Attached files
file | filename |
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EX-32.1 - EX-32.1 - ONYX PHARMACEUTICALS INC | f56654exv32w1.htm |
EX-31.1 - EX-31.1 - ONYX PHARMACEUTICALS INC | f56654exv31w1.htm |
EX-31.2 - EX-31.2 - ONYX PHARMACEUTICALS INC | f56654exv31w2.htm |
EX-10.31 - EX-10.31 - ONYX PHARMACEUTICALS INC | f56654exv10w31.htm |
EX-10.34 - EX-10.34 - ONYX PHARMACEUTICALS INC | f56654exv10w34.htm |
EX-10.32 - EX-10.32 - ONYX PHARMACEUTICALS INC | f56654exv10w32.htm |
EX-10.33 - EX-10.33 - ONYX PHARMACEUTICALS INC | f56654exv10w33.htm |
EX-10.35 - EX-10.35 - ONYX PHARMACEUTICALS INC | f56654exv10w35.htm |
EXCEL - IDEA: XBRL DOCUMENT - ONYX PHARMACEUTICALS INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-28298
ONYX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 94-3154463 | |
(State or other jurisdiction of | (I.R.S. Employer ID Number) | |
incorporation or organization) |
2100 Powell Street
Emeryville, California 94608
(Address of principal executive offices)
Emeryville, California 94608
(Address of principal executive offices)
(510) 597-6500
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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 proceeding 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
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):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller Reporting Company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date. The number of outstanding shares of the registrants common
stock, $0.001 par value, was 62,742,709 as of October 29, 2010.
INDEX
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6 | ||||||||
21 | ||||||||
28 | ||||||||
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31 | ||||||||
31 | ||||||||
31 | ||||||||
51 | ||||||||
51 | ||||||||
51 | ||||||||
51 | ||||||||
51 | ||||||||
54 | ||||||||
EX-10.31 | ||||||||
EX-10.32 | ||||||||
EX-10.33 | ||||||||
EX-10.34 | ||||||||
EX-10.35 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
2
Table of Contents
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | (Note 1) | |||||||
(In thousands) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 328,228 | $ | 107,668 | ||||
Marketable securities, current |
228,246 | 442,440 | ||||||
Restricted cash |
31,904 | 27,600 | ||||||
Receivable from collaboration partners |
46,917 | 51,418 | ||||||
Prepaid expenses and other current assets |
10,602 | 9,597 | ||||||
Total current assets |
645,897 | 638,723 | ||||||
Marketable securities, non-current |
31,555 | 37,174 | ||||||
Property and equipment, net |
6,190 | 7,473 | ||||||
Intangible assets in-process research and development |
438,800 | 438,800 | ||||||
Goodwill |
193,675 | 193,675 | ||||||
Other assets |
38,284 | 8,835 | ||||||
Total assets |
$ | 1,354,401 | $ | 1,324,680 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 956 | $ | 1,363 | ||||
Accrued liabilities |
11,514 | 11,852 | ||||||
Accrued clinical trials and related expenses |
11,430 | 13,815 | ||||||
Accrued compensation |
7,587 | 13,148 | ||||||
Liability for contingent consideration, current |
| 40,000 | ||||||
Escrow account liability |
31,627 | 27,600 | ||||||
Total current liabilities |
63,114 | 107,778 | ||||||
Convertible senior notes due 2016 |
150,340 | 143,669 | ||||||
Liability for contingent consideration, non-current |
261,635 | 160,528 | ||||||
Deferred tax liability |
157,090 | 157,090 | ||||||
Other liabilities |
16,537 | 5,059 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock |
62 | 62 | ||||||
Receivable from stock option exercises |
| (5 | ) | |||||
Additional paid-in capital |
1,229,196 | 1,207,010 | ||||||
Accumulated other comprehensive loss |
(1,298 | ) | (1,962 | ) | ||||
Accumulated deficit |
(522,275 | ) | (454,549 | ) | ||||
Total stockholders equity |
705,685 | 750,556 | ||||||
Total liabilities and stockholders equity |
$ | 1,354,401 | $ | 1,324,680 | ||||
See accompanying notes.
3
Table of Contents
ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
( In thousands, except per share amounts ) | ||||||||||||||||
Revenue: |
||||||||||||||||
Revenue from collaboration agreement |
$ | 63,696 | $ | 69,137 | $ | 195,372 | $ | 183,074 | ||||||||
License revenue |
59,165 | | 59,165 | | ||||||||||||
Total operating revenue |
122,861 | 69,137 | 254,537 | 183,074 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
44,568 | 35,635 | 131,394 | 92,478 | ||||||||||||
Selling, general and administrative |
25,924 | 23,440 | 77,293 | 68,899 | ||||||||||||
Contingent consideration |
5,622 | | 101,107 | | ||||||||||||
Total operating expenses |
76,114 | 59,075 | 309,794 | 161,377 | ||||||||||||
Income (loss) from operations |
46,747 | 10,062 | (55,257 | ) | 21,697 | |||||||||||
Investment income |
628 | 1,015 | 2,198 | 3,108 | ||||||||||||
Interest expense |
(4,943 | ) | (2,255 | ) | (14,467 | ) | (2,255 | ) | ||||||||
Other expense |
(862 | ) | | (862 | ) | | ||||||||||
Income (loss) before provision (benefit) for income taxes |
41,570 | 8,822 | (68,388 | ) | 22,550 | |||||||||||
Provision (benefit) for income taxes |
70 | 589 | (662 | ) | 878 | |||||||||||
Net income (loss) |
$ | 41,500 | $ | 8,233 | $ | (67,726 | ) | $ | 21,672 | |||||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ | 0.66 | $ | 0.14 | $ | (1.08 | ) | $ | 0.37 | |||||||
Diluted |
$ | 0.66 | $ | 0.14 | $ | (1.08 | ) | $ | 0.37 | |||||||
Shares used in computing net income (loss) per share: |
||||||||||||||||
Basic |
62,707 | 60,248 | 62,562 | 58,201 | ||||||||||||
Diluted |
62,849 | 60,624 | 62,562 | 58,511 | ||||||||||||
See accompanying notes.
4
Table of Contents
ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (67,726 | ) | $ | 21,672 | |||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||
Realized gains on sales of current marketable securities |
(90 | ) | | |||||
Depreciation and amortization |
2,050 | 1,145 | ||||||
Stock-based compensation |
16,915 | 16,206 | ||||||
Excess tax benefit from stock-based awards |
| (36 | ) | |||||
Amortization of convertible senior notes discount and debt issuance costs |
7,138 | 1,105 | ||||||
Changes in fair value of liability for contingent consideration, non-current |
101,107 | | ||||||
Deferred income taxes |
(11,860 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Restricted cash |
(304 | ) | | |||||
Receivable from collaboration partners |
4,501 | (15,608 | ) | |||||
Prepaid expenses and other current assets |
(1,005 | ) | 446 | |||||
Other assets |
(18,056 | ) | (19 | ) | ||||
Accounts payable |
(407 | ) | 1,254 | |||||
Accrued liabilities |
(338 | ) | 3,592 | |||||
Accrued clinical trials and related expenses |
(2,385 | ) | 717 | |||||
Accrued compensation |
(5,561 | ) | 654 | |||||
Escrow liability |
27 | | ||||||
Other liabilities |
11,478 | (277 | ) | |||||
Net cash provided by operating activities |
35,484 | 30,851 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of marketable securities |
(305,345 | ) | (525,272 | ) | ||||
Sales of marketable securities |
277,052 | 38,505 | ||||||
Maturities of marketable securities |
248,860 | 205,000 | ||||||
Capital expenditures |
(767 | ) | (906 | ) | ||||
Transfers to restricted cash |
(4,000 | ) | | |||||
Payment for liability for contingent consideration, current |
(36,000 | ) | | |||||
Net cash provided by (used in) investing activities |
179,800 | (282,673 | ) | |||||
Cash flows from financing activities: |
||||||||
Repurchases of common stock |
(78 | ) | (18 | ) | ||||
Payment to collaboration partner |
| (16,633 | ) | |||||
Net proceeds from issuances of common stock |
5,354 | 145,442 | ||||||
Proceeds from issuance of convertible senior notes |
| 230,000 | ||||||
Convertible senior notes debt issuance costs |
| (7,250 | ) | |||||
Excess tax benefit from stock-based awards |
| 36 | ||||||
Net cash provided by financing activities |
5,276 | 351,577 | ||||||
Net increase in cash and cash equivalents |
220,560 | 99,755 | ||||||
Cash and cash equivalents at beginning of period |
107,668 | 235,152 | ||||||
Cash and cash equivalents at end of period |
$ | 328,228 | $ | 334,907 | ||||
Supplemental cash flow data |
||||||||
Cash paid during the period for income taxes |
$ | 19 | $ | | ||||
Cash paid during the period for interest |
$ | 9,277 | $ | |
See accompanying notes.
5
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
(Unaudited)
September 30, 2010
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included. Operating results for the three
and nine months ended September 30, 2010 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010 or for any other future operating periods.
The condensed consolidated balance sheet at December 31, 2009 has been derived from the audited
financial statements at that date, but does not include all of the information and footnotes
required by GAAP for complete financial statements. For further information, refer to the financial
statements and footnotes thereto included in the Onyx Pharmaceuticals, Inc. (the Company or
Onyx) Annual Report on Form 10-K for the year ended December 31, 2009.
Significant Accounting Policies
Other than as discussed below, there have been no material changes to the Companys significant
accounting policies, as compared to the significant accounting policies described in the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
Multiple Element Arrangements
In October 2009, the FASB issued Accounting Standard Update No. 2009-13, Multiple Deliverable
Revenue Arrangements, or ASU 2009-13, to:
| provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; |
| require an entity to allocate revenue in an arrangement using the best estimated selling price (BESP) of deliverables if a vendor does not have vendor-specific objective evidence (VSOE) of selling price or third-party evidence (TPE) of selling price; and |
| eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
In the second quarter of 2010, the Company elected to early adopt this accounting guidance as of
January 1, 2010 on a prospective basis for applicable transactions originating or materially
modified after December 31, 2009. The new accounting standards for revenue recognition, if applied
in the same manner to the year ended December 31, 2009, would not have had a material impact on the
Companys financial statements. In terms of the timing and pattern of revenue recognition, the new
accounting guidance for revenue recognition had a significant effect on revenue in periods after
the initial adoption,
as the Company entered into a multiple element arrangement in
September 2010. Refer to Note 3 for further details.
The Company may
continue to
enter into multiple element arrangements, such as license and development
agreements, in which a customer may purchase several deliverables. For these multiple element
arrangements, the Company allocates revenue to
each non-contingent element based upon the relative selling price of each element. When applying the relative
selling price method, the Company determines the selling price for each deliverable using VSOE of
selling price or TPE of selling price, if either exists. If neither VSOE nor TPE of selling price
exist for a deliverable, the Company uses BESP for that deliverable. Revenue allocated to each
element is then recognized based on when the basic four revenue recognition criteria are met for
each element.
Foreign Currency Option Contracts
The Company has established a foreign currency hedging program to manage
the economic risk of its exposure to fluctuations in
foreign currency exchange rates from the Nexavar program. The Company hedges a certain portion of anticipated Nexavar cash flows
owed to the Company with options, typically no more than one year into the future. The underlying exposures, both revenue and
expenses, in the Nexavar program are denominated in currencies other than the U.S. Dollar, primarily the Euro and Japanese Yen. For
purposes of calculating the cash flows due to the Company each quarter, the foreign currencies are converted into U.S. dollars based
on average exchange rates for the reporting period. We do not enter into derivative financial contracts for speculative purposes.
6
Table of Contents
The Company accounts for derivative instruments as either assets or liabilities on the balance
sheet and measures them at fair value. Gains and losses resulting from changes in fair value are
accounted for depending on the use of the derivative and whether it is designated and qualifies for
hedge accounting. The Companys current derivative instruments are not designated as hedging
instruments under Accounting Standards Codification (ASC) 815 and are adjusted to fair value
through earnings. Refer to Note 5 for further information.
Note 2. Revenue from Collaboration Agreement
Nexavar is currently marketed and sold primarily in the United States, the European Union and other
territories worldwide for the treatment of unresectable liver cancer and advanced kidney cancer.
Nexavar also has regulatory applications pending in other territories internationally. The Company
co-promotes Nexavar in the United States with Bayer HealthCare Pharmaceuticals, 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 which Bayer has exclusive marketing rights and the
Company shares equally in the profits or losses, excluding Japan. In the United States, under the
terms of the 2006 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,
excluding 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 gross sales of Nexavar for their marketing infrastructure. Research and development
expenditures on a worldwide basis, excluding Japan, are shared equally 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. 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 bear 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 by
Bayer 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.
