As a result, for the
year ended December 31, 2008, other long-term assets
included $4.3 million in this long-term private equity
investment. This investment is accounted for using the cost
method of accounting.
Property
and Equipment
Property and equipment are stated on the basis of cost.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets, generally
two to five years. Leasehold improvements are amortized over the
lesser of the lease term or the estimated useful lives of the
related assets, generally five to six years.
Impairment
of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the
Impairment and for Long-Lived Assets, or SFAS No. 144,
impairment of long-lived assets is measured or assessed when
events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future
cash flows resulting from the use of the asset and its eventual
disposition. In the event that such cash flows are not expected
to be sufficient to recover the carrying amount of the assets,
the assets are written down to their estimated fair values.
Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell. There were no
write-downs in 2008, 2007 and 2006.
60
Stock-Based
Compensation
Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards, or SFAS, Share-Based
Payment, or SFAS No. 123(R) using the modified
prospective transition method, which requires the measurement
and recognition of compensation expense for all stock-based
payments made to employees and directors including employee
stock option awards and employee stock purchases made under the
Employee Stock Purchase Plan, or ESPP, based on estimated fair
value. The Company previously applied the provisions of
Accounting Principles Board Opinion, or APB, Accounting
for Stock Issued to Employees, or APB No. 25,
and related Interpretations and provided the required pro forma
disclosures under SFAS 123, Accounting for
Stock-Based Compensation, or SFAS 123.
The net income for the year ended December 31, 2008
includes employee stock-based compensation expense of
$18.8 million, or $0.33 per diluted share. The net loss for
the years ended December 31, 2007 and 2006 includes
employee stock-based compensation expense of $14.1 million,
or $0.28 per diluted share, and $14.0 million, or $0.33 per
diluted share, respectively. As of December 31, 2008, the
total unrecorded stock-based compensation expense for unvested
stock options, net of expected forfeitures, was
$36.6 million, which is expected to be amortized over a
weighted-average period of 2.6 years.
All stock option awards to non-employees are accounted for at
the fair value of the consideration received or the fair value
of the equity instrument issued, as calculated using the
Black-Scholes model, in accordance with SFAS 123 and
Emerging Issues Task Force Consensus
No. 96-18,
Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. The option arrangements are subject to
periodic remeasurement over their vesting terms. The Company
recorded compensation expense related to option grants to
non-employees of $1.7 million, $1.5 million and
$365,000 for the years ended December 31, 2008, 2007 and
2006, respectively.
Net
Income (Loss) Per Share
Basic and diluted net income (loss) per share is presented in
conformance with SFAS No. 128, Earnings Per
Share. Basic net income (loss) per share has been computed
using the weighted-average number of shares of common stock
outstanding during each period. Diluted net income (loss) per
share has been computed using the weighted-average number of
shares of common stock outstanding during each period and other
dilutive securities. The following is a reconciliation of the
numerators and denominators of basic and diluted net income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,948
|
|
|
$
|
(34,167
|
)
|
|
$
|
(92,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used to compute basic net
income (loss) per share
|
|
|
55,915
|
|
|
|
51,177
|
|
|
|
42,170
|
|
Effect of dilutive stock options, stock awards and warrants
|
|
|
850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used to compute diluted net
income (loss) per share
|
|
|
56,765
|
|
|
|
51,177
|
|
|
|
42,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share does not include the effect of
1.8 million, 4.6 million and 5.4 million
stock-based awards that were outstanding during the year ended
December 31, 2008, 2007 and 2006. These stock-based awards
were not included in the computation of diluted net income per
share because the proceeds received, if any, from such
stock-based awards combined with the average unamortized
compensation costs were greater than the average market price of
our common stock, and, therefore, their effect would have been
antidilutive.
61
Comprehensive
Loss
Comprehensive income (loss) is comprised of net income (loss)
and other comprehensive income (loss). Other comprehensive
income (loss) is comprised of unrealized holding gains and
losses on the Companys available-for-sale securities that
are excluded from net income (loss) and reported separately in
stockholders equity. Comprehensive income (loss) and its
components are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
1,948
|
|
|
$
|
(34,167
|
)
|
|
$
|
(92,681
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on available-for-sale securities
|
|
|
(4,676
|
)
|
|
|
533
|
|
|
|
590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(2,728
|
)
|
|
$
|
(33,634
|
)
|
|
$
|
(92,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The activities in other comprehensive income (loss) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Increase (decrease) in unrealized gain (loss) on
available-for-sale securities
|
|
$
|
(5,159
|
)
|
|
$
|
533
|
|
|
$
|
590
|
|
Reclassification adjustment for net gains on available-for-sale
securities included in net income
|
|
|
483
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on available-for-sale securities
|
|
$
|
(4,676
|
)
|
|
$
|
533
|
|
|
$
|
590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash
equivalents and marketable securities. The Company invests cash
that is not required for immediate operating needs principally
in money market funds and corporate securities.
As of December 31, 2008, the Companys investment
portfolio included $45.0 million of AAA rated securities
with an auction reset feature (auction rate
securities) collateralized by student loans. Since
February 2008, securities of this type have experienced failures
in the auction process. As a result of the auction failures,
interest rates on these securities reset at penalty rates linked
to Libor or Treasury bill rates. The penalty rates are generally
higher than interest rates set at auction. Based on the overall
failure rate of these auctions, the frequency of the failures,
the underlying maturities of the securities, and the
Companys belief that the market for these student loan
collateralized instruments may take in excess of twelve months
to fully recover, the Company has classified $39.6 million
of these auction rate securities as non-current marketable
securities on the accompanying balance sheet. The Company has
reduced the carrying value of these marketable securities by
$5.4 million through accumulated other comprehensive income
or loss instead of earnings, which the Company believes reflects
a temporary decline in fair value of these securities. Further
adverse developments in the credit market could result in an
impairment charge through earnings in the future.
Income
Taxes
The Company uses the asset and liability method to account for
income taxes as required by FAS No. 109,
Accounting for Income Taxes. Under this method,
deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
In July 2006, the FASB issued Financial Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109, or FIN 48, which clarifies the criteria
that must be met prior to
62
recognition of the financial statement benefit of a position
taken in a tax return. FIN 48 provides a benefit
recognition model with a two-step approach consisting of a
more-likely-than-not recognition criteria, and a
measurement attribute that measures a given tax position as the
largest amount of tax benefit that is greater than 50% likely of
being realized upon ultimate settlement. FIN 48 also
requires the recognition of liabilities created by differences
between tax positions taken in a tax return and amounts
recognized in the financial statements. FIN 48 is effective
as of the beginning of the first annual period beginning after
December 15, 2006, and became effective for the Company on
January 1, 2007. The adoption of FIN 48 had no impact
on the Companys financial condition, results of
operations, or cash flows for the year ended December 31,
2008, as the Company has no unrecognized tax benefits.
Segment
Reporting
The Company operates in only one segment the
discovery and development of novel cancer therapies.
|
|
Note 2.
|
Agreements
with Other Companies
|
Bayer
Pharmaceuticals Corporation
Effective February 1994, the Company established a collaboration
agreement with Bayer to discover, develop and market compounds
that inhibit the function, or modulate the activity, of the RAS
signaling pathway to treat cancer and other diseases. Together
with Bayer, the Company concluded collaborative research under
this agreement in 1999, and based on this research, a product
development candidate, Nexavar, was identified. Bayer paid all
the costs of research and preclinical development of Nexavar
until the Investigational New Drug application, or IND, was
filed in May 2000. Under the Companys collaboration
agreement with Bayer, the Company is currently funding 50% of
mutually agreed development costs worldwide, excluding Japan.