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-U.S.
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.
7
Table of Contents
Revenue from collaboration agreement was $63.7 million and $195.4 million for the three and nine
months ended September 30, 2010, respectively, compared to $69.1 million and $183.1 million for the
three and nine months ended September 30, 2009, respectively, calculated as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Onyxs share of collaboration commercial profit |
$ | 56,545 | $ | 61,732 | $ | 171,607 | $ | 162,781 | ||||||||
Reimbursement of Onyxs shared marketing expenses |
4,727 | 5,342 | 17,026 | 16,079 | ||||||||||||
Royalty revenue |
2,424 | 2,063 | 6,739 | 4,214 | ||||||||||||
Revenue from collaboration agreement |
$ | 63,696 | $ | 69,137 | $ | 195,372 | $ | 183,074 | ||||||||
Note 3. Agreement with Ono Pharmaceutical Co., Ltd.
In September 2010, the Company entered into an exclusive license agreement with Ono
Pharmaceutical Co., Ltd., or Ono, granting Ono the right to develop and commercialize both
carfilzomib and ONX 0912 for all oncology indications in Japan. The Company retains all development
and commercialization rights for other countries in the Asia Pacific region, as well as in all
other regions of the world, including the United States and Europe. The Company agreed to provide
Ono with development and commercial supply of carfilzomib and ONX 0912 on a cost-plus basis. Ono
agreed to pay the Company development and commercial milestone payments based on the achievement of
pre-specified criteria. In addition, Ono agreed to share a percentage of costs incurred by the
Company for the global development of carfilzomib and ONX 0912 that may support filings for
regulatory approval in Japan. Ono is responsible for all development costs in support of regulatory
filings in Japan as well as commercialization costs it incurs. If regulatory approval for
carfilzomib and/or ONX 0912 is achieved in Japan, Ono is obligated to pay the Company double-digit
royalties on net sales of the licensed compounds in Japan.
In accordance with ASU 2009-13, the Company identified the license and certain amounts of
development supply to be provided in 2011 as separate non-contingent deliverables under this
agreement. The Company determined that the delivered license has
stand-alone value based on Onos
internal product development capabilities. The Company identified the reimbursement of global
development costs by Ono, and the future development and commercial supply arrangements, subject to
future negotiation, as contingent deliverables. Contingent deliverables will be evaluated
separately as the related contingency is resolved. The Company allocated consideration relating to
non-contingent deliverables on the basis of their relative selling price, which is BESP because VSOE or
TPE are unavailable for these elements. The objective of BESP is to determine the price at which the
Company would transact a sale if the product were sold on a stand-alone basis. BESP for the license
is based on discounted future projected cash flows relating to the licensed territory. Revenue
allocated to the license of $59.2 million was recognized in September 2010 when all related
knowledge and data had been transferred. BESP for the development supply arrangement is based on an
estimated cost to produce supply plus a mark-up consistent with similar agreements. Revenue
allocated to the clinical material to be delivered in 2011 will be recognized upon delivery of the
bulk drug product to Ono.
A percentage of costs incurred by the Company for the global development of carfilzomib and ONX
0912 are required to be reimbursed by Ono at cost. Global development work is conducted by Onyx at
Onyxs discretion. These reimbursements will be recorded as a reduction of operating expenses by
the Company. For the three and nine months ended September 30, 2010, the reimbursement of global
development costs was $5.9 million, which reduced the Research and development expenses
line item in the Condensed Consolidated Statement of Operations. In addition, because the development
and commercial milestone payments are solely dependent on Onos performance and not on any performance
obligations of the Company, revenue from the milestone payments will be recognized as the milestones are
achieved. The milestone and global development support payments could total approximately $290.0
million at current exchange rates. If regulatory approval for carfilzomib and/or ONX 0912 is
achieved in Japan, royalty revenue to be received from Ono will be recognized by the Company based
upon the net sales of the products by Ono.
The agreement will terminate upon the expiration of the royalty terms specified for each product.
In addition, Ono may terminate this agreement for certain scientific or commercial reasons with
advance written notice, and either party may terminate this agreement for the other partys uncured
material breach or bankruptcy.
8
Table of Contents
Note 4. Acquisition of Proteolix
In November 2009, the Company acquired Proteolix Inc., or Proteolix, a privately-held
biopharmaceutical company located in South San Francisco, California. Proteolix focused primarily
on the discovery and development of novel therapies that target the proteasome for the treatment of
hematological malignancies, solid tumors and autoimmune disorders. Proteolixs lead compound,
carfilzomib, is a proteasome inhibitor currently in multiple clinical trials, including an advanced
Phase 2b clinical trial for patients with relapsed and refractory multiple myeloma. This
acquisition provided the Company with an opportunity to expand into the hematological malignancies
market.
Under the Agreement and Plan of Merger, the aggregate consideration payable by the Company to
former Proteolix stockholders at closing consisted of $276.0 million in cash, less $27.6 million
that is temporarily being held in an escrow account and will be released subject to terms described
below under Escrow Account Liability. In addition, the Company paid $40.0 million in April 2010
related to the achievement of a development milestone, less $4.0 million that is being
held in an escrow account and will be released subject to the terms described below under Escrow
Account Liability, and may be required to pay up to an additional $535.0 million in earn-out
payments as outlined below under Liability for Contingent Consideration.
Goodwill
The excess of the consideration transferred over the fair values assigned to the assets acquired
and liabilities assumed was $193.7 million, which represents the goodwill amount resulting from the
acquisition. None of the goodwill is expected to be deductible for income tax purposes. The Company
tests goodwill for impairment on an annual basis or sooner, if deemed necessary. As of September
30, 2010, there were no changes in the recognized amount of goodwill resulting from the acquisition
of Proteolix.
Liability for Contingent Consideration
The aggregate cash consideration to former Proteolix stockholders at closing was $276.0 million and
an additional $40.0 million earn-out payment was made in April 2010, 180 days after completion of
enrollment in an ongoing pivotal Phase 2b clinical study involving relapsed and refractory multiple
myeloma patients, known as the 003-A1 trial. The Company may also be required to pay up to an
additional $535.0 million in earn-out payments upon the receipt of certain regulatory approvals and
the satisfaction of other milestones. The remaining earn-out payments will become payable in up to
four additional installments, upon the achievement of regulatory approvals in the U.S. and Europe
within pre-specified timeframes for carfilzomib as follows:
| $170.0 million would be triggered by the achievement of accelerated marketing approval in the United States for relapsed/refractory multiple myeloma; | ||
| $65.0 million would be triggered by marketing approval in the European Union for relapsed/refractory multiple myeloma; | ||
| $150.0 million would be triggered by marketing approval in the United States for relapsed multiple myeloma; and | ||
| $150.0 million would be triggered by marketing approval for relapsed multiple myeloma in the European Union. |
The range of the undiscounted amounts the Company could be required to pay for the remaining
earn-out payments is between zero and $535.0 million. On the acquisition date, the fair value of
the liability for the contingent consideration recognized was $199.0 million, of which
$40.0 million related to the first milestone payment that was paid in full in April 2010 and the
remaining balance of $159.0 million was classified as a non-current liability in the Condensed
Consolidated Balance Sheet. The Company determined the fair value of the non-current liability for
the contingent consideration based on a probability-weighted discounted cash flow analysis. This
fair value measurement is based on significant inputs not observable in the market and thus
represents a Level 3 measurement within the fair value hierarchy. These inputs include the
probability of technical and regulatory success (PTRS) for unapproved product candidates
considering their stages of development. For the nine months ended September 30, 2010, the fair
value of the non-current liability for contingent consideration increased by $101.1 million, of
which $88.5 million was due to an increase in the PTRS and $12.6 million was due to the passage of
time. In June 2010, positive data was presented for the 006 carfilzomib trial, a Phase 1b
multicenter dose escalation study of carfilzomib plus lenalidomide and low-dose dexamethasone in
relapsed and refractory multiple myeloma patients. In July 2010, positive data was also presented
for the 003-A1 carfilzomib trial, an open label, single-arm Phase 2b study of single-agent
carfilzomib in relapsed and refractory multiple myeloma patients. The data from the 006 and 003-A1
trials positively impacted the PTRS.
9
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Escrow Account Liability
In accordance with the Agreement and Plan of Merger for the Proteolix acquisition, 10% of each of
the total cash consideration payment in November 2009 and the first earn-out payment made to former Proteolix
stockholders in April 2010 was placed in an escrow account and will be held until December 31, 2010 to secure the
indemnification rights of the Company and other indemnitees with respect to certain matters,
including breaches of representations, warranties and covenants of Proteolix. The escrow account is
reported as restricted cash on the accompanying Condensed Consolidated Balance Sheets at December
31, 2009 and September 30, 2010.
Note 5. Derivative Instruments
The Company has established a foreign currency hedging program to manage the economic risk of its
exposure to fluctuations in foreign currency exchange rates from the Nexavar program. The Company
hedges a certain portion of anticipated Nexavar cash flows owed to the Company with options,
typically no more than one year into the future. The underlying exposures, both revenue and
expenses, in the Nexavar program are denominated in currencies other than the U.S. Dollar,
primarily the Euro and Japanese Yen. For purposes of calculating the cash flows due to the Company
each quarter, the foreign currencies are converted into U.S. dollars based on average exchange
rates for the reporting period. We do not enter into derivative financial contracts for
speculative purposes.
The Company has not designated these foreign currency option contracts as hedging instruments under
ASC 815. The fair values of these foreign currency derivatives are estimated as described in Note
6, taking into consideration current market rates and the current creditworthiness of the
counterparties or the Company, as applicable. The changes in fair value of these foreign currency
derivatives are included in Other expense in the Condensed Consolidated Statements of Operations.
At September 30, 2010, the Company had three outstanding foreign currency option contracts with
maturity dates of December 31, 2010 ranging in U.S. dollar notional amounts from 3.8 million to 8.8
million.
At September 30, 2010, the fair value carrying amount of the Companys derivative instruments
were recorded as follows:
Asset Derivatives | Liability Derivatives | |||||||||||||||
September 30, 2010 | September 30, 2010 | |||||||||||||||
Balance Sheet | Balance Sheet | |||||||||||||||
Location | Fair Value | Location | Fair Value | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Derivatives not designated as
hedging instruments |
||||||||||||||||
Foreign currency option contracts |
Other current assets | $ | 6 | Accrued liabilities |
$ | 440 | ||||||||||
Total |
$ | 6 | $ | 440 | ||||||||||||
The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2010 was as follows:
Foreign Currency Option Contracts | ||||
Three and Nine Months Ended | ||||
September 30, 2010 | ||||
(In thousands) | ||||
Derivatives not designated as hedging instruments |
||||
Net loss recognized in net income (loss) (1) |
$ | (862 | ) |
(1) | Classified in Other expense on the Condensed Consolidated Statement of Operations |
The Company is exposed to counterparty credit risk on all of its derivative financial
instruments. The Company has established and maintained strict counterparty credit guidelines and
enters into derivative instruments only with financial institutions that are investment grade or
better to minimize the Companys exposure to potential defaults. The Company does not generally
require collateral to be pledged under these agreements. Refer to Note 6 for further information.
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Note 6. Fair Value Measurements
In accordance with ASC 820-10, the Company measures certain assets and liabilities at fair value on
a recurring basis using the three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. The three tiers include:
| Level 1, defined as observable inputs such as quoted prices for identical assets in active markets; | ||
| Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and | ||
| Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring management to develop its own assumptions based on best estimates of what market participants would use in pricing an asset or liability at the reporting date. |
The Companys fair value hierarchies for its financial assets and liabilities (cash equivalents,
current and non-current marketable securities,
derivative instruments,
convertible senior notes and current and non-current
liabilities for contingent consideration), which require fair value measurement on a recurring
basis are as follows:
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As of September 30, 2010 | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
As reflected on the | ||||||||||||||||||||
unaudited balance | ||||||||||||||||||||
sheet | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Assets: |
||||||||||||||||||||
Money market funds |
$ | 21,649 | $ | 21,649 | $ | | $ | | $ | 21,649 | ||||||||||
Corporate and financial institutions debt |
143,116 | | 143,116 | | 143,116 | |||||||||||||||
Auction rate securities |
31,855 | | 300 | 31,555 | 31,855 | |||||||||||||||
U.S. government agencies |
89,831 | | 89,831 | | 89,831 | |||||||||||||||
U.S. treasury bills |
37,991 | 37,991 | | | 37,991 | |||||||||||||||
Municipal bonds |
5,800 | | 5,800 | | 5,800 | |||||||||||||||
Foreign currency option contracts |
6 | | 6 | | 6 | |||||||||||||||
Total |
$ | 330,248 | $ | 59,640 | $ | 239,053 | $ | 31,555 | $ | 330,248 | ||||||||||
Liabilities: |
||||||||||||||||||||
Liability for contingent consideration, non-current |
$ | 261,635 | $ | | $ | | $ | 261,635 | $ | 261,635 | ||||||||||
Convertible senior notes due 2016 (face value $230,000) |
150,340 | | 238,004 | | 238,004 | |||||||||||||||
Foreign currency option contracts |
440 | | 440 | | 440 | |||||||||||||||
Total |
$ | 412,415 | $ | | $ | 238,444 | $ | 261,635 | $ | 500,079 | ||||||||||
As of December 31, 2009 | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
As reflected on the | ||||||||||||||||||||
accompanying | ||||||||||||||||||||
balance sheet | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Assets: |
||||||||||||||||||||
Money market funds |
$ | 83,115 | $ | 83,115 | $ | | $ | | $ | 83,115 | ||||||||||
Corporate and financial institutions debt |
110,644 | | 110,644 | | 110,644 | |||||||||||||||
Auction rate securities |
37,274 | | 100 | 37,174 | 37,274 | |||||||||||||||
U.S. government agencies |
168,692 | | 168,692 | | 168,692 | |||||||||||||||
U.S. treasury bills |
183,090 | 183,090 | | | 183,090 | |||||||||||||||
Total |
$ | 582,815 | $ | 266,205 | $ | 279,436 | $ | 37,174 | $ | 582,815 | ||||||||||
Liabilities: |
||||||||||||||||||||
Liability for contingent consideration, current and non-current |
$ | 200,528 | $ | | $ | | $ | 200,528 | $ | 200,528 | ||||||||||
Convertible senior notes due 2016 (face value $230,000) |
143,669 | | 242,098 | | 242,098 | |||||||||||||||
Total |
$ | 344,197 | $ | | $ | 242,098 | $ | 200,528 | $ | 442,626 | ||||||||||
Marketable Securities
Level 2 assets consist of debt securities issued by corporate and financial institutions and U.S.
government and municipal agencies. The fair value of these securities is estimated using a weighted
average price based on market prices from a variety of industry standard data providers, security
master files from large financial institutions and other third-party sources.
Level 3 assets include 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 September 30, 2010, the fair value of each of these securities is
estimated utilizing a discounted cash flow analysis that is based on a specific term and liquidity
assumptions. The following table provides a summary of changes in fair value of the auction rate
securities:
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Auction Rate Securities | ||||||||
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Fair value at beginning of period |
$ | 37,174 | $ | 39,622 | ||||
Redemptions |
(5,900 | ) | (5,450 | ) | ||||
Transfer to Level 2 |
(300 | ) | (100 | ) | ||||
Change in valuation |
581 | 4,338 | ||||||
Fair value at end of period |
$ | 31,555 | $ | 38,410 | ||||
Transfers of auction rate securities from Level 3 to Level 2 are recognized when the Company
becomes aware of actual redemptions of such securities. 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 $1.5 million
included in the accumulated other comprehensive income (loss) line of stockholders equity. All of
the auction rate securities held by the Company at September 30, 2010 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 auction rate 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.
Foreign Currency Option Contracts
Level 2 assets and liabilities include foreign currency option contracts, which are reflected at
fair value. The Company
has established a
foreign currency hedging program to manage the economic risk of its exposure
to fluctuations in foreign currency exchange rates from the Nexavar program. Refer to Note 5 for
further information.
The Company has elected to use the income approach to value the derivatives, using observable Level
2 market expectations at the measurement date and standard valuation techniques to convert future
amounts to a single present amount assuming that participants are motivated, but not compelled to
transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets or
liabilities in active markets and inputs other than quoted prices that are observable for the asset
or liability (specifically LIBOR cash, credit risk at commonly quoted intervals, spot and forward
rates). Mid-market pricing is used as a practical expedient for fair value measurements. ASC 820
states that the fair value measurement of an asset or liability must reflect the non-performance
risk of the entity and the counterparty. Therefore, the impact of the counterpartys
creditworthiness, when in an asset position, and the Companys creditworthiness, when in a
liability position, has also been factored into the fair value measurement of the derivative
instruments and did not have a material impact on the fair value of these derivative instruments.
Both the counterparty and the Company are expected to continue to perform under the contractual
terms of the instruments.
Liability for Contingent Consideration
Level 3 liabilities include the acquisition-related non-current liability for contingent
consideration the Company recorded representing the amounts payable to former Proteolix
stockholders upon the achievement of specified regulatory approvals within pre-specified timeframes
for carfilzomib. The fair value of this Level 3 liability is estimated using a probability-weighted
discounted cash flow analysis. Subsequent changes in the fair value of this liability are recorded
to the Contingent consideration expense line item in the Condensed Consolidated Statements of
Operations under operating expenses. For the nine months ended September 30, 2010, the recognized
amount of the non-current liability for contingent consideration increased by $101.1 million as the
result of the change in a significant input in the discounted cash flow analysis used to calculate
the fair value of the non-current liability and the passage of time. Refer to Liability for
Contingent Consideration in Note 4 for further details. The following table provides a summary of
the changes in the fair value of the non-current liability for contingent consideration:
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Liability for Contingent Consideration | ||||
September 30, 2010 | ||||
(In thousands) | ||||
Fair value at beginning of period |
$ | 200,528 | ||
Payments |
(40,000 | ) | ||
Change in valuation |
101,107 | |||
Fair value at end of period |
$ | 261,635 | ||
Transfers of these liabilities between Levels are recognized when the Company becomes aware of
changes in the circumstances causing the transfer. In April 2010, the Company paid $40.0 million
related to the achievement of a development milestone. Refer to Liability for Contingent
Consideration in Note 4 for further details.
Convertible Senior Notes due 2016
Level 2 liabilities consist of the Companys convertible senior notes due 2016. The fair value of
these convertible senior notes is estimated by computing the fair value of a similar liability
without the conversion option. Refer to Note 9 for further details on the fair value. In accordance
with ASC 825-10, the estimated market value of the Companys convertible senior notes as of
September 30, 2010 was $238.0 million. The Companys convertible senior notes are not
marked-to-market and are shown at their original issuance value net of the amortized discount and
the portion of the value allocated to the conversion option is included in stockholders equity in
the accompanying unaudited Condensed Consolidated Balance Sheet at September 30, 2010.
Note 7. Marketable Securities
Marketable securities consist of securities that are classified as available for sale. Such
securities are reported at fair value, with unrealized gains and losses excluded from earnings and
shown separately as a component of accumulated other comprehensive income (loss) within
stockholders equity. The cost of a security sold or the amount reclassified out of accumulated
other comprehensive income (loss) into earnings is determined using specific identification. The
Company may pay a premium or receive a discount upon the purchase of marketable securities.
Interest earned and gains realized on marketable securities and amortization of discounts received
and accretion of premiums paid on the purchase of marketable securities are included in investment
income. The weighted-average maturity of the Companys current marketable securities as of
September 30, 2010 was approximately four months.
Available-for-sale marketable securities consisted of the following:
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September 30, 2010 | ||||||||||||||||
Adjusted | Unrealized | Unrealized | Estimated | |||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Agency bond investments: |
||||||||||||||||
Current |
$ | 97,814 | $ | 21 | $ | (6 | ) | $ | 97,829 | |||||||
Total agency bond investments |
97,814 | 21 | (6 | ) | 97,829 | |||||||||||
Corporate debt investments: |
||||||||||||||||
Current |
130,184 | 252 | (19 | ) | 130,417 | |||||||||||
Non-current |
33,100 | | (1,545 | ) | 31,555 | |||||||||||
Total corporate investments |
163,284 | 252 | (1,564 | ) | 161,972 | |||||||||||
Total available-for-sale marketable securities |
$ | 261,098 | $ | 273 | $ | (1,570 | ) | $ | 259,801 | |||||||
December 31, 2009 | ||||||||||||||||
Adjusted | Unrealized | Unrealized | Estimated | |||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Agency bond investments: |
||||||||||||||||
Current |
$ | 349,254 | $ | 162 | $ | (156 | ) | $ | 349,260 | |||||||
Total agency bond investments |
349,254 | 162 | (156 | ) | 349,260 | |||||||||||
Corporate debt investments: |
||||||||||||||||
Current |
93,119 | 92 | (31 | ) | 93,180 | |||||||||||
Non-current |
39,200 | | (2,026 | ) | 37,174 | |||||||||||
Total corporate investments |
132,319 | 92 | (2,057 | ) | 130,354 | |||||||||||
Total available-for-sale marketable securities |
$ | 481,573 | $ | 254 | $ | (2,213 | ) | $ | 479,614 | |||||||
The Companys investment portfolio includes $33.4 million of AAA rated auction rate securities that
are collateralized by student loans. Since February 2008, these types of securities have
experienced failures in the auction process. However, a limited number of these securities have
been redeemed at par by the issuing agencies. 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. Due to the failures in the auction
process, these securities are not currently liquid. Of the $33.4 million of par value auction rate
securities, $0.3 million of securities were redeemed at par in October 2010. Therefore, the Company
has classified a portion of the auction rate securities with a fair value of $0.3 million, based on
the amount redeemed in October 2010, as current marketable securities and the remaining auction
rate securities with an estimated fair value of $31.6 million, based on a discounted cash flow
model, as non-current marketable securities on the accompanying unaudited Condensed Consolidated
Balance Sheet at September 30, 2010. The Company has reduced the carrying value of the marketable
securities classified as non-current by $1.5 million through accumulated other comprehensive income
or loss instead of earnings because the Company has deemed the impairment of these securities to be
temporary.
Note 8. Other Long-Term Assets
In December 2008, the Company entered into a development collaboration, option and license
agreement with S*BIO Pte Ltd, or S*BIO. Under the terms of the agreement, in December 2008 the
Company made a $25.0 million payment to S*BIO, of which the Company expensed $20.7 million as an
up-front payment and recognized the remaining amount of $4.3 million as an equity investment. As a
result, the accompanying unaudited Condensed Consolidated Balance Sheet at September 30, 2010
includes $4.3 million for this long-term private equity investment in other long-term assets. This
equity investment is accounted for using the cost method of accounting. At September 30, 2010,
there has been no impairment of the carrying value of the Companys investment and there have been
no events or changes in circumstances identified by the Company that would adversely impact the
fair value of this investment.
In May 2010, the Company announced the expansion of its development collaboration, option and
license agreement with S*BIO related to its novel JAK inhibitors, ONX 0803 and ONX 0805. The
expanded agreement builds upon the development and commercialization collaboration between the two
companies announced in January 2009. The Company provided an additional $20.0
15
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million in funding to
S*BIO to broaden and accelerate the existing development program for both compounds. S*BIO agreed
to utilize the funding to continue to perform the clinical development of ONX 0803 and preclinical
through clinical development of ONX 0805. The Company capitalized the $20.0 million as prepaid
research and development expense and is amortizing a portion of this amount as research and
development expense each period based on the actual expenses incurred by S*BIO for the development
of ONX 0803 and ONX 0805.
The development collaboration, option and licensing agreement with S*BIO will remain in effect
until the expiration of all payment obligations. Because the Company has not exercised its option
in the agreement, the Company may terminate the agreement at any time without cause by giving S*BIO
prior written notice. In addition, either party may terminate the agreement for the uncured
material breach of the other party.
In June 2009, the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards No. 167, or
SFAS 167, Amendments to FASB Interpretation No. 46(R), which amends the consolidation guidance
applicable to variable interest entities. This statement was effective for the Company as of
January 1, 2010 and has currently not been codified in the ASC. The adoption of SFAS 167 did not
have any impact on the Companys financial statements.
Note 9. Convertible Senior Notes due 2016
In August 2009, the Company issued, through an underwritten public offering, $230.0 million
aggregate principal amount of 4.0% convertible senior notes due 2016 (the 2016 Notes). The 2016
Notes will mature on August 15, 2016 unless earlier redeemed or repurchased by the Company or
converted. The 2016 Notes bear interest at a rate of 4.0% per year, payable semi-annually in
arrears on February 15 and August 15 of each year, commencing on February 15, 2010.
The 2016 Notes are general unsecured senior obligations of the Company and rank equally in right of
payment with all of the Companys future senior unsecured indebtedness, if any, and senior in right
of payment to our future subordinated debt, if any.