Bayer is funding 100% of development costs in Japan and pays the
Company a royalty on sales in Japan. At any time during product
development, either company may terminate its participation in
development costs, in which case the terminating party would
retain rights to the product on a royalty-bearing basis. If the
Company does not continue to bear 50% of product development
costs, Bayer would retain exclusive, worldwide rights to this
product candidate and would pay royalties to the Company based
on net sales.
In March 2006, the Company and Bayer entered into a co-promotion
agreement to co-promote Nexavar in the United States. This
agreement amends and generally supersedes those provisions of
the collaboration agreement that relate to the co-promotion of
Nexavar in the United States. Outside of the United States, the
terms of the collaboration agreement continue to govern. Under
the terms of the co-promotion agreement and consistent with the
collaboration agreement, the Company and Bayer share equally in
the profits or losses of Nexavar, if any, in the United States.
If for any reason the Company does not continue to co-promote in
the United States, but continue to co-fund development worldwide
(excluding Japan), Bayer would first receive a portion of the
product revenues to repay Bayer for its commercialization
infrastructure, before determining the Companys share of
profits and losses in the United States.
Warner-Lambert
Company
In May 1995, the Company entered into a research and development
collaboration agreement with Warner-Lambert, now a subsidiary of
Pfizer, Inc., to discover and commercialize small molecule drugs
that restore control of, or otherwise intervene in, the
misregulated cell cycle in tumor cells. Under this agreement,
the Company developed screening tests, or assays, for jointly
selected targets and transferred these assays to Warner-Lambert
for screening of their compound library to identify active
compounds. The discovery research term under the agreement ended
in August 2001. Warner-Lambert is responsible for subsequent
medicinal chemistry and preclinical investigations on the active
compounds. In addition, Warner-Lambert is obligated to conduct
and fund all clinical development, make regulatory filings and
manufacture for sale any approved collaboration compounds. The
Company is entitled to receive payments upon achievement of
certain clinical development milestones and upon registration of
any resulting products, and is entitled to receive royalties on
worldwide sales of the products. Warner-Lambert has identified a
small molecule lead compound, PD 332991, an inhibitor of
cyclin-dependent
63
kinase 4, and began clinical testing with this drug candidate in
2004. To date the Company has received one
$500,000 milestone payment from Warner-Lambert.
BTG
In November 2008, the Company licensed a novel targeted oncology
compound, ONX 0801, from BTG. Under the terms of the agreement,
the Company obtained a worldwide license for ONX 0801 and all of
its related patents. The Company received exclusive worldwide
marketing rights and is responsible for all product development
and commercialization activities. The Company paid BTG a
$13 million upfront payment and may be required to make
payments of up to $72 million upon the attainment of
certain global development and regulatory milestones, plus
additional milestone payments upon the achievement of certain
marketing approvals and commercial milestones. The Company will
also pay royalties to BTG on any future product sales.
S*BIO
In December 2008, the Company entered into a development
collaboration, option and license agreement with S*BIO pursuant
to which the Company acquired options to license rights to each
of ONX 0803 and ONX 0805. Under the terms of the agreement, the
Company has obtained options, which if the Company exercises,
would give it rights to exclusively develop and commercialize
ONX 0803 and ONX 0805 for all potential indications in the
United States, Canada and Europe. S*BIO will retain
responsibility for all development costs prior to the option
exercise, after which the Company will assume development costs
for the U.S., Canada, and Europe subject to S*BIOs option
to fund a portion of the development costs in return for
enhanced royalties on any future product sales. Upon the
exercise of the Companys option of either compound, S*BIO
is entitled to receive a one-time fee, milestones upon
achievement of certain development and sales levels and
royalties on future product sales. Under the terms of the
agreement, in December 2008 the Company made a $25 million
payment to S*BIO, including an up-front payment and an equity
investment.
Note 3. Revenue
from Collaboration Agreement
Nexavar is currently marketed and sold primarily in the United
States and the European Union for the treatment of advanced
kidney cancer and liver cancer. Nexavar also has regulatory
applications pending in other territories internationally. The
Company co-promotes Nexavar in the United States with Bayer
Healthcare Pharmaceuticals Corporation Inc., or Bayer, under
collaboration and co-promotion agreements. In March 2006, the
Company and Bayer entered into a co-promotion agreement to
co-promote Nexavar in the United States. This agreement amends
the collaboration agreement and supersedes the provisions of
that agreement that relate to the co-promotion of Nexavar in the
United States. Outside of the United States, the terms of the
collaboration agreement continue to govern. Under the terms of
the co-promotion agreement and consistent with the collaboration
agreement, the Company and Bayer share equally in the profits or
losses of Nexavar, if any, in the United States, subject only to
the Companys continued co-funding of the development costs
of Nexavar worldwide outside of Japan and the Companys
continued co-promotion of Nexavar in the United States. The
collaboration was created through a contractual arrangement, not
through a joint venture or other legal entity.
Outside of the United States, excluding Japan, Bayer incurs all
of the sales and marketing expenditures, and the Company
reimburses Bayer for half of those expenditures. In addition,
for sales generated outside of the United States, excluding
Japan, the Company reimburses Bayer a fixed percentage of sales
for their marketing infrastructure. Research and development
expenditures on a worldwide basis, excluding Japan, are equally
shared by both companies regardless of whether the Company or
Bayer incurs the expense. In Japan, Bayer is responsible for all
development and marketing costs, and the Company receives a
royalty on net sales of Nexavar.
In the United States, Bayer provides all product distribution
and all marketing support services for Nexavar, including
managed care, customer service, order entry and billing. Bayer
is compensated for distribution expenses based on a fixed
percent of gross sales of Nexavar in the United States. Bayer is
reimbursed for half of its expenses for marketing services
provided by Bayer for the sale of Nexavar in the United States.
The companies share equally in any other out-of-pocket marketing
expenses (other than expenses for sales force and medical
science liaisons) that the Company and Bayer incur in connection
with the marketing and promotion of Nexavar in the United
States.
64
Bayer manufactures all Nexavar sold in the United States and is
reimbursed at an agreed transfer price per unit for the cost of
goods sold.
In the United States, the Company contributes half of the
overall number of sales force personnel required to market and
promote Nexavar and half of the medical science liaisons to
support Nexavar. The Company and Bayer each bears its own sales
force and medical science liaison expenses. These expenses are
not included in the calculation of the profits or losses of the
collaboration.
Revenue from collaboration agreement consists of the
Companys share of the pre-tax commercial profit generated
from its collaboration with Bayer, reimbursement of the
Companys shared marketing costs related to Nexavar and
royalty revenue. Under the collaboration, Bayer recognizes all
sales of Nexavar worldwide. The Company records revenue from
collaboration agreement on a quarterly basis. Revenue from
collaboration agreement is derived by calculating net sales of
Nexavar to third-party customers and deducting the cost of goods
sold, distribution costs, marketing costs (including without
limitation, advertising and education expenses, selling and
promotion expenses, marketing personnel expenses, and Bayer
marketing services expenses), Phase 4 clinical trial costs and
allocable overhead costs. Reimbursement by Bayer of the
Companys shared marketing costs related to Nexavar and
royalty revenue are also included in the revenue from
collaboration agreement line item.
The Companys portion of shared collaboration research and
development expenses is not included in this line item, but is
reflected under operating expenses. According to the terms of
the collaboration agreement, the companies share all research
and development, marketing and non-US sales expenses. United
States sales force and medical science liaison expenditures
incurred by both companies are borne by each company separately
and are not included in the calculation. Some of the revenue and
expenses recorded to derive the revenue from collaboration
agreement during the period presented are estimates of both
parties and are subject to further adjustment based on each
partys final review should actual results differ from
these estimates.