The 2016 Notes will be convertible, under certain circumstances and during certain periods, at an
initial conversion rate of 25.2207 shares of common stock per $1,000 principal amount of the 2016
Notes, which is equivalent to an initial conversion price of approximately $39.65 per share of
common stock. The conversion rate is subject to adjustment in certain circumstances. Upon
conversion of a 2016 Note, the Company will deliver, at its election, shares of common stock, cash
or a combination of cash and shares of common stock.
Upon the occurrence of certain fundamental changes involving the Company, holders of the 2016 Notes
may require the Company to repurchase all or a portion of their 2016 Notes for cash at a price
equal to 100% of the principal amount of the 2016 Notes to be purchased, plus accrued and unpaid
interest to, but excluding, the fundamental change repurchase date.
Beginning August 20, 2013, the Company may redeem all or part of the outstanding 2016 Notes,
provided that the last reported sale price of the common stock for 20 or more trading days in a
period of 30 consecutive trading days ending on the trading day prior to the date the Company
provides the notice of redemption to holders of the 2016 Notes exceeds 130% of the conversion price
in effect on each such trading day. The redemption price will equal 100% of the principal amount of
the 2016 Notes to be redeemed, plus all accrued and unpaid interest, plus a make-whole premium
payment. The Company must make the make-whole premium payments on all 2016 Notes called for
redemption prior to August 15, 2016, including the 2016 Notes converted after the date the Company
delivered the notice of redemption.
The 2016 Notes are accounted for in accordance with ASC 470-20. Under ASC 470-20 issuers of certain
convertible debt instruments that have a net settlement feature and may be settled in cash upon
conversion, including partial cash settlement, are required to separately account for the liability
(debt) and equity (conversion option) components of the instrument. The carrying amount of the
liability component of any outstanding debt instrument is computed by estimating the fair value of
a similar liability without the conversion option. The amount of the equity component is then
calculated by deducting the fair value of the liability component from the principal amount of the
convertible debt instrument.
The following is a summary of the principal amount of the liability component of the 2016 Notes,
its unamortized discount and its net carrying amount as of September 30, 2010:
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September 30, 2010 | ||||||||||||
Long-term | Principal | Discount | Net Carrying Value | |||||||||
(In thousands) | ||||||||||||
2016 Notes 4.00% |
$ | 230,000 | $ | (79,660 | ) | $ | 150,340 |
The effective interest rate used in determining the liability component of the 2016 Notes was
12.5%. The application of ASC 470-20 resulted in an initial recognition of $89.5 million as the
debt discount with a corresponding increase to paid-in capital, the equity component, for the 2016
Notes. The debt discount and debt issuance costs are amortized as interest expense through
August 2016. The cash interest expense for the three and nine months ended September 30, 2010 for
the 2016 Notes was $2.4 million and $7.0 million, respectively, relating to the 4.0% stated coupon
rate. The non-cash interest expense relating to the amortization of the debt discount for the 2016
Notes for the three and nine months ended September 30, 2010 was $2.3 million and $6.7 million,
respectively.
Note 10. Stock-Based Compensation
The Company accounts for stock-based compensation to employees and directors by estimating the fair
value of stock-based awards using the Black-Scholes option-pricing model and amortizing the fair
value of the stock-based awards granted over the applicable vesting period. Total employee
stock-based compensation expense was $5.9 million and $16.6 million for the three and nine months
ended September 30, 2010, respectively, and $5.0 million and $14.9 million for the three and nine
months ended September 30, 2009, respectively.
Valuation Assumptions
As of September 30, 2010 and 2009, the weighted-average assumptions used in the Black-Scholes
option-pricing model to estimate the fair value of employee stock-based awards and employee stock
purchases made under the Employee Stock Purchase Plan were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Stock Options: |
||||||||||||||||
Risk-free interest rate |
1.55 | % | 2.51 | % | 2.16 | % | 1.89 | % | ||||||||
Expected life |
4.4 years | 4.3 years | 4.4 years | 4.3 years | ||||||||||||
Expected volatility |
58 | % | 58 | % | 55 | % | 65 | % | ||||||||
Expected dividends |
None | None | None | None | ||||||||||||
Weighted-average option fair value |
$ | 12.21 | $ | 15.41 | $ | 13.12 | $ | 15.34 | ||||||||
Stock Awards: |
||||||||||||||||
Expected life |
3 years | 3 years | 3 years | 3 years | ||||||||||||
Expected dividends |
None | None | None | None | ||||||||||||
Weighted-average fair value per share |
$ | 26.38 | $ | 32.07 | $ | 29.92 | $ | 29.05 | ||||||||
ESPP: |
||||||||||||||||
Risk-free interest rate |
0.19 | % | 0.31 | % | 0.18 | % | 0.29 | % | ||||||||
Expected life |
6 months | 6 months | 6 months | 6 months | ||||||||||||
Expected volatility |
45 | % | 56 | % | 46 | % | 60 | % | ||||||||
Expected dividends |
None | None | None | None | ||||||||||||
Weighted-average shares fair value |
$ | 5.24 | $ | 8.16 | $ | 6.25 | $ | 9.16 |
17
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Note 11. Income Taxes
The Company calculates its quarterly income tax provision in accordance with ASC 740-270, Income
Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse. The Company has established
and continues to maintain a valuation allowance against the majority of its deferred tax assets as the
Company does not currently believe that realization of those assets is more likely than not.
For the three months ended September 30, 2010, the Company recorded an income tax expense of $70,000
primarily related to state income taxes. For the nine months ended September 30, 2010, the Company
recorded an income tax benefit of $662,000 principally related to its election to carryback net operating
losses under the recently enacted Worker, Homeownership and Business Association Act of 2009. The
election enabled the Company to eliminate all federal Alternative Minimum Taxes (AMT)
previously recorded in 2009. For the three months ended September 30, 2009, the Company calculated its
income tax provision on a year-to-date basis instead of estimating its annual effective tax rate. Therefore,
for the three and nine months ended September 30, 2009, the Company recorded a provision for income
taxes of $589,000 and $878,000, respectively.
During the three and nine months ended September 30, 2010, the Company recorded a net increase of
$11.9 million in gross unrecognized tax benefits. If the company continues to maintain a full valuation
allowance on its deferred tax assets, the unrecognized tax benefits will not affect the Companys effective
tax rate if they are recognized upon favorable resolution of the uncertain tax positions. No interest or
penalties have been recorded for the three and nine months ended September 30, 2010.
The Company does not expect to have any significant changes to unrecognized tax benefits over the next
twelve months. The tax years from 1993 and forward remain open to examination by the federal and state
taxing 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 12. Net Income (Loss) per Share
Basic net income (loss) per share amounts for each period presented were computed by dividing net
income (loss) by the weighted-average number of shares of common stock outstanding. Diluted net
income (loss) per share for each period presented was computed by dividing net income (loss) plus
interest on dilutive convertible senior notes by the weighted-average number of shares of common
stock outstanding during each period plus all additional common shares that would have been
outstanding assuming dilutive potential common shares had been issued for dilutive convertible
senior notes and other dilutive securities.
Dilutive potential common shares for dilutive convertible senior notes are calculated based on the
if-converted method. Under the if-converted method, when computing the dilutive effect of
convertible senior notes, the numerator is adjusted to add back the amount of interest and debt
issuance costs recognized in the period and the denominator is adjusted to add the amount of shares
that would be issued if the entire obligation is settled in shares. As of September 30, 2010, the
Companys outstanding indebtedness consisted of its 4.0% convertible senior notes due 2016.
Dilutive potential common shares also include the dilutive effect of the common stock underlying
in-the-money stock options and are calculated based on the average share price for each period
using the treasury stock method. Under the treasury stock method, the exercise price of an option,
the average amount of compensation cost, if any, for future service that the Company has not yet
recognized when the option is exercised, are assumed to be used to repurchase shares in the current
period.
The computations for basic and diluted net income (loss) per share were as follows:
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) basic |
$ | 41,500 | $ | 8,233 | $ | (67,726 | ) | $ | 21,672 | |||||||
Add: interest and issuance costs related to convertible senior notes |
| | | | ||||||||||||
Net income (loss) diluted |
$ | 41,500 | $ | 8,233 | $ | (67,726 | ) | $ | 21,672 | |||||||
Denominator: |
||||||||||||||||
Weighted average common shares outstanding basic |
62,707 | 60,248 | 62,562 | 58,201 | ||||||||||||
Dilutive effect of convertible senior notes |
| | | | ||||||||||||
Dilutive effect of options |
142 | 376 | | 310 | ||||||||||||
Weighted-average common shares outstanding and dilutive potential
common shares diluted |
62,849 | 60,624 | 62,562 | 58,511 | ||||||||||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ | 0.66 | $ | 0.14 | $ | (1.08 | ) | $ | 0.37 | |||||||
Diluted |
$ | 0.66 | $ | 0.14 | $ | (1.08 | ) | $ | 0.37 | |||||||
Under the if-converted method, 5.8 million potential common shares relating to the 2016 Notes
were not included in diluted net income (loss) per share for the three and nine months ended
September 30, 2010 and the three and nine months ended September 30, 2009 because their effect
would be anti-dilutive. Diluted net income (loss) per share does not include the effect of 5.5
million and 5.2 million stock-based awards that were outstanding during the three and nine months
ended September 30, 2010, respectively, and 3.3 million and 3.9 million stock-based awards that
were outstanding during the three and nine months ended September 30, 2009, respectively, because
their effect would have been anti-dilutive.
The table below sets the potential common shares related to convertible notes and equity plans and
the interest expense related to the convertible notes not included in dilutive shares because their
effect would be anti-dilutive.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Potential common shares 2016 Notes |
5,801 | 5,801 | 5,801 | 5,801 | ||||||||||||
Potential common shares equity plans |
5,487 | 3,312 | 5,189 | 3,897 | ||||||||||||
2016 Notes interest and issuance expense
not added back under the if-converted
method |
$ | (4,824 | ) | $ | (2,255 | ) | $ | (14,115 | ) | $ | (2,255 | ) |
Note 13. Comprehensive Income (Loss)
Comprehensive income (loss) is composed 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 and reported separately
in stockholders equity. Comprehensive income and its components are as follows:
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Net income (loss) |
$ | 41,500 | $ | 8,233 | $ | (67,726 | ) | $ | 21,672 | |||||||
Other comprehensive income (loss): |
| |||||||||||||||
Change in unrealized gain (loss) on available-for-sale securities |
794 | 557 | 664 | 3,512 | ||||||||||||
Comprehensive income (loss) |
$ | 42,294 | $ | 8,790 | $ | (67,062 | ) | $ | 25,184 | |||||||
The activities in other comprehensive income (loss) are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Increase (decrease) in unrealized gain (loss) on available-for-sale securities |
$ | 760 | $ | 557 | $ | 574 | $ | 3,512 | ||||||||
Reclassification adjustment for net gains on available-for-sale securities included in net income (loss) |
34 | | 90 | | ||||||||||||
Change in unrealized gain (loss) on available-for-sale securities |
$ | 794 | $ | 557 | $ | 664 | $ | 3,512 | ||||||||
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Item 2. 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 Form 10-Q 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 Form 10-Q. Our actual
results could differ materially from those anticipated in these forward-looking statements for many
reasons, including those set forth under Item 1A Risk Factors in this Quarterly Report on Form
10-Q.
Overview
Changing the way cancer is treated®
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, and 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, or Bayer, is approved by the United States Food and
Drug Administration, or FDA, for the treatment of patients with unresectable liver cancer and
advanced kidney 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
unresectable liver cancer. Nexavar is now approved in more than 90 countries for the treatment of
unresectable liver cancer and advanced kidney cancer. We and Bayer are also conducting clinical
trials of Nexavar in several important cancer types in addition to advanced kidney cancer and
unresectable liver cancer, including lung, breast, thyroid, ovarian and colon cancers.
We and Bayer are commercializing Nexavar, for the treatment of patients with unresectable liver
cancer and advanced kidney 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. For the nine months ended September 30, 2010, worldwide net sales of
Nexavar as recorded by Bayer were $676.7 million.
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 unresectable liver cancer and advanced kidney 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 also investigating the
administration of Nexavar with previously approved and investigational anticancer therapies in many
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 receive a royalty on any
sales.
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, or if a single entity other than Bayer or its affiliate
acquires ownership of a majority of our outstanding voting stock, 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 and convert our profit sharing interest under that agreement into a royalty based
on any sales of Nexavar and other collaboration products. However, the royalty formula used will depend on the
timing of any such transaction. In particular, the application of the royalty formula to transactions that close on or
before December 20, 2010, the fifth anniversary of the initial
regulatory approval of Nexavar, could substantially
reduce the economic value derived from the sales of Nexavar to us or our successor as compared to the economic
value of the profit share interest we would receive absent such an acquisition transaction. However, in the event of
an acquisition transaction that closes on or after December 20, 2010, we believe the economic value of a royalty
amount, which would depend in part on the expected profitability of Nexavar for the remaining patent life of
Nexavar, should be substantially equivalent to the economic value of the profit share interest for Nexavar during
the remaining patent life absent such an acquisition transaction.