Revenue from collaboration agreement was $194.3 million,
$90.4 million and $29.3 million for the years ended
December 31, 2008, 2007 and 2006, respectively, calculated
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Onyxs share of collaboration commercial profit
|
|
$
|
169,334
|
|
|
$
|
74,027
|
|
|
$
|
20,995
|
|
Reimbursement of Onyxs shared marketing expenses
|
|
|
22,185
|
|
|
|
16,402
|
|
|
|
8,279
|
|
Royalty income
|
|
|
2,824
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
194,343
|
|
|
$
|
90,429
|
|
|
$
|
29,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, 2007 and 2006, the Company has
invested $392.1 million, $302.3 million and
$219.0 million, respectively, in the development of
Nexavar, representing its share of the costs incurred to date
under the collaboration.
|
|
Note 4.
|
Marketable
Securities
|
Investments that are subject to concentration of credit risk are
marketable securities. To mitigate this risk, the Company
invests in marketable debt securities, primarily United States
government securities, agency bonds and corporate bonds and
notes, with investment grade ratings. The Company limits the
amount of investment exposure as to institution, maturity, and
investment type. The weighted average maturity of the
Companys marketable securities as of December 31,
2008 was four months. There was a realized gain of $483,000 for
the year ended December 31, 2008 and no realized gains or
losses in each of the years ended December 31, 2007 and
2006.
65
Available-for-sale marketable securities consisted of the
following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Agency bond investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
132,319
|
|
|
$
|
1,054
|
|
|
$
|
(4
|
)
|
|
$
|
133,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency bond investments
|
|
|
132,319
|
|
|
|
1,054
|
|
|
|
(4
|
)
|
|
|
133,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
49,903
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,903
|
|
Non-current
|
|
|
45,000
|
|
|
|
-
|
|
|
|
(5,378
|
)
|
|
|
39,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate investments
|
|
|
94,903
|
|
|
|
-
|
|
|
|
(5,378
|
)
|
|
|
89,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale marketable securities
|
|
$
|
227,222
|
|
|
$
|
1,054
|
|
|
$
|
(5,382
|
)
|
|
$
|
222,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Agency bond investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
143,896
|
|
|
$
|
354
|
|
|
$
|
(13
|
)
|
|
$
|
144,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency bond investments
|
|
|
143,896
|
|
|
|
354
|
|
|
|
(13
|
)
|
|
|
144,237
|
|
Corporate debt investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
163,745
|
|
|
|
16
|
|
|
|
(1
|
)
|
|
|
163,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate investments
|
|
|
163,745
|
|
|
|
16
|
|
|
|
(1
|
)
|
|
|
163,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale marketable securities
|
|
$
|
307,641
|
|
|
$
|
370
|
|
|
$
|
(14
|
)
|
|
$
|
307,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the Companys fair value
hierarchies for its financial assets, which require fair value
measurement on a recurring basis under SFAS 157, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Money market funds
|
|
$
|
113,832
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
113,832
|
|
Commercial paper
|
|
|
-
|
|
|
|
109,866
|
|
|
|
-
|
|
|
|
109,866
|
|
Auction rate securities
|
|
|
-
|
|
|
|
-
|
|
|
|
39,622
|
|
|
|
39,622
|
|
U.S. government agencies
|
|
|
-
|
|
|
|
143,376
|
|
|
|
-
|
|
|
|
143,376
|
|
U.S. treasury bills
|
|
|
49,993
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
163,825
|
|
|
$
|
253,242
|
|
|
$
|
39,622
|
|
|
$
|
456,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 assets consist of securities with an auction reset
feature (auction rate securities), which are
classified as available for sale securities and reflected at
fair value. In February 2008, auctions began to fail for these
securities and each auction for the majority of these securities
since then has failed. As of December 31, 2008 the fair
values of
66
these securities are estimated utilizing a discounted cash flow
analysis. The following table provides a summary of changes in
fair value of the Companys Level 3 financial assets
as of December 31, 2008:
|
|
|
|
|
|
|
Auction Rate Securities
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2007
|
|
$
|
50,000
|
|
Unrealized loss:
|
|
|
|
|
In other comprehensive income
|
|
|
(5,378
|
)
|
In earnings
|
|
|
-
|
|
Purchases, issuances, settlements
|
|
|
(5,000
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
39,622
|
|
|
|
|
|
|
As a result of the decline in fair value of the Companys
auction rate securities, which the Company believes is temporary
and attributes to liquidity rather than credit issues, the
Company has recorded an unrealized loss of $5.4 million
included in the accumulated other comprehensive income (loss)
line of stockholders equity. All of the auction rate
securities held by the Company at December 31, 2008,
consist of securities collateralized by student loan portfolios,
which are substantially guaranteed by the United States
government. Any future fluctuation in fair value related to the
non-current marketable securities that the Company deems to be
temporary, including any recoveries of previous write-downs,
will be recorded in accumulated other comprehensive income
(loss). If the Company determines that any decline in fair value
is other than temporary, it will record a charge to earnings as
appropriate.
The contractual terms of the Companys investments in
United States government investments, agency bond investments
and corporate debt instruments, do not permit the issuer to
settle the securities at a price less than the amortized cost of
the investment. It is the Companys intention and within
its ability to hold its marketable securities in an unrealized
loss position for a period of time sufficient to allow for an
anticipated recovery of fair value up to (or greater than) the
cost of the securities, and, therefore, the impairments noted
are not other-than-temporary.
|
|
Note 5.
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Computers, machinery and equipment
|
|
$
|
4,352
|
|
|
$
|
3,684
|
|
Furniture and fixtures
|
|
|
620
|
|
|
|
620
|
|
Leasehold improvements
|
|
|
1,934
|
|
|
|
1,868
|
|
Construction in progress
|
|
|
816
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,722
|
|
|
|
6,172
|
|
Less accumulated depreciation and amortization
|
|
|
(4,359
|
)
|
|
|
(3,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,363
|
|
|
$
|
3,146
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1.3 million, $1.0 million
and $758,000 for the years ended December 31, 2008, 2007
and 2006, respectively.
|
|
Note 6.
|
Other
Long-Term Assets
|
In December 2008 the Company entered into a development
collaboration, option and license agreement with S*BIO. Under
the terms of the agreement, in December 2008, the Company made a
$25 million payment to S*BIO, of which the Company
recognized an up-front payment of $20.7 million and an
equity investment of $4.3 million. As a result, for the
year ended December 31, 2008, other long-term assets
included $4.3 million in this long-term private equity
investment. The equity investment is accounted for using the
cost method of accounting. Under FASB Interpretation
No. 46(R), Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51, issued in
67
January 2003, or FIN 46(R), S*BIO qualifies as a variable
interest entity, or VIE, but as the Company is not its primary
beneficiary, consolidation is not required.
|
|
Note 7.
|
Advance
from Collaboration Partner
|
In January 2006, the Company received the fourth and final
development payment from Bayer for $10.0 million under its
collaboration agreement in connection with the approval of
Nexavar by the Federal Drug Administration (FDA). In July 2005,
the Company received a $10.0 million development payment
from Bayer as a result of the NDA filing for Nexavar. In
December 2003, the Company received a $15.0 million
development payment from Bayer for the initiation of Phase 3
clinical trials of Nexavar. In August 2002, the Company received
a $5.0 million development payment from Bayer for the
initiation of Phase 2 clinical trials of Nexavar. Pursuant to
its collaboration agreement, these amounts are repayable to
Bayer from a portion of the Companys share of any
quarterly collaboration profits and royalties after deducting
certain contractually agreed upon expenditures. These
development payments contain no provision for interest. As of
December 31, 2008, the Company had repaid
$23.4 million to Bayer. The remaining balances as of
December 31, 2008 and 2007 of $16.6 million and
$39.2 million, respectively, are included in the caption
Advance from collaboration partner in the
accompanying balance sheets.
In 2004, the Company entered into an operating lease for
23,000 square feet of office space in Emeryville,
California, which serves as the Companys corporate
headquarters. In 2006, the Company amended its existing
operating lease to occupy an additional 14,000 square feet
of office space in addition to the 23,000 square feet
already occupied in Emeryville, California. The lease expires on
March 31, 2013. In 2008, the Company entered into another
operating lease for an additional 23,000 square feet of
office space in Emeryville, California. This lease expires on
November 30, 2013. The lease provides for fixed increases
in minimum annual rental payments, as well as rent free periods.
The total amount of rental payments due over the lease term is
being charged to rent expense on the straight-line method over
the term of the lease. The difference between rent expense
recorded and the amount paid is credited or charged to
deferred rent and lease incentives, which is
included in the accompanying balance sheets.
The Company also has a lease for 9,000 square feet of space
in a secondary facility in Richmond, California. The lease for
this facility expires in September 2010 with renewal options at
the end of the lease for two subsequent five-year terms. In
September 2002, the Company entered into a sublease agreement
for this space through September 2010.
Minimum annual rental commitments, net of sublease income, under
all operating leases at December 31, 2008 are as follows
(in thousands):
|
|
|
|
|
Year ending December 31:
|
|
|
|
|
2009
|
|
|
1,819
|
|
2010
|
|
|
1,957
|
|
2011
|
|
|
1,967
|
|
2012
|
|
|
2,002
|
|
2013
|
|
|
1,024
|
|
|
|
|
|
|
|
|
$
|
8,769
|
|
|
|
|
|
|
Rent expense, net of sublease income and restructuring, for the
years ended December 31, 2008, 2007 and 2006 was
approximately $1.0 million, $1.1 million and $587,000,
respectively. Sublease income was $72,000, $88,000 and $62,000
for the years ended December 31, 2008, 2007 and 2006,
respectively.
|
|
Note 9.
|
Related
Party Transactions
|
At December 31, 2008, the Company had a loan with an
employee of which $170,000 is outstanding. This loan bears
interest at 2.85% per annum and is payable in five annual
payments beginning in 2009. The Company had a
68
loan with a former employee of which approximately $228,000 was
outstanding at December 31, 2006. This loan bore interest
at 4.82% per annum. In 2007, $87,000 of principal and interest
was forgiven and the remaining loan balance of $152,000 was
repaid in October 2007 in accordance with the terms of the loan
agreement.
The Company has a 401(k) Plan that covers substantially all of
its employees. Under the 401(k) Plan, eligible employees may
contribute up to $15,500 of their eligible compensation, subject
to certain Internal Revenue Service restrictions. Historically,
the Company did not match employee contributions in the 401(k)
Plan. Beginning in fiscal year 2008, Onyx provided a
discretionary company match to employee contributions of $0.50
per dollar contributed, up to a maximum match of $3,500 in any
calendar year. In 2008, the Company incurred a total expense of
$548,000 related to 401(k) contribution matching.
|
|
Note 11.
|
Stockholders
Equity
|
Stock
Options and Employee Stock Purchase Plan
The Company has one stock option plan from which it is able to
grant new awards, the 2005 Equity Incentive Plan, or the
2005 Plan. Prior to adoption of the 2005 Plan, the
Company had two stock option plans, the 1996 Equity Incentive
Plan and the 1996 Non-Employee Directors Stock Option
Plan. Following is a brief description of the prior plans:
|
|
|
|
1)
|
The 1996 Equity Incentive Plan, or the 1996 Plan,
which amended and restated the 1992 Incentive Stock Plan in
March 1996. The Companys Board of Directors reserved
1,725,000 shares of common stock for issuance under the
1996 Plan. At the Companys annual meetings of stockholders
in subsequent years, stockholders approved reserving an
additional 4,100,000 shares of common stock for issuance
under the 1996 Plan. The 1996 Plan provides for grants to
employees of either nonqualified or incentive options and
provides for the grant to consultants of the Company of
nonqualified options.
|
|
|
2)
|
The 1996 Non-Employee Directors Stock Option Plan, or the
Directors Plan, which was approved in March
1996 and reserved 175,000 shares for issuance to provide
for the automatic grant of nonqualified options to purchase
shares of common stock to non-employee Directors of the Company.
At the Companys annual meetings of stockholders in
subsequent years, stockholders approved reserving an additional
250,000 shares of common stock for issuance under the
Directors Plan.
|
The 2005 Plan was approved at the Companys annual meeting
of stockholders to supersede and replace both the 1996 Plan and
the Directors Plan and reserved 7,560,045 shares of
common stock for issuance under the Plan, consisting of
(a) the number of shares remaining available for grant
under the Incentive Plan and the Directors Plan, including
shares subject to outstanding stock awards under those plans,
and (b) an additional 3,990,000 shares. Any shares
subject to outstanding stock awards under the 1996 Plan and the
Directors Plan that expire or terminate for any reason
prior to exercise or settlement are added to the share reserve
under the 2005 Plan. All outstanding stock awards granted under
the two prior plans remain subject to the terms of those plans.
Subsequently, at annual meetings of stockholders, a total of
4,700,000 shares were approved to be added to the 2005 Plan
reserve for a total of 12,260,045 shares available for
issuance.
In March 1996, the Board of Directors adopted the Employee Stock
Purchase Plan (ESPP). The number of shares available for
issuance over the term of the ESPP was limited to
400,000 shares. At the May 2007 Annual Meeting of
Stockholders an additional 500,000 shares were added to the
ESPP for a total of 900,000 shares available for issuance
over the term of the ESPP. The ESPP is designed to allow
eligible employees of the Company to purchase shares of common
stock through periodic payroll deductions. The price of common
stock purchased under the ESPP will be equal to 85% of the lower
of the fair market value of the common stock on the commencement
date of each offering period or the specified purchase date.
Purchases of common stock shares made under the ESPP were
37,631 shares in 2008, 73,611 shares in 2007 and
22,584 shares in 2006. Since inception, a total of
420,238 shares have been issued under the ESPP, leaving a
total of 479,762 shares available for issuance.
69
In December 2008, stock options were exercised that were not
settled prior to December 31, 2008. The Company recorded a
receivable from stock option exercises of $455,000 at
December 31, 2008 related to these stock options. This is
included in the caption Receivable from stock option
exercises in the accompanying balance sheet and Statement
of Stockholders Equity as of December 31, 2008. The
Company recorded a receivable from stock option exercises of
$23,000 at December 31, 2007, related to stock options
exercised that had not settled prior to December 31, 2007.
Preferred
Stock
The Companys amended and restated certificate of
incorporation provides that the Companys 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 further vote or action by the stockholders. As
of December 31, 2008, the Company had 5,000,000 shares
of preferred stock authorized at $0.001 par value, and no
shares were issued or outstanding.