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In November 2009, we made a significant move towards achieving our goal in becoming a multi-product
portfolio company by acquiring Proteolix, Inc., or Proteolix, a privately-held biopharmaceutical
company located in South San Francisco, California. Proteolix focused primarily on the discovery
and development of novel therapies that target the proteasome for the treatment of hematological
malignancies, solid tumors and autoimmune disorders. This acquisition, which included carfilzomib,
has provided us with an opportunity to expand into the hematological malignancies market. The
aggregate cash consideration to former Proteolix stockholders at closing was $276.0 million with
another $40.0 million paid in April 2010 upon the achievement of a pre-specified milestone. In
addition, we may be required to pay up to an additional $535.0 million in earn-out payments upon
the receipt of certain regulatory approvals and the satisfaction of other milestones.
In September 2010, we entered into an exclusive license agreement with Ono Pharmaceutical Co.,
Ltd., or Ono, granting Ono the right to develop and commercialize both carfilzomib and ONX 0912 for
all oncology indications in Japan. We retain development and commercialization rights for all other
countries. We agreed to provide Ono with development and commercial supply of carfilzomib and ONX
0912 on a cost-plus basis. Ono agreed to pay us development and commercial milestone payments based on
the achievement of pre-specified criteria. In addition, Ono agreed to share a percentage of costs
incurred by us for the global development of carfilzomib and ONX 0912 that may support filings for
regulatory approval in Japan. The milestone and development support payments could total
approximately $290.0 million at current exchange rates. Ono is responsible for all development costs in support of regulatory filings in Japan as well as
commercialization costs it incurs. If regulatory approval for carfilzomib and/or ONX 0912 is
achieved in Japan, Ono is obligated to pay us double-digit royalties on net sales of the licensed
compounds in Japan.
We have also 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 clinical 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, or JAK, inhibitors, from S*BIO Pte Ltd, or S*BIO, a Singapore-based company.
The activation of JAK stimulates blood cell production and the JAK 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. For
the nine months ended September 30, 2010, we reported a net loss of $67.7 million. With the
exception of the years ended December 31, 2009 and 2008, we have incurred annual net losses since
our inception. Our ability to achieve 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 carfilzomib and other 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 September 30, 2010, our accumulated deficit was
approximately $522.3 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 Quarterly Report on Form
10-Q.
Critical Accounting Policies and the Use of Estimates
Critical accounting policies are those that require significant estimates, assumptions and
judgments by management about matters that are inherently uncertain at the time that the financial
statements are prepared such that materially different results might have been reported if other
assumptions had been made. These estimates form the basis for making judgments about the carrying
values of assets and liabilities. We base our estimates and judgments on historical experience and
on various other assumptions that we believe to be reasonable under the circumstances. Reference is
made to Critical Accounting Policies, Estimates and Judgments included in our Annual Report on
Form 10-K for the year ended December 31, 2009. There were no changes to our critical accounting
policies since
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we filed our 2009 Annual Report on Form 10-K with the Securities and Exchange Commission, or SEC,
except as described below:
Multiple Element Arrangements
In October 2009, the FASB issued Accounting Standard Update No. 2009-13, Multiple Deliverable
Revenue Arrangements, or ASU 2009-13, to:
| provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; | |
| require an entity to allocate revenue in an arrangement using the best estimated selling price (BESP) of deliverables if a vendor does not have vendor-specific objective evidence (VSOE) of selling price or third-party evidence (TPE) of selling price; and | |
| eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
We elected in the second quarter of 2010 to early adopt this accounting guidance as of January 1,
2010 on a prospective basis for applicable transactions originating or materially modified after
December 31, 2009. The new accounting standards for revenue recognition, if applied in the same
manner to the year ended December 31, 2009, would not have had a material impact on our financial
statements. In terms of the timing and pattern of revenue recognition, the new accounting guidance
for revenue recognition had a significant effect on revenue in periods after the initial adoption, as the Company entered into a multiple element arrangement in September 2010. Refer to Note 3 for further details.
We may continue to enter into multiple element arrangements, such as license and development agreements, in
which a customer may purchase several deliverables. For these multiple element arrangements, we
allocate revenue to each non-contingent element based upon the
relative selling price of each element. When applying the relative selling price method, we
determine the selling price for each deliverable using VSOE of selling price, if it exists, or TPE
of selling price, if it exists. If neither VSOE nor TPE of selling price exist for a deliverable,
we use BESP for that deliverable. Revenue allocated to each element is then recognized based on
when the basic four revenue recognition criteria are met for each element.
Determining whether and when some of these criteria have been satisfied often involves assumptions
and judgments that can have a significant impact on the timing and amount of revenue we report.
Changes in assumptions or judgments or changes to the elements in an arrangement could cause a
material increase or decrease in the amount of revenue that we report in a particular period.
Results of Operations
Three and nine months ended September 30, 2010 and 2009
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 three and nine months ended September 30, 2010 and 2009, we reported
no product revenue. For the three and nine months ended September 30, 2010, Nexavar net sales
recorded by Bayer were $226.2 million and $676.7 million, primarily in the United States, the
European Union and other territories worldwide and includes the impact of the Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act. This represents a decrease of $3.1 million, or 1%, and an increase of $68.4 million, or
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11%, over Nexavar net sales of $229.2 million and $608.3 million recorded by Bayer for the three
and nine months ended September 30, 2009.
Revenue from Collaboration Agreement
Nexavar is currently marketed and sold in the United States, most countries in the European Union
and other territories worldwide. We co-promote Nexavar in the United States with Bayer under
collaboration and co-promotion agreements. 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 worldwide, excluding Japan. 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 for the three and nine months ended September 30, 2010 and 2009 is
calculated as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Nexavar product revenue, net (as recorded by Bayer) |
$ | 226,181 | $ | 229,243 | $ | 676,665 | $ | 608,295 | ||||||||
Nexavar revenue subject to profit sharing (as recorded by Bayer) |
$ | 191,553 | $ | 199,774 | $ | 580,399 | $ | 548,093 | ||||||||
Combined cost of goods sold, distribution, selling, general and administrative expenses |
78,464 | 76,309 | 237,184 | 222,531 | ||||||||||||
Combined collaboration commercial profit |
$ | 113,089 | $ | 123,465 | $ | 343,215 | $ | 325,562 | ||||||||
Onyxs share of collaboration commercial profit |
$ | 56,545 | $ | 61,732 | $ | 171,607 | $ | 162,781 | ||||||||
Reimbursement of Onyxs shared marketing expenses |
4,727 | 5,342 | 17,026 | 16,079 | ||||||||||||
Royalty revenue |
2,424 | 2,063 | 6,739 | 4,214 | ||||||||||||
Revenue from collaboration agreement |
$ | 63,696 | $ | 69,137 | $ | 195,372 | $ | 183,074 | ||||||||
The decrease in revenue from collaboration agreement for the three months ended September 30, 2010
from the same period in 2009 is primarily due to net product revenue on the sales of Nexavar as
recorded by Bayer in countries around the world decreasing as a result of pricing pressures in Europe and strengthening of the U.S. Dollar against the Euro. In addition, combined cost of goods sold and shared marketing
expenses increased primarily from certain Asia-Pacific countries in advance of anticipated government
reimbursement. The increase in revenue from collaboration agreement for the nine months ended
September 30, 2010 from the same period in 2009 is primarily a result of increased net product
revenue on sales of Nexavar as recorded by Bayer in countries around the world and royalty revenue
and was partially offset by an increase to combined cost of goods sold and shared marketing
expenses.
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 decreases revenue from collaboration
agreement and decreases to these costs will increase revenue from collaboration agreement.
Additionally, prolonged or profound economic downturn may result in adverse changes to product
reimbursement and pricing and sales levels, which would harm our operating results. We expect
Nexavar sales and Bayers and our shared cost of goods sold, distribution, selling and general
administrative expense to increase as Bayer continues to expand Nexavar marketing and sales
activities outside of the United States, particularly from certain Asia-Pacific countries.
License Revenue
License revenue for the three and nine months ended September 30, 2010 was as follows:
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Three Months Ending | Change | Nine Months Ending | Change | |||||||||||||||||||||||||||||
September 30, | 2010 vs 2009 | September 30, | 2010 vs 2009 | |||||||||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | $ | % | |||||||||||||||||||||||||
(In thousands, except percentages) | ||||||||||||||||||||||||||||||||
License revenue |
$ | 59,165 | $ | | $ | 59,165 | | $ | 59,165 | $ | | $ | 59,165 | |
In September 2010, the Company entered into an exclusive license agreement with Ono granting Ono
the right to develop and commercialize both carfilzomib and ONX 0912 for all oncology indications
in Japan. The Company retains development and commercialization rights for all other countries of
the world.
In accordance with ASU 2009-13, we identified the license as one of the non-contingent deliverables under this
agreement with stand-alone value. Because VSOE or TPE of selling price for this element was unavailable,
the Company utilized BESP to apply the relative selling price method to allocate revenue to this
element. The objective of BESP is to determine the price at which we would transact a sale if the
product were sold on a stand-alone basis. Therefore, BESP for the license is based on discounted future projected cash flows relating to the licensed territory. Revenue allocated to the license of $59.2
million was recognized in September 2010 when all related knowledge and data had been transferred.
Refer to Note 3 for further information.
Research and Development Expenses
Research and development expenses, as compared to the same period of the prior year were as
follows:
Three Months Ending | Change | Nine Months Ending | Change | |||||||||||||||||||||||||||||
September 30, | 2010 vs 2009 | September 30, | 2010 vs 2009 | |||||||||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | $ | % | |||||||||||||||||||||||||
(In thousands, except percentages) | ||||||||||||||||||||||||||||||||
Research and development |
$ | 44,568 | $ | 35,635 | $ | 8,933 | 25 | % | $ | 131,394 | $ | 92,478 | $ | 38,916 | 42 | % |
For the three and nine months ended September 30, 2010, research and development expenses include
costs to develop our product candidates and our share of the research and development costs
incurred for Nexavar by Bayer and us under our cost sharing arrangement. The increase in research
and development expenses is primarily due to increases to further develop carfilzomib as a result
of our acquisition of Proteolix in November 2009. This increase was partially offset by a $5.9
million reimbursement received from Ono and by lower expenses for the
ONX 0801 program compared to 2009, when a
milestone payment of $7.0 million was made to BTG International Limited. Under the terms of the license
agreement with Ono, a percentage of the global development costs we incur for the development of
carfilzomib and ONX 0912 is reimbursed by Ono. Refer to Note 3 for further information.
Our share of the research and development costs incurred for Nexavar includes 90% and 87% of the
costs incurred by Bayer for Nexavar for the three and nine months ended September 30, 2010,
respectively, and 83% and 79% of the costs incurred by Bayer for Nexavar for the three and nine
months ended September 30, 2009, respectively. As a result of the cost sharing arrangement between
us and Bayer for research and development costs, there was a net reimbursable amount of $22.7
million and $57.7 million due to Bayer for the three and nine months ended September 30, 2010,
respectively, and $17.7 million and $47.8 million due to Bayer for the three and nine months ended
September 30, 2009, 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. As of September 30, 2010, our share of the Nexavar
development costs incurred to date under the collaboration was $570.3 million.
The major components of research and development costs include clinical manufacturing costs,
clinical trial expenses, 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. In addition, 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 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
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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. If we
underestimate activity levels associated with various studies at a given point in time, we could
record significant research and development expenses in future periods.
We expect our research and development expenses to increase substantially in future periods,
primarily as a result of costs incurred to develop carfilzomib. We are currently conducting Phase
3, Phase 2 and Phase 1b studies in relapsed multiple myeloma, a Phase 2b study in relapsed and
refractory multiple myeloma and Phase 1b/2 studies in multiple myeloma and relapsed solid tumors.