Warrants
A total of 743,229 warrants for the purchase of common stock
were issued in connection with a private placement financing in
May 2002. The exercise price of these warrants is $9.59 per
share. The $4.4 million fair value of the warrants was
estimated on the date of grant using the Black-Scholes option
valuation model with the following assumptions: a
weighted-average risk-free interest rate of 4.29%, a contractual
life of seven years, a volatility of 0.94 and no dividend yield,
and accounted for as a stock issuance cost. Any of the
outstanding warrants may be exercised by applying the value of a
portion of the warrant, which is equal to the number of shares
issuable under the warrant being exercised multiplied by the
fair market value of the security receivable upon the exercise
of the warrant, less the per share price, in lieu of payment of
the exercise price per share. In 2004, the Company issued
553,835 shares of the Companys common stock upon the
exercise of 703,689 warrants, on both a cash and net exercise
basis. The Company received approximately $355,000 in net cash
proceeds from the exercise of warrants in 2004. In 2005, the
Company issued 29,550 shares of the Companys common
stock upon the exercise of 30,277 warrants, on both a cash and
net exercise basis. The Company received approximately $266,000
in net cash proceeds from the exercise of warrants in 2005.
There were no warrants issued or exercised in 2006, 2007 and
2008.
As of December 31, 2008 there are outstanding warrants to
purchase an aggregate of 9,263 shares of the Companys
common stock, which will expire in May 2009, unless earlier
exercised. The Company has reserved 9,263 common shares for
future issuance for these warrants.
|
|
Note 12.
|
Stock-Based
Compensation
|
Effective January 1, 2006, the Company adopted
SFAS No. 123(R), which requires the measurement and
recognition of compensation expense for all stock-based payments
made to employees and directors including employee stock option
awards and employee stock purchases made under the ESPP based on
estimated fair value. The Company previously applied the
provisions of Accounting Principles Board Opinion, or APB,
Accounting for Stock Issued to Employees, or APB No.
25 and related Interpretations and provided the required pro
forma disclosures under SFAS 123, Accounting for
Stock-Based Compensation, or SFAS 123.
All stock option awards to non-employees are accounted for at
the fair value of the consideration received or the fair value
of the equity instrument issued, as calculated using the
Black-Scholes model, in accordance with SFAS 123(R) and
Emerging Issues Task Force Consensus
No. 96-18,
Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. The option arrangements are subject to
periodic remeasurement over their vesting terms.
70
Impact
of the Adoption of FAS 123(R)
The Company adopted SFAS 123(R) using the modified
prospective transition method beginning January 1, 2006.
Employee stock-based compensation for the years ended
December 31, 2008, 2007 and 2006, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands except per share data)
|
|
|
Research and development
|
|
$
|
3,166
|
|
|
$
|
2,897
|
|
|
$
|
2,545
|
|
Selling, general and administrative
|
|
|
15,630
|
|
|
|
11,230
|
|
|
|
11,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
18,796
|
|
|
$
|
14,127
|
|
|
$
|
14,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on basic net loss per share
|
|
$
|
0.34
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on diluted net loss per share
|
|
$
|
0.33
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All stock option awards to non-employees are accounted for at
the fair value of the consideration received or the fair value
of the equity instrument issued, as calculated using the
Black-Scholes model, in accordance with SFAS 123 and
Emerging Issues Task Force Consensus
No. 96-18,
Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. The option arrangements are subject to
periodic remeasurement over their vesting terms. The Company
recorded compensation expense related to option grants to
non-employees of $1.7 million, $1.5 million and
$365,000 for the years ended December 31, 2008, 2007 and
2006, respectively.
As of December 31, 2008, the total unrecorded stock-based
compensation expense for unvested stock options shares, net of
expected forfeitures, was $36.6 million, which is expected
to be amortized over a weighted-average period of
2.6 years. As of December 31, 2008, the total
unrecorded stock-based compensation expense for unvested stock
bonus awards, net of expected forfeitures, was
$6.1 million, which is expected to be amortized over a
weighted-average period of 1.9 years. Cash received during
the year ended December 31, 2008, for stock options
exercised under all stock-based compensation arrangements was
$25.7 million.
For the years ended December 31, 2008, 2007 and 2006, the
total fair value of stock bonus awards vested was
$1.8 million, $281,000 and $140,000, respectively, based on
a weighted average grant date fair value of $24.89 for the year
ended December 31, 2008 and $21.04 for the years ended
December 31, 2007 and 2006.
71
Valuation
Assumptions
As of December 31, 2008, 2007 and 2006, the fair value of
stock-based awards for employee stock option awards, stock bonus
awards and employee stock purchases made under the ESPP was
estimated using the Black-Scholes option pricing model. The
following weighted average assumptions were used:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Stock Option Plans:
|
|
|
|
|
|
|
Risk-free interest rate
|
|
2.86%
|
|
4.66%
|
|
4.68%
|
Expected life
|
|
4.4 years
|
|
4.3 years
|
|
4.2 years
|
Expected volatility
|
|
64%
|
|
64%
|
|
59%
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
Weighted average option fair value
|
|
$17.32
|
|
$15.41
|
|
$11.00
|
Stock bonus awards:
|
|
|
|
|
|
|
Expected life
|
|
3 years
|
|
3 years
|
|
3 years
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
Weighted average fair value per share
|
|
$30.80
|
|
$24.84
|
|
$21.04
|
ESPP:
|
|
|
|
|
|
|
Risk-free interest rate
|
|
2.69%
|
|
5.11%
|
|
4.33%
|
Expected life
|
|
6 months
|
|
6 months
|
|
6 months
|
Expected volatility
|
|
59%
|
|
57%
|
|
59%
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
Weighted average fair value per share
|
|
$13.56
|
|
$3.78
|
|
$8.65
|
The Black-Scholes fair value model requires the use of highly
subjective and complex assumptions, including the options
expected life and the price volatility of the underlying stock.
Beginning January 1, 2006, the expected stock price
volatility assumption was determined using a combination of
historical and implied volatility for our stock. Prior to the
adoption of FAS 123(R), we used the historical volatility
in deriving our expected volatility assumption. We have
determined that the combined method of determining volatility is
more reflective of market conditions and a better indicator of
expected volatility than historical volatility. We consider
several factors in estimating the expected life of our options
granted, including the expected lives used by a peer group of
companies and the historical option exercise behavior of our
employees, which we believe are representative of future
behavior.
72
Stock-Based
Payment Award Activity
The following table summarizes stock option and award activity
under all option plans for the years ended December 31,
2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Number of
|
|
Weighted
|
|
|
Available for
|
|
Shares
|
|
Average
|
Employee stock
options:
|
|
Grant
|
|
Outstanding
|
|
Exercise Price
|
|
Balance at December 31, 2005
|
|
|
3,610,461
|
|
|
|
3,806,081
|
|
|
$
|
21.17
|
|
Granted
|
|
|
(1,987,950
|
)
|
|
|
1,987,950
|
|
|
$
|
21.60
|
|
Exercised
|
|
|
-
|
|
|
|
(347,287
|
)
|
|
$
|
7.26
|
|
Expired
|
|
|
19,058
|
|
|
|
(19,058
|
)
|
|
$
|
37.83
|
|
Forfeited
|
|
|
93,209
|
|
|
|
(93,209
|
)
|
|
$
|
28.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
1,734,778
|
|
|
|
5,334,477
|
|
|
$
|
22.05
|
|
Shares authorized
|
|
|
1,600,000
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
(1,167,701
|
)
|
|
|
1,167,701
|
|
|
$
|
28.55
|
|
Exercised
|
|
|
-
|
|
|
|
(1,477,661
|
)
|
|
$
|
14.83
|
|
Expired
|
|
|
156,458
|
|
|
|
(156,458
|
)
|
|
$
|
25.88
|
|
Forfeited
|
|
|
430,153
|
|
|
|
(430,153
|
)
|
|
$
|
33.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
2,753,688
|
|
|
|
4,437,906
|
|
|
$
|
25.39
|
|
Shares authorized
|
|
|
3,100,000
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
(1,624,036
|
)
|
|
|
1,624,036
|
|
|
$
|
32.81
|
|
Exercised
|
|
|
-
|
|
|
|
(1,145,281
|
)
|
|
$
|
21.90
|
|
Expired
|
|
|
13,642
|
|
|
|
(13,642
|
)
|
|
$
|
35.71
|
|
Forfeited
|
|
|
336,345
|
|
|
|
(336,345
|
)
|
|
$
|
26.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
4,579,639
|
|
|
|
4,566,674
|
|
|
$
|
28.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock bonus awards:
|
|
|
Shares
|
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
40,000
|
|
|
$
|
21.04
|
|
|
|
|
|
Vested
|
|
|
(6,667
|
)
|
|
$
|
21.04
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
33,333
|
|
|
$
|
21.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
166,747
|
|
|
$
|
24.84
|
|
|
|
|
|
Vested
|
|
|
(13,333
|
)
|
|
$
|
21.04
|
|
|
|
|
|
Cancelled
|
|
|
(6,724
|
)
|
|
$
|
24.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
180,023
|
|
|
$
|
24.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
223,015
|
|
|
$
|
30.72
|
|
|
|
|
|
Vested
|
|
|
(72,551
|
)
|
|
$
|
24.89
|
|
|
|
|
|
Cancelled
|
|
|
(34,645
|
)
|
|
$
|
26.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
295,842
|
|
|
$
|
28.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
The options outstanding and exercisable for stock-based payment
awards as of December 31, 2008 were in the following
exercise price ranges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Contractual Life
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
Number
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
( In years)
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Price
|
|
$4.20 - $24.15
|
|
|
942,170
|
|
|
|
7.0
|
|
|
$
|
17.11
|
|
|
|
501,135
|
|
|
$
|
17.51
|
|
$24.36 - $28.62
|
|
|
1,355,034
|
|
|
|
7.1
|
|
|
$
|
26.69
|
|
|
|
706,262
|
|
|
$
|
27.00
|
|
$28.75 - $29.70
|
|
|
926,234
|
|
|
|
9.1
|
|
|
$
|
29.04
|
|
|
|
121,567
|
|
|
$
|
29.05
|
|
$30.00 - $41.55
|
|
|
913,212
|
|
|
|
7.5
|
|
|
$
|
35.28
|
|
|
|
467,680
|
|
|
$
|
35.91
|
|
$41.68 - $56.21
|
|
|
430,024
|
|
|
|
8.3
|
|
|
$
|
46.34
|
|
|
|
160,070
|
|
|
$
|
43.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,566,674
|
|
|
|
7.7
|
|
|
$
|
28.76
|
|
|
|
1,956,714
|
|
|
$
|
28.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, 1,883,043 outstanding options were
exercisable, at a weighted average price of $25.96. As of
December 31, 2006, 2,276,129 outstanding options were
exercisable, at a weighted average price of $20.37.
As of December 31, 2008, weighted average contractual life
remaining for exercisable shares is 6.4 years. The total
number of in-the-money options exercisable as of
December 31, 2008 was 1,956,714 shares. The aggregate
intrinsic values of options exercised were $18.9 million
and $27.9 million for the years ended December 31,
2008 and 2007, respectively. The aggregate intrinsic values of
in-the-money outstanding and exercisable options were
$31.8 million and $14.4 million, respectively as of
December 31, 2008. The aggregate intrinsic value of options
represents the total pre-tax intrinsic value, based on the
Companys closing stock price of $34.16 at
December 31, 2008, which would have been received by option
holders had all option holders exercised their options that were
in-the-money as of that date.
For the year ended December 31, 2008, the Company recorded
a provision for income taxes of $347,000 related to income from
continuing operations. The components of the provision for
income tax expense as of December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
226
|
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on the Companys ability to fully offset current
taxable income by its net operating loss carryforwards, the
Companys tax expense in 2008 is principally related to
U.S. alternative minimum tax and state taxes. There is no
provision (benefit) for federal or state income taxes for the
years ended December 31, 2007 and 2006 because the Company
incurred operating losses and established a valuation allowance
equal to the net deferred tax assets.
74
A reconciliation between the Companys effective tax rate
and the U.S. statutory tax rate for the year ended
December 31, 2008, 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal income tax at statutory rate
|
|
|
34
|
%
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
State income tax, net of federal benefit
|
|
|
3
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Federal minimum tax
|
|
|
10
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock compensation expense
|
|
|
55
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
Research credits expense add-back
|
|
|
51
|
%
|
|
|
12
|
%
|
|
|
2
|
%
|
Non-deductible meals and entertainment expense
|
|
|
17
|
%
|
|
|
1
|
%
|
|
|
0
|
%
|
Other non-deductible expenses
|
|
|
6
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Change in valuation allowance
|
|
|
(161
|
)%
|
|
|
18
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
15
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets and liabilities as of
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
144,267
|
|
|
$
|
154,928
|
|
Tax credit carryforwards
|
|
|
42,388
|
|
|
|
39,158
|
|
Capitalized research and development
|
|
|
767
|
|
|
|
2,415
|
|
Deferred revenue
|
|
|
3,841
|
|
|
|
15,628
|
|
Stock options
|
|
|
7,763
|
|
|
|
6,511
|
|
Intangible assets
|
|
|
10,060
|
|
|
|
72
|
|
Other long-term assets
|
|
|
2,811
|
|
|
|
-
|
|
Other
|
|
|
1,246
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
213,143
|
|
|
|
219,975
|
|
Valuation allowance
|
|
|
(213,143
|
)
|
|
|
(219,975
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and the amount of which are
uncertain. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance
decreased by $6.8 million in 2008 and increased by
$12.8 million and $43.9 million in 2007 and 2006,
respectively.
At December 31, 2008, the Company has net operating loss
carryforwards for federal and state income tax purposes of
approximately $407.8 million and $314.3 million,
respectively. These net operating losses can be utilized to
reduce future taxable income, if any. Approximately
$28.8 million of the federal and $27.2 million of the
state valuation allowance for deferred tax assets related to net
operating loss carryforwards represents the stock option
deduction arising from activity under the Companys stock
option plan, the benefit of which will increase additional paid
in capital when realized. The federal net operating loss
carryforwards expire beginning in 2010 through 2027, and the
state net operating loss carryforwards begin to expire in 2014
through 2029 and may be subject to certain limitations. As of
December 31, 2008, the Company has research and development
credit and orphan drug credit carryforwards of approximately
$37.9 million for federal income
75
tax purposes that expire beginning in 2009 through 2028 and
$4.0 million for California income tax purposes, which do
not expire.
Utilization of the net operating loss and tax credit
carryforwards may be subject to substantial annual limitations
due to ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions.
The annual limitations may result in the expiration of net
operating loss and tax credit carryforwards before utilization.
The Company continues to fully reserve its net operating loss
carryforwards and other deferred tax assets despite achieving
full-year profitability in 2008 and its expectation for
continued future profitability, since, up until 2008, the
Company has had a history of annual losses since inception. On a
quarterly basis, the Company reassesses its valuation allowance
for deferred income taxes. The Company will consider reducing
the valuation reserve upon assessment of certain factors,
including: (i) a demonstration of sustained profitability;
(ii) the support of internal financial forecasts
demonstrating the utilization of the net operating losses prior
to their expiration; and (iii) the Companys
reassessment of tax benefits recognition under FIN 48. If
the Company determines that the reversal of a portion or all of
the valuation reserve is appropriate, the benefit would be
recognized as a reduction of the Companys tax provision in
the period of the reversal.