We also expect our research and development activities to include developing ONX 0801 and our other
product candidates. In addition, we expect our research and development expenses would increase 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 the exercise of our
option to license rights to either compound, we would be 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 would be entitled to receive a one-time fee, milestone payments upon
achievement of certain development and sales levels and royalties on any future product sales. The
terms of the development and license agreement dated November 6, 2008 with BTG provide that we may
be required to make payments to BTG of up to $65.0 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as compared to the same period of the prior year were
as follows:
Three Months Ending | Change | Nine Months Ending | Change | |||||||||||||||||||||||||||||
September 30, | 2010 vs 2009 | September 30, | 2010 vs 2009 | |||||||||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | $ | % | |||||||||||||||||||||||||
(In thousands, except percentages) | ||||||||||||||||||||||||||||||||
Selling, general and administrative |
$ | 25,924 | $ | 23,440 | $ | 2,484 | 11 | % | $ | 77,293 | $ | 68,899 | $ | 8,394 | 12 | % |
The increase in selling, general and administrative expenses were primarily due to planned
increases in spending as a result of the acquisition of Proteolix, an increase in external
commercial expenses and an increase in employee-related costs. Selling, general and administrative
expenses consist primarily of salaries, employee benefits, consulting, advertising and promotion
expenses, other third party costs, corporate functional expenses and allocations for overhead and
occupancy costs. We expect our selling, general and administrative expenses to increase due to
increases in marketing expenses related to Nexavar and increases in personnel and due to
preparations for the potential launch of carfilzomib.
Contingent Consideration Expense
Contingent consideration expense, as compared to the same periods of the prior year, were as
follows:
Three Months Ending | Change | Nine Months Ending | Change | |||||||||||||||||||||||||||||
September 30, | 2010 vs 2009 | September 30, | 2010 vs 2009 | |||||||||||||||||||||||||||||
2010 | 2009 | $ | % | 2010 | 2009 | $ | % | |||||||||||||||||||||||||
(In thousands, except percentages) | ||||||||||||||||||||||||||||||||
Contingent consideration |
$ | 5,622 | $ | | $ | 5,622 | | $ | 101,107 | $ | | $ | 101,107 | |
As a result of the acquisition of Proteolix, we made a payment of $40.0 million in April 2010 and
may be required to pay up to an additional $535.0 million in four earn-out payments upon the
receipt of certain regulatory approvals and the satisfaction of other milestones. We recorded a
non-current liability for this contingent consideration related to the four earn-out payments with
a fair value of $261.6 million at September 30, 2010 based upon a discounted cash flow model that
uses significant estimates and assumptions,
including the probability of technical and regulatory success (PTRS) of the product candidate,
carfilzomib. Contingent consideration expense is due to the change in the fair value of the
recognized amount of the non-current liability for contingent consideration. For the three months
ended September 30, 2010, the change in the fair value resulted from the passage of time. For the
nine months ended September 30, 2010, the change in the fair value resulted from an $88.5 million
increase due to an increase in the PTRS in the second
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quarter of 2010 and a $12.6 million increase
due to the passage of time. In June 2010, positive data was presented for the 006 carfilzomib
trial, a Phase 1b multicenter dose escalation study of carfilzomib plus lenalidomide and low-dose
dexamethasone in relapsed and refractory multiple myeloma patients. In July 2010, positive data was
also presented for the 003-A1 carfilzomib trial, an open label, single-arm Phase 2b study of
single-agent carfilzomib in relapsed and refractory multiple myeloma patients. The data from the
006 and 003-A1 trials positively impacted the PTRS. Any further changes to these estimates and
assumptions could significantly impact the fair values recorded for this liability resulting in
significant charges to our Condensed Consolidated Statements of Operations.
Investment Income
Investment income consists of interest income and realized gains or losses from the sale of
marketable equity investments. We had investment income of $0.6 million for the three months ended
September 30, 2010, a decrease of $0.4 million, or 38%, from $1.0 million in the same period in
2009. For the nine months ended September 30, 2010, we recorded investment income of $2.2 million,
a decrease of $0.9 million, or 29%, from $3.1 million in the same period in 2009. These decreases
were primarily due to lower effective interest rates in the market.
Interest Expense
Interest expense of $4.9 million and $14.5 million for the three and nine months ended September
30, 2010, respectively, primarily relates to the 4.0% convertible senior notes due 2016 issued in
August 2009, and includes non-cash imputed interest expense of $2.3 million and $6.7 million,
respectively, as a result of the application of ASC 470-20.
Other Expense
Other expense of $0.9 million for the three and nine months ended September 30, 2010 primarily
relates to the foreign currency option contracts entered into in July 2010. The foreign currency
option contracts are measured at fair value and any changes to the fair value flow through earnings
and are recorded in the line item Other expense in the Consolidated Condensed Statements of
Operations.
Liquidity and Capital Resources
With the exception of the profitability we achieved for the years ended December 31, 2009 and 2008,
we have incurred significant annual net losses since our inception, and we have relied primarily on
public and private financing to fund our operations.
Cash and Cash Flow
At September 30, 2010, we had cash, cash equivalents and current and non-current marketable
securities of $588.0 million, approximately equal to cash, cash equivalents and current and
non-current marketable securities of $587.3 million at December 31, 2009. This is primarily due to
license revenue received, offset by a payment to former Proteolix stockholders in April 2010 for
the achievement of a development milestone and a payment to S*BIO in May 2010 for the expansion and
acceleration of the development collaboration program for ONX 0803 and ONX 0805.
Our investment portfolio includes $33.4 million of AAA rated securities with an auction reset
feature (auction rate securities) that are collateralized by student loans. In October 2010, $0.3
million in securities were redeemed at par and, accordingly, we classified these securities as
current marketable securities in the accompanying unaudited Condensed Consolidated Balance Sheet at
September 30, 2010. Therefore, the remaining balance of auction rate securities is currently
outstanding in our investment portfolio. Since February 2008, these types of securities have
experienced failures in the auction process. However, a limited number of these securities have
been redeemed at par by the issuing agencies. 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
the remaining balance of auction rate securities as non-current marketable securities in the
accompanying unaudited Condensed Consolidated Balance Sheet at September 30, 2010. We have
determined the fair value to be $31.6 million for these securities, based on a discounted cash flow
model, and have reduced the carrying value of these marketable securities by $1.5 million through
accumulated other comprehensive income (loss) instead of earnings because we have deemed the
impairment of these securities to be temporary. Further adverse developments in the credit market
could result in an impairment charge through earnings in the future. 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 $1.3 million decrease in value. Alternatively, a
decrease in either of the assumptions could result in a $1.4 million increase in value.
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Currently, we believe these investments 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 assets
and the possible requirement to hold all such securities for an indefinite period of time, our
remaining cash and cash equivalents and current investments will be sufficient to meet our
anticipated cash needs.
We believe that our existing capital resources and interest thereon will be sufficient to fund our
current and planned operations for at least the next twelve months. 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 we will incur
cash outlays to conduct and support additional clinical trials both currently underway and planned
for the development of carfilzomib and Proteolixs other
development candidates. We also expect to incur cash outlays as we prepare for a potential commercial launch of carfilzomib, should it receive marketing approval. 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 for ONX 0803 and ONX 0805, we will be required to pay significant license fees
and will incur development expenses. Further, we may be obligated to make up to an additional
$535.0 million of contingent earn-out payments upon the achievement of regulatory approvals for
carfilzomib in the U.S. and Europe, payable in either cash or common stock, at our discretion.
The terms of the development and license agreement dated November 6, 2008 with BTG provide that we
may be required to make payments to BTG of up to $65.0 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.
In July 2010, we entered into arrangements to lease and sublease a total of approximately 126,493
square feet located at 249 East Grand Avenue, South San Francisco, California and anticipate that
we will incur cash outlays associated with the lease and sublease of these premises. The total
monthly base rent in the first year for both the lease and sublease will be approximately $294,000
beginning in September 2010. The total obligations under both of these operating leases will be approximately $46.0 million.
While most of our anticipated development costs are unknown at the current time, we may need to
raise additional capital to continue the funding of our product development programs and our
development plans 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.
Off-Balance Sheet Arrangements
As of September 30, 2010, we did not have any material off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate 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. Under our 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 and 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 or decrease by 100 basis points, or
1%, as of September 30, 2010, the fair value of our portfolio would decline or increase,
respectively, by approximately $1.0 million. Additionally, a hypothetical increase or decrease of
1% in market interest rates during the three and nine months ended September 30, 2010 would have
resulted in a change of $0.9 million or $3.5 million in our net income for the three and nine
months ended September 30, 2010, respectively.
The table below presents the amounts and related weighted interest rates of our cash equivalents
and marketable securities at:
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September 30, 2010 | December 31, 2009 | |||||||||||||||||||||||
Fair Value | Average | Fair Value | Average | |||||||||||||||||||||
Maturity | (In millions) | Interest Rate | Maturity | (In millions) | Interest Rate | |||||||||||||||||||
Cash equivalents, fixed rate |
0 - 3 months | $ | 70.4 | 0.20 | % | 0 - 3 months | $ | 103.2 | 0.11 | % | ||||||||||||||
Marketable securities, fixed rate |
0 - 18 months | $ | 259.8 | 0.66 | % | 0 - 12 months | $ | 479.6 | 0.53 | % |
Liquidity Risk
Our investment portfolio includes $33.4 million of AAA rated auction rate securities collateralized
by student loans. In October 2010, $0.3 million in securities were redeemed at par and,
accordingly, we classified these securities as current marketable securities in the accompanying
unaudited Condensed Consolidated Balance Sheet at September 30, 2010. Therefore, the remaining
balance of auction rate securities is currently outstanding in our investment portfolio. Since
February 2008, securities of this type have experienced failures in the auction process. However, a
limited number of these securities have been redeemed at par by the issuing agencies. 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 the remaining balance of auction rate securities as non-current
marketable securities on the accompanying unaudited Condensed Consolidated Balance Sheet at
September 30, 2010. We have determined the fair value to be $31.6 million for these securities,
based on a discounted cash flow model, and have reduced the carrying value of these marketable
securities by $1.5 million through accumulated other comprehensive loss instead of earnings because
we have deemed the impairment of these securities to be temporary.
Foreign Currency Exchange Rate Risk
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. In addition, some of our clinical trials are conducted 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 Euro. A hypothetical increase or decrease of 1% in exchange rates between the Euro and U.S.
Dollar during the three and nine months ended September 30, 2010 would have resulted in a change in
our net income and our net loss of $0.2 million and $0.6 million, respectively, based on our
expected exposure to the Euro. We utilize a Euro to U.S. Dollar exchange rate based on average
exchange rates for the reporting period.
As we expand, we could be exposed to exchange rate fluctuation in other currencies. Exchange rates
between foreign currencies and U.S. dollars have fluctuated significantly in recent years and may
do so in the future. Commencing in the third quarter of 2010 we established a foreign currency hedging program to manage the economic risk of our exposure to fluctuations in foreign currency exchange rates from the Nexavar Program. We hedge a certain portion of anticipated Nexavar cash flows owed to the Company with options, typically no more than one year into the future. These derivative instruments are intended to reduce the effects of variations in currency exchange rates, but
may expose us to the risk of financial loss in certain circumstances. Our cash flows are
denominated in U.S. dollars.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures: The Companys chief executive officer and chief
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 principal executive officer and principal financial officer
concluded that the Companys disclosure controls and procedures were effective at the reasonable
assurance level as of September 30, 2010 to ensure the information required to be disclosed by the
Company in this Quarterly Report on Form 10-Q is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and forms.
Changes in Internal Control over Financial Reporting: In November 2009, the Company acquired
Proteolix, Inc. The Company does not expect the acquisition to materially affect its internal
control over financial reporting. The Company is expanding the scope of a number of its internal
processes to include the former operations of Proteolix that were not yet fully integrated into our
existing internal control processes at September 30, 2010. There were no other changes in the
Companys internal control over financial
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reporting during the quarter ended September 30, 2010 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. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. 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.
Accordingly, our disclosure controls and procedures are designed to provide reasonable, not
absolute, assurance that the objectives of our disclosure control system are met and, as set forth
above, our principal executive officer and principal financial officer have concluded, based on
their evaluation as of the end of the period covered by this report, that our disclosure controls
and procedures were effective at the reasonable assurance level to ensure the information required
to be disclosed in this report is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
In May 2009, we filed a complaint against Bayer Corporation and Bayer A.G. in the United States
District Court for the Northern District of California under the caption Onyx Pharmaceuticals,
Inc. v. Bayer Corporation and Bayer AG, Case No. CV09-2145 MHP (N.D. Cal.). In the complaint, we
have asserted our rights under the Collaboration Agreement to fluoro-sorafenib, an anti-cancer
compound that Bayer is developing and to which Bayer refers as regorafenib, its International
Nonproprietary Name. Fluoro-sorafenib has the same chemical structure as sorafenib (Nexavar),
except that a single fluorine atom has been substituted for a hydrogen atom. Bayer is currently
conducting trials of fluoro-sorafenib in mixed solid tumors, gastrointestinal stromal tumors
(GIST), kidney, colorectal and liver cancer, non-squamous non-small cell lung cancer (NSCLC) and
has initiated a Phase 3 clinical trial in metastatic colorectal carcinoma. In the lawsuit, we
allege that fluoro-sorafenib was discovered during joint research between us and Bayer and we are
seeking monetary damages and a court ruling that we have certain rights to fluoro-sorafenib under
the collaboration agreement. Bayer has asserted that we have no such rights. In June 2010, we filed
an amended complaint to include an allegation that Bayer has prejudiced the value of Nexavar by
reason of its interest in other drugs, including fluoro-sorafenib. The litigation is currently in
the discovery phase.