The Company adopted the provisions of Financial Accounting
Standards, or FASB Interpretation No. 48 Accounting
for Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109, or FIN 48, on
January 1, 2007. As of December 31, 2008 and 2007, the
Company has no unrecognized income tax benefits. The Company is
in process of completing an analysis of its tax credit
carryforwards. Any uncertain tax positions identified in the
course of this analysis will not impact its financial statements
due to the full valuation allowance.
The Companys policy for classifying interest and penalties
associated with unrecognized income tax benefits is to include
such items as tax expense. No interest or penalties have been
recorded during the years ended December 31, 2008, 2007 and
2006.
The tax years from 1993 and forward remain open to examination
by federal and California authorities due to net operating loss
and credit carryforwards. The Company is currently not under
examination by the Internal Revenue Service or any other taxing
authorities.
|
|
Note 14.
|
Guarantees,
Indemnifications and Contingencies
|
Guarantees
and Indemnifications
The Company has entered into indemnity agreements with certain
of its officers and directors, which provide for indemnification
to the fullest extent authorized and permitted by Delaware law
and the Companys Bylaws. The agreements also provide that
the Company will indemnify, subject to certain limitations, the
officer or director for expenses, damages, judgments, fines and
settlements he or she may be required to pay in actions or
proceedings to which he or she is or may be a party to because
such person is or was a director, officer or other agent of the
Company. The term of the indemnification is for so long as the
officer or director is subject to any possible claim, or
threatened, pending or completed action or proceeding, by reason
of the fact that such officer or director was serving the
Company as a director, officer or other agent. The rights
conferred on the officer or director shall continue after such
person has ceased to be an officer or director as provided in
the indemnity agreement. The maximum amount of potential future
indemnification is unlimited; however, the Company has a
director and officer insurance policy that limits its exposure
and may enable it to recover a portion of any future amounts
paid under the indemnity agreements. The Company has not
recorded any amounts as liabilities as of December 31, 2008
as the value of the indemnification obligations, if any, is not
estimable.
Contingencies
From time to time, the Company may become involved in claims and
other legal matters arising in the ordinary course of business.
Management is not currently aware of any matters that could have
a material adverse affect on the financial position, results of
operations or cash flows of the Company.
76
|
|
Note 15.
|
Quarterly
Financial Data (Unaudited)
|
The following table presents unaudited quarterly financial data
of the Company. The Companys quarterly results of
operations for these periods are not necessarily indicative of
future results of operations. As of December 31, 2008, the
Company adopted
EITF 07-1.
As a result, effective January 1, 2006, the Companys
statement of operations for all periods presented have been
reclassified to conform to the new presentation. This new
presentation impacts the classification of amounts included in
specific line items, but has no impact on net income (loss) or
net income (loss) per share. See Note 1 of the accompanying
footnotes to the financial statements for more information on
the effect of the adoption of
EITF 07-01
for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarter Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
49,650
|
|
|
$
|
50,766
|
|
|
$
|
45,072
|
|
|
$
|
48,855
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
59,905
|
|
|
|
21,792
|
|
|
|
23,498
|
|
|
|
18,555
|
|
Selling, general and administrative expenses
|
|
|
22,008
|
|
|
|
19,319
|
|
|
|
19,822
|
|
|
|
19,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating profit (loss)
|
|
|
(32,263
|
)
|
|
|
9,655
|
|
|
|
1,752
|
|
|
|
10,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
1,999
|
|
|
|
2,763
|
|
|
|
2,662
|
|
|
|
5,271
|
|
Provision (benefit) for income taxes
|
|
|
(77
|
)
|
|
|
175
|
|
|
|
(60
|
)
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(30,187
|
)
|
|
|
12,243
|
|
|
|
4,474
|
|
|
|
15,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
|
(0.53
|
)
|
|
|
0.22
|
|
|
|
0.08
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
|
(0.53
|
)
|
|
|
0.21
|
|
|
|
0.08
|
|
|
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Quarter Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
26,101
|
|
|
$
|
29,738
|
|
|
$
|
19,576
|
|
|
$
|
15,014
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
27,226
|
|
|
|
20,004
|
|
|
|
18,554
|
|
|
|
17,523
|
|
Selling, general and administrative expenses
|
|
|
16,406
|
|
|
|
15,245
|
|
|
|
15,712
|
|
|
|
13,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating profit (loss)
|
|
|
(17,531
|
)
|
|
|
(5,511
|
)
|
|
|
(14,690
|
)
|
|
|
(15,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
5,829
|
|
|
|
6,066
|
|
|
|
3,864
|
|
|
|
3,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(11,702
|
)
|
|
|
555
|
|
|
|
(10,826
|
)
|
|
|
(12,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share
|
|
|
(0.21
|
)
|
|
|
0.01
|
|
|
|
(0.22
|
)
|
|
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Quarter Ended
|
|
|
|
December 31
|
|
|
September 30
|
|
|
June 30
|
|
|
March 31
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from collaboration agreement
|
|
$
|
10,497
|
|
|
$
|
9,943
|
|
|
$
|
4,574
|
|
|
$
|
4,260
|
|
License revenue
|
|
|
-
|
|
|
|
100
|
|
|
|
150
|
|
|
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
21,121
|
|
|
|
21,170
|
|
|
|
25,716
|
|
|
|
16,162
|
|
Selling, general and administrative expenses
|
|
|
13,075
|
|
|
|
11,900
|
|
|
|
13,421
|
|
|
|
11,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating profit (loss)
|
|
|
(23,699
|
)
|
|
|
(23,027
|
)
|
|
|
(34,413
|
)
|
|
|
(23,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net
|
|
|
2,992
|
|
|
|
2,879
|
|
|
|
2,939
|
|
|
|
3,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(20,707
|
)
|
|
|
(20,148
|
)
|
|
|
(31,474
|
)
|
|
|
(20,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
(0.47
|
)
|
|
|
(0.49
|
)
|
|
|
(0.76
|
)
|
|
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
3
|
.1(1)
|
|
Restated Certificate of Incorporation of the Company.
|
|
3
|
.2(2)
|
|
Amended and Restated Bylaws of the Company.
|
|
3
|
.3(3)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
|
3
|
.4(4)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation.
|
|
4
|
.1
|
|
Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
|
|
4
|
.2(1)
|
|
Specimen Stock Certificate.
|
|
10
|
.1(i)(5)*
|
|
Collaboration Agreement between Bayer Corporation (formerly
Miles, Inc.) and the Company dated April 22, 1994.
|
|
10
|
.1(ii)(5)*
|
|
Amendment to Collaboration Agreement between Bayer Corporation
and the Company dated April 24, 1996.
|
|
10
|
.1(iii)(5)*
|
|
Amendment to Collaboration Agreement between Bayer Corporation
and the Company dated February 1, 1999.
|
|
10
|
.2(i)(5)*
|
|
Amended and Restated Research, Development and Marketing
Collaboration Agreement dated May 2, 1995 between the
Company and Warner-Lambert Company.
|
|
10
|
.2(ii)(6)*
|
|
Research, Development and Marketing Collaboration Agreement
dated July 31, 1997 between the Company and Warner-Lambert
Company.
|
|
10
|
.2(iii)(6)*
|
|
Amendment to the Amended and Restated Research, Development and
Marketing Collaboration Agreement, dated December 15, 1997,
between the Company and Warner-Lambert Company.
|
|
10
|
.2(iv)(6)*
|
|
Second Amendment to the Amended and Restated Research,
Development and Marketing Agreement between Warner-Lambert and
the Company dated May 2, 1995.
|
|
10
|
.2(v)(6)*
|
|
Second Amendment to Research, Development and Marketing
Collaboration Agreement between Warner-Lambert and the Company
dated July 31, 1997.