Item 1A. Risk Factors.
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. The risks and uncertainties
described below contain forward-looking statements, and our actual results may differ materially
from those discussed here. 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.
We have marked with an asterisk (*) those risk factors below that reflect material changes from the
risk factors included in our 2009 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 23, 2010.
Nexavar® 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 the only approved product that generated commercial revenues for the quarter ended
September 30, 2010, which we rely on to fund our operations. Unless we can successfully
commercialize one of our other product candidates, we will continue to rely on Nexavar to generate
substantially all of our revenues and fund our operations. All of our other product candidates are
still development stage and we may never obtain approval of or earn revenues from any of our
product candidates. If for any reason we became unable to continue selling or further developing
Nexavar, our business would be seriously harmed and could fail.
Nexavar faces significant competition. If Nexavar is unable to successfully compete against
existing and future therapies, our business would be harmed.*
There are many existing approaches used in the treatment of unresectable 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 patients with
unresectable liver cancer, several other therapies are in development, including Bristol-Myers
Squibbs brivanib, a Vascular Endothelial Growth Factor Receptor 2 (VEGFR 2) inhibitor and
regorafenib, to which we refer as fluoro-sorafenib, a multiple kinase inhibitor, and which is the
subject of litigation between ourselves and Bayer. If Nexavar is unable to compete or be combined
successfully with existing approaches or if new therapies are developed for unresectable liver
cancer, our business would be harmed.
There are several competing therapies approved for the treatment of advanced kidney cancer,
including Sutent, a multiple 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; Avastin, an angiogenesis inhibitor approved for the treatment
of advanced kidney cancer in the United States and the European Union and marketed by Genentech, a
member of the Roche Group; Afinitor, an mTOR inhibitor marketed in the United States and the
European Union by Novartis; and GlaxoSmithKlines Votrient, a multiple kinase inhibitor recently
approved by the FDA. Nexavars U.S. market share in advanced kidney cancer has declined following
the introduction of these products into the market. Bayer is conducting clinical trials of
fluoro-sorafenib in kidney cancer. We expect competition to increase as additional products are
approved to treat advanced kidney cancer. The successful introduction of other new therapies,
including generic versions of competing therapies, to treat advanced kidney cancer could
significantly reduce the potential market for Nexavar in this indication.
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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 Bayer, Pfizer,
Roche, 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 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.
A demonstrated survival benefit is often an important element in determining standard of care in
oncology. We did not demonstrate a statistically significant overall survival benefit for patients
treated with Nexavar in our Phase 3 kidney cancer trial, which we believe was due in part to the
crossover 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. The FDA approval of Nexavar permits Nexavar to be marketed as an initial, or
first-line, therapy and subsequent lines of therapy for the treatment of advanced kidney cancer,
but approvals in some other regions do not. For example, the European Union approval indicates
Nexavar only for advanced kidney cancer patients that have failed prior cytokine therapy or whose
physicians deem alternate therapies inappropriate. We may be unable to compete effectively against
competitive products with broader or different marketing authorizations in one or more countries.
Adoption of Nexavar in certain territories for the treatment of patients with unresectable liver
cancer may be slow or limited for a variety of reasons including the geographic distribution of the
patient population, the current treatment paradigm for unresectable 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 unresectable liver cancer, our business would
be harmed.
The rate of adoption of Nexavar for unresectable liver cancer 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.
Outside the United States and European Union, some regulatory authorities have not completed their
review of our submissions for the use of Nexavar for unresectable liver cancer, including
regulatory authorities in Taiwan. These submissions may not result in marketing approval by these
authorities in this indication. In addition, 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.*
Nexavar has not been approved in any indications other than unresectable liver cancer and advanced
kidney cancer. We and Bayer are currently conducting a number of clinical trials of Nexavar alone
or in combination with other therapies or anticancer agents in liver, kidney, non-small cell lung,
thyroid, breast, colorectal, ovarian and other cancers including a number of Phase 3 clinical
trials. 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 may experience similar failure. Our clinical trials may fail 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.
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. Bayer and Onyx have conducted Phase 3 trials
in melanoma and non-small cell lung cancer, or NSCLC, that were not successful. In addition, in the
NSCLC 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 was 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. Regulatory requirements
change over time, including acceptable clinical endpoints. We may be unable to satisfy new
requirements or expectations of regulatory authorities and hence, Nexavar may never be approved in
additional indications.
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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 includes several warnings relating to observed adverse
reactions. With continued commercial use of Nexavar and additional clinical trials of Nexavar, we
and Bayer have updated and expect to continue to update adverse reactions listed in the package
insert to reflect current information. 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. 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.
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 adverse conclusions regarding the toxicity or efficacy of Nexavar.
Specialty pharmacies and distributors that we and Bayer rely upon to sell Nexavar may fail to
perform.
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 specialty pharmacies and distributors involves certain
risks, including, but not limited to, risks that these specialty pharmacies and distributors will:
| not provide us accurate or timely information regarding their inventories, the number of patients who are using Nexavar or complaints about Nexavar; | ||
| reduce their efforts or discontinue to sell or support or otherwise not effectively sell or support Nexavar; | ||
| not devote the resources necessary to sell Nexavar in the volumes and within the time frames that we expect; | ||
| be unable to satisfy financial obligations to us or others; and/or | ||
| cease operations. |
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. Bayers interest in other anti-cancer drugs, including
fluoro-sorafenib, may reduce its incentive to develop 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 may be unable to continue development, manufacturing and marketing activities at our own
expense. If we were able to do so on our own, this would significantly increase our capital and
infrastructure requirements, would necessarily impose delays on development programs, may limit the
indications we are able to pursue and could prevent us from effectively developing and
commercializing Nexavar. Disputes with Bayer may delay or prevent us from further developing,
manufacturing or commercializing or increasing the sales of Nexavar, and could lead to additional
litigation or arbitration against Bayer, which could be time consuming and expensive.
We are subject to a number of risks associated with our dependence on our collaborative
relationship with Bayer, including:
| decisions by Bayer regarding the amount and timing of resource expenditures for the development and commercialization of Nexavar; | ||
| possible disagreements as to development plans, clinical trials, regulatory marketing or sales; |
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| our inability to co-promote Nexavar in any country outside the United States, which makes us solely dependent on Bayer to promote Nexavar in foreign countries; | ||
| Bayers right to terminate the collaboration agreement on limited notice in certain circumstances involving our insolvency or material breach of the agreement; | ||
| loss of significant rights if we fail to meet our obligations under the collaboration agreement; | ||
| the development or acquisition by Bayer of competing products, including fluoro-sorafenib; | ||
| adverse regulatory or legal action against Bayer resulting from failure to meet healthcare industry compliance requirements in the promotion and sale of Nexavar, including federal and state reporting requirements; | ||
| changes in key management personnel at Bayer, including Bayers representatives on the collaborations executive team; and | ||
| disagreements with Bayer regarding interpretation or enforcement of the collaboration agreement. |
We have limited ability to direct Bayer in its promotion of Nexavar and we may be unable to obtain
any remedy against Bayer. Bayer may not have sufficient expertise to promote or obtain
reimbursement for oncology products in foreign countries and may fail to devote appropriate
resources to this task. In addition, 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. Because we share in the profits and losses arising from sales of
Nexavar outside of the United States (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.
Bayers development of other products, including fluoro-sorafenib, may affect Bayers incentives to
develop and commercialize Nexavar that are different from our own. Our litigation against Bayer
regarding fluoro-sorafenib, which is a single atom variant of sorafenib, may be time consuming and
expensive, and may be a distraction to our management. If it is ultimately determined that Onyx has
no rights to fluoro-sorafenib and if Bayer obtains approval for this product, it would likely
compete with and cannibalize sales of Nexavar, thereby harming our business. Bayer has disclosed a
clinical development plan for fluoro-sorafenib that includes tumor types for which Nexavar has been
approved (renal cell carcinoma and hepatocellular carcinoma), as well as tumor types for which
Nexavar is in development (colorectal cancer). In June 2010, we filed an amended complaint in our
pending litigation against Bayer to include an allegation that Bayer has prejudiced the value of
Nexavar by reason of its interest in other drugs, including fluoro-sorafenib.
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, further development of
Nexavar could be delayed and we may be unable to fund the development costs on our own and may be
unable to find a new collaborator.
In addition, Bayer has the right, which it is not currently exercising, to nominate a member 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 not be able to effectively control the election of all members of the board of
directors and determine all corporate actions.
Our collaboration agreement with Bayer will terminate when patents expire that were issued in
connection with product candidates discovered under that agreement, or at the time when neither we
nor Bayer are entitled to profit sharing under that agreement, whichever is later. The worldwide
patents and patent applications covering Nexavar are owned by Bayer and certain Nexavar patents are
licensed to us through our collaboration agreement. We have no control over the filing, strategy,
or prosecution of the Nexavar patent applications nor of enforcement or defense of the Nexavar
patents outside the United States.
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Nexavar may face challenges and competition from generic products.*
As of December 20, 2009, generic manufacturers were permitted to file ANDAs in the U.S. seeking FDA
authorization to manufacture and market generic versions of Nexavar, together with Paragraph IV
certifications that challenge the scope, validity or enforceability of the Nexavar patents. If
Bayer or we fail to timely file a lawsuit against any ANDA filer, that ANDA filer may not be
subject to an FDA stay, and upon approval of the ANDA, the ANDA filer may elect to launch a generic
version of Nexavar, thereby harming our business. Even if a lawsuit is timely filed, Bayer and we
may be unable to successfully enforce and defend the Nexavar patents and we may face generic
competition prior to expiration of the Nexavar patents in 2020.
Similarly, outside the United States, generic companies or other competitors may challenge the
scope, validity or enforceability of the Nexavar patents, requiring Bayer and us to engage in
complex, lengthy and costly litigation or other proceedings. Generic companies may develop, seek
approval for, and launch generic versions of Nexavar. For example, a generic version of Nexavar has
been launched in Peru and Cipla recently received approval to launch its version of sorafenib in
India at a price that is significantly less than that charged for Nexavar in India. Bayer has
ongoing litigations with Cipla, including a patent infringement case in India, and has requested
the court to issue an injunction against Cipla. Bayer may be unsuccessful in defending or
enforcing the Nexavar patents in one or more countries and could face generic competition prior to
expiration of the Nexavar patents, which would harm our business.
The market may not accept our products and we may be subject to pharmaceutical pricing and
third-party reimbursement pressures.*
Nexavar or our product candidates that may be approved may not gain market acceptance among
physicians, patients, healthcare payers and/or the medical community or the market may not be as
large as forecasted. A significant factor that affects market acceptance of Nexavar or future
products 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
payers, such as government and private health insurers and managed care organizations. Third-party
payers 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. Governments outside of the US may increase their use of risk-sharing programs, which will
only pay for a drug after it demonstrates efficacy in a given patient. In addition, governments may
increasingly rely on Heath Technology Assessments to determine payment policy for cancer drugs.
Health Technology Assessments are used by governments to assess if
health services are safe and cost-effective. In addition, the market for our products may be limited by
third-party payers who establish lists of approved products and do not provide reimbursement for
products not listed. If our products are not on the approved lists in one or more countries, our
sales may suffer. 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.
Nexavars success in Europe and other regions, particularly in Asia Pacific, 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 sales and profitability of Nexavar. In addition, 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. In the
Asia-Pacific region, excluding Japan, China leads in Nexavar sales, however, reimbursement
typically requires multiple steps. Also, in December 2009, health authorities in China published a
new National Reimbursement Drug List, or NRDL, which lists medicines that are expected to be sold
at government-controlled prices. There were no targeted oncology drugs, including Nexavar, on the
NRDL, however, we believe that the Ministry of Human Resource and Social Security, the group
responsible for developing the NDRL, plans to establish a mechanism and framework for reimbursement
of high-value innovative products, such as targeted oncology drugs. 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 and commercialization of our
products, including the following:
| rate of adoption by healthcare practitioners; | ||
| treatment guidelines issued by government and non-government agencies; |
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| types of cancer for which the product is approved; | ||
| rate of a products acceptance by the target patient population; | ||
| timing of market entry relative to competitive products; | ||
| availability of alternative therapies; | ||
| price of our product relative to alternative therapies, including generic versions of our products, or generic versions of innovative products that compete with our products; | ||
| patients reliance on patient assistance programs, under which we provide free drug; | ||
| extent of marketing efforts by us and third-party distributors or agents retained by us; and | ||
| side effects or unfavorable publicity concerning our products or similar products. |
If Nexavar or any of our future products do not achieve market acceptance, we may not realize
sufficient revenues from product sales, which may cause our stock price to decline.