|
|
10
|
.2(vi)(7)*
|
|
Amendment #3 to the Research, Development and Marketing
Collaboration Agreement between the Company and Warner-Lambert
dated August 6, 2001.
|
|
10
|
.2(vii)(8)*
|
|
Amendment #3 to the Amended and Restated Research, Development
and Marketing Collaboration Agreement between the Company and
Warner-Lambert dated August 6, 2001.
|
|
10
|
.3(9)*
|
|
Technology Transfer Agreement dated April 24, 1992 between
Chiron Corporation and the Company, as amended in the Chiron
Onyx HPV Addendum dated December 2, 1992, in the Amendment
dated February 1, 1994, in the Letter Agreement dated
May 20, 1994 and in the Letter Agreement dated
March 29, 1996.
|
|
10
|
.4(1)+
|
|
Letter Agreement between Dr. Gregory Giotta and the Company
dated May 26, 1995.
|
|
10
|
.5(1)+
|
|
1996 Equity Incentive Plan.
|
|
10
|
.6(1)+
|
|
1996 Non-Employee Directors Stock Option Plan.
|
|
10
|
.7(10)+
|
|
1996 Employee Stock Purchase Plan.
|
|
10
|
.8(1)+
|
|
Form of Indemnity Agreement to be signed by executive officers
and directors of the Company.
|
|
10
|
.9(11)+
|
|
Form of Executive Change in Control Severance Benefits Agreement.
|
|
10
|
.10(i)(12)*
|
|
Collaboration Agreement between the Company and Warner-Lambert
Company dated October 13, 1999.
|
|
10
|
.10(ii)(7)*
|
|
Amendment #1 to the Collaboration Agreement between the Company
and Warner-Lambert dated August 6, 2001.
|
|
10
|
.10(ii)(13)*
|
|
Second Amendment to the Collaboration Agreement between the
Company and Warner-Lambert Company dated September 16, 2002.
|
|
10
|
.11(14)
|
|
Stock and Warrant Purchase Agreement between the Company and the
investors dated May 6, 2002.
|
|
10
|
.12(i)(15)
|
|
Sublease between the Company and Siebel Systems dated
August 5, 2004.
|
|
10
|
.12(ii)(16)
|
|
First Amendment to Sublease between the Company and Oracle USA
Inc., dated November 3, 2006.
|
79
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
10
|
.13(i)(17)+
|
|
2005 Equity Incentive Plan.
|
|
10
|
.13(ii)(16)+
|
|
Form of Stock Option Agreement pursuant to the 2005 Equity
Incentive Plan.
|
|
10
|
.13(iii)(16)+
|
|
Form of Stock Option Agreement pursuant to the 2005 Equity
Incentive Plan and the Non-Discretionary Grant Program for
Directors.
|
|
10
|
.13(iv)(18)+
|
|
Form of Stock Bonus Award Grant Notice and Agreement between the
Company and certain award recipients.
|
|
10
|
.14(5)*
|
|
United States Co-Promotion Agreement by and between the Company
and Bayer Pharmaceuticals Corporation, dated March 6, 2006.
|
|
10
|
.15(19)+
|
|
Letter Agreement between Laura A. Brege and the Company, dated
May 19, 2006.
|
|
10
|
.16(18)+
|
|
Letter Agreement between Gregory W. Schafer and the Company,
dated July 7, 2006.
|
|
10
|
.17(20)
|
|
Common Stock Purchase Agreement between the Company and Azimuth
Opportunity Ltd., dated September 29, 2006.
|
|
10
|
.18(21)+
|
|
Retirement Agreement between the Company and Edward F. Kenney,
dated April 13, 2007.
|
|
10
|
.19(22)+
|
|
Bonuses for Fiscal Year 2007 and Base Salaries for Fiscal Year
2008 for Named Executive Officers.
|
|
10
|
.20(23)+
|
|
Employment Agreement between the Company and N. Anthony
Coles, M.D., dated as of February 22, 2008.
|
|
10
|
.21(23)+
|
|
Executive Change in Control Severance Benefits Agreement between
the Company and N. Anthony Coles, M.D., dated as of
February 22, 2008.
|
|
10
|
.22(23)+
|
|
Retirement Agreement between the Company and Hollings C. Renton,
dated as of February 22, 2008.
|
|
10
|
.23(24)+
|
|
Separation Agreement between the Company and Henry J.
Fuchs, M.D., dated December 1, 2008.
|
|
10
|
.24(i)(25)+
|
|
Separation and Consulting Agreement between the Company and
Gregory W. Schafer, dated June 23, 2008.
|
|
10
|
.24(ii)(2)+
|
|
Amendment to Separation and Consulting Agreement between the
Company and Gregory W. Schafer, dated December 5, 2008.
|
|
10
|
.25(2)+
|
|
Onyx Pharmaceuticals, Inc. Executive Severance Benefit Plan.
|
|
10
|
.26(26)+
|
|
Letter Agreement between the Company and Matthew K. Fust, dated
December 12, 2008.
|
|
10
|
.27**
|
|
Development and License Agreement between the Company and BTG
International Limited, dated as of November 6, 2008.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney. Reference is made to the signature page.
|
|
31
|
.1
|
|
Certification of Principal Executive Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a).
|
|
31
|
.2
|
|
Certification of Principal Financial Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a).
|
|
32
|
.1
|
|
Certifications required by
Rule 13a-14(b)
or
Rule 15d-14(b)and
Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. 1350).
|
|
|
|
*
|
|
Confidential treatment has been received for portions of this
document.
|
|
**
|
|
Confidential treatment has been sought for portions of this
document.
|
|
+
|
|
Indicates management contract or compensatory plan or
arrangement.
|
|
(1)
|
|
Filed as an exhibit to Onyxs Registration Statement on
Form SB-2
(No.
333-3176-LA).
|
|
(2)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 5, 2008.
|
|
(3)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2000.
|
|
(4)
|
|
Filed as an exhibit to the Companys Registration Statement
on
Form S-3
(No. 333-134565)
filed on May 30, 2006.
|
80
|
|
|
(5)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission.
|
|
(6)
|
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2002. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission.
|
|
(7)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2001.
|
|
(8)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission.
|
|
(9)
|
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2001. The redactions to
this agreement have been amended since its original filing in
accordance with a request for extension of confidential
treatment filed separately by the Company with the Securities
and Exchange Commission.
|
|
(10)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on May 25, 2007.
|
|
(11)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 10, 2008.
|
|
(12)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on March 1, 2000.
|
|
(13)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002.
|
|
(14)
|
|
Filed as an exhibit to Onyxs Registration Statement on
Form S-3
filed on June 5, 2002
(No. 333-89850).
|
|
(15)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004.
|
|
(16)
|
|
Filed as an exhibit to Onyxs Annual Report on
Form 10-K
for the year ended December 31, 2006.
|
|
(17)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on May 15, 2008
|
|
(18)
|
|
Filed as an exhibit to the registrants Current Report on
Form 8-K
filed on July 12, 2006.
|
|
(19)
|
|
Filed as an exhibit to the registrants Current Report on
Form 8-K
filed on June 12, 2006.
|
|
(20)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on September 29, 2006.
|
|
(21)
|
|
Filed as an exhibit to Onyxs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007.
|
|
(22)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on February 8, 2008.
|
|
(23)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on February 26, 2008.
|
|
(24)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 1, 2008.
|
|
(25)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on June 23, 2008.
|
|
(26)
|
|
Filed as an exhibit to Onyxs Current Report on
Form 8-K
filed on December 23, 2008.
|
81
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