Our clinical trials for Nexavar or carfilzomib could take longer to complete than we project or may
not be completed at all, and; we may never obtain regulatory approval for carfilzomib or any other
future product candidate.*
The timing of initiation and completion of clinical trials may be subject to significant delays
resulting from various causes, including actions by Bayer for Nexavar
clinical trials, 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 for clinical and commercial
purposes. We may face difficulties transitioning carfilzomib clinical trials to our management and
difficulties developing relationships with carfilzomib development partners, including clinical
research organizations, contract manufacturing organizations, key opinion leaders and clinical
investigators. We may not complete clinical trials involving Nexavar, carfilzomib or any of our
other product candidates as projected or at all.
We may not have the necessary capabilities to successfully manage the execution and completion of
ongoing or future clinical trials in a way that leads to approval of Nexavar, carfilzomib or other
product candidates for their 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 may prevent us from
commercializing Nexavar in indications other than kidney cancer and unresectable liver cancer.
Carfilzomib is in mid-to-late stage clinical development and ONX 0801 is in the Phase 1 clinical
stage. Successful development of these compounds and our other product candidates 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, including Phase 2 clinical trials, may be delayed or
fail to reach later stages of development or the market for a variety of reasons including:
| nonclinical tests may show the product to be toxic or lack efficacy in animal models; | ||
| clinical trial results may show the product to be less effective than desired or to have harmful or problematic side effects; | ||
| 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 an IND, discussions with regulatory authorities, requests from regulatory authorities for additional preclinical or clinical data, analyses or changes to study design, including possible changes in acceptable trial endpoints, or unexpected safety, efficacy or manufacturing issues; | ||
| 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; | ||
| proprietary rights of others and their competing products and technologies may prevent our product from being developed or commercialized or may increase the cost of doing so; and | ||
| contractual rights of our collaborators or others may prevent our product from being developed or commercialized or may increase the cost of doing so. |
We may be unsuccessful in launching or obtaining reimbursement for carfilzomib, if it receives
regulatory approval.
In order to commercialize carfilzomib, if approved, we plan to expand our U.S. sales force, and
must develop and maintain an international sales, marketing and distribution infrastructure. We
have no experience in building such an infrastructure internationally, which is difficult and time
consuming, and requires substantial financial and other resources. Factors that may hinder our
efforts to expand our U.S. presences and develop an international sales, marketing and distribution
infrastructure include:
| inability to recruit, retain and effectively manage adequate numbers of effective sales and marketing personnel; | ||
| inability to establish or maintain relationships with pharmaceutical wholesalers and distributors; | ||
| the inability of sales personnel to obtain access to or convince adequate numbers of physicians to prescribe our products; | ||
| the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and | ||
| unforeseen delays, costs and expenses associated with creating an international sales and marketing organization. |
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 oncology products that face significant competition from 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, or products designed to treat
the same diseases we are seeking to treat. Some of these competitive product candidates are in
clinical trials and others are approved; some have long histories of safe and effective use. In
addition, following the expiration or invalidation of applicable patents, generic drug
manufacturers may gain regulatory authorization to manufacture and sell generic versions of our
competitors approved products, in which case our approved products would potentially compete with
generic products.
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:
| discovering and patenting products; | ||
| undertaking preclinical testing and human clinical trials; | ||
| obtaining FDA and other regulatory approvals; | ||
| manufacturing products; and | ||
| marketing and obtaining reimbursement for products. |
Accordingly, our competitors may succeed in obtaining patent protection, receiving regulatory
approval in the U.S. or other countries, or commercializing product candidates before, or more
successfully than, we do. We will compete with companies with greater preclinical, marketing and
manufacturing capabilities, areas in which we have limited or no experience. In addition, we have
not developed or marketed products for any hematological cancer, including multiple myeloma, and
may be at a disadvantage to our competitors. Carfilzomib, if approved for multiple myeloma, would
compete directly with products marketed by Millennium
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Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited, Celgene
Corporation and potentially against agents currently in development for treatment of this disease
by Merck & Co. Inc., Bristol-Myers Squibb, Keryx Biopharmaceuticals, Inc., Nereus Pharmaceuticals
Cephalon, Inc., and other companies.
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.
We anticipate that we will face increased competition in the future as new companies enter our
markets and as scientific developments surrounding other cancer therapies continue to accelerate.
If we are not successful at completing the integration of the Proteolix organization with ours, we
may not be able to realize benefits from our acquisition.*
Achieving the anticipated benefits of the Proteolix acquisition will depend in part on the
successful integration of Onyxs and the former Proteolixs technical and business operations and
personnel in a timely and efficient manner. Integration requires coordination of personnel and the
integration of systems, applications, policies, procedures, business processes and operations, all
of which is a complex, costly and time-consuming process. The difficulties of integration include,
among others:
| consolidating research and development operations; | ||
| retaining key employees; | ||
| consolidating corporate and administrative infrastructures, including integrating and managing information technology and other support systems and processes; | ||
| preserving relationships with third parties, such as regulatory agencies, clinical investigators, key opinion leaders, clinical research organizations, contract manufacturing organizations, licensors and suppliers; | ||
| appropriately identifying and managing the liabilities of the combined company; | ||
| utilizing potential tax assets of Proteolix prior to the acquisition; and | ||
| difficulty managing new risks associated with facilities, including environmental risks and compliance with laws regulating laboratories. |
We have limited experience managing discovery research and preclinical activities or operating
research laboratories, and may be unsuccessful at doing so or at motivating and retaining key
individuals responsible for these activities.
We cannot assure stockholders that we will receive any benefits of this or any other merger or
acquisition, or that any of the difficulties described above will not adversely affect the combined
company. The integration process may be difficult and unpredictable because of possible conflicts
and differing opinions on business, scientific and regulatory matters.
We expect these integration efforts to place a significant burden on our management and internal
resources, which could result in delays in clinical trial and product development programs and
otherwise harm our business, financial condition and operating results.
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.
If we have disagreements with Bayer regarding ownership of clinical trial results or regulatory
approvals for Nexavar, and the FDA refuses to recognize Onyx as holding, or having access to, the
regulatory approvals necessary to commercialize Nexavar, we may experience delays in or be
precluded from marketing Nexavar.
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For carfilzomib, we are responsible for managing communications with regulatory agencies,
including filing investigational new drug applications, filing new drug applications, submission of
promotional materials and generally directing the regulatory processes. We have limited experience
directing such activities and may not be successful with our planned development strategies, on the
planned timelines, or at all. Even if carfilzomib or any other product candidate is designated for
fast track or priority review status or if we seek approval under accelerated approval (Subpart
H) regulations, such designation or approval pathway does not necessarily mean a faster development
process or regulatory review process or necessarily confer any advantage with respect to approval
compared to conventional FDA procedures. If we fail to conduct any required post-approval studies
or if the studies fail to verify that any of our product candidates are safe and effective, our FDA
approval could be revoked.
If we or Bayer fail to comply with applicable regulatory requirements we could be subject to
penalties, including fines, suspensions of regulatory approval, product recall, seizure of products
and criminal prosecution.
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 for commercialization. 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. In addition, we have manufacturing responsibility for carfilzomib, ONX 0912 and ONX 0914, which
we currently manufacture through third-party contract manufacturers, and have not yet established
back-up manufacturers for these compounds. 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 if
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, carfilzomib or any other
product candidate on our own and would require substantial funds and time to establish these
capabilities. Consequently, we are, and expect to remain, dependent on third parties for
manufacturing. These parties may encounter difficulties in production scale-up, production yields,
control and quality assurance, regulatory status or shortage of qualified personnel. They may not
perform as agreed or may not continue to manufacture our products for the time required to test or
market our products. They may fail to deliver the required quantities of our products or product
candidates on a timely basis and at commercially reasonable prices. For example, we utilize a sole
manufacturer for carfilzomib, and if this manufacturer became unable to deliver our required
quantities of carfilzomib on a timely basis, or ceased production, we would experience delays in
our clinical trial schedule and the regulatory approval process, and may be required to find an
alternative manufacturer. In addition, marketed drugs and their contract manufacturing
organizations are subject to continual review, including review and approval of their manufacturing
facilities and the manufacturing processes, which can result in delays in the regulatory approval
process. For example, in October 2010, we announced a delay in our planned NDA filing for
accelerated approval of carfilzomib from 2010 to at least mid-year 2011. The delay was based on
routine discussions with the Chemistry, Manufacturing and Controls, or CMC, reviewing division of
the FDA in response to a request for additional CMC information to support the commercial manufacturing of carfilzomib. The NDA for accelerated approval of carfilzomib may take longer to
file than we expect or may not be filed at all, which could put us at a competitive disadvantage
with other companies.
In addition, discovery of previously unknown problems with a medicine may result in restrictions on
its permissible uses, or on the manufacturer, including withdrawal of the medicine from the market.
The FDA and similar foreign regulatory authorities may also implement additional new standards, or
change their interpretation and enforcement of existing standards and requirements for the
manufacture, packaging or testing of products at any time. If we or our third party manufacturers
are unable to comply, we may be unable to obtain regulatory approval, or if we fail to maintain
regulatory approval, this will impair our ability to meet the market demand for our approved drugs,
delay ongoing clinical trials of our product candidates or delay our drug 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. In addition, we could be subject to regulatory or civil actions or penalties that
could significantly and adversely affect our business.
Healthcare policy changes, including recently enacted legislation, may have a material adverse
effect on us.*
Healthcare costs have risen significantly over the past decade. On March 23, 2010, the President
signed one of the most significant health care reform measures in decades. The Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act (collectively, the Healthcare Reform Act), substantially changes the way health care is
financed by both governmental and private insurers, and significantly impacts the pharmaceutical
industry. The Healthcare Reform
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Act contains a number of provisions, including those governing enrollment in federal healthcare
programs, the increased use of comparative effectiveness research on healthcare products,
reimbursement and fraud and abuse changes, which will impact existing government healthcare
programs and will result in the development of new programs. A significant portion of the U.S.
Nexavar revenue recorded by Bayer is derived from U.S. government healthcare programs, including
Medicare. An expansion in the governments role in the U.S. healthcare industry may lower
reimbursements for pharmaceutical products and adversely affect our business and results of
operations. Furthermore, beginning in 2011, the Healthcare Reform Act will impose a non-deductible
excise tax on pharmaceutical manufacturers or importers who sell branded prescription drugs,
which includes innovator drugs and biologics (excluding orphan drugs or generics) to U.S.
government programs.
In addition to this recently enacted legislation, there are expected to be other proposals by
legislators at both the federal and state levels, regulators and third-party payors to keep
healthcare costs down while expanding individual healthcare benefits. Certain of these anticipated
changes could impose limitations on the prices we or our collaborators will be able to charge for
our products or the amounts of reimbursement available for these products from governmental
agencies or third-party payors or may increase the tax requirements for pharmaceutical companies
such as ours. While it is too early to predict what affect the recently enacted Health Reform Act
or any future legislation or regulation will have on us, such laws could have a material adverse
effect on our business, financial position and results of operations.
Changes in tax rates or exposure to additional tax obligations could affect our financial results.*
We are subject to income and other taxation in numerous countries, states and other jurisdictions.
As a result, our tax estimates are derived from a combination of applicable tax rates in the places
that we operate. Numerous factors may affect our foreign and domestic income tax liabilities. These
factors include, but are not limited to, interpretations of existing tax laws, changes in tax laws
and rates, the tax treatment of mergers and acquisitions, changes in the mix of activities and
earnings in the various tax jurisdictions in which we operate, anticipated continued expansion of
our business activities outside the United States, the accuracy of our estimates for unrecognized
tax benefits and liabilities, our ability to realize benefit from deferred tax assets, the outcome
of examinations by the Internal Revenue Service and other jurisdictions, and changes in our pre-tax
earnings (losses). The impact on our tax estimates resulting from these and other factors may be
significant and could have a negative impact on our financial results and financial position.
Our income tax returns are subject to audit by foreign, United States federal, state and local tax
authorities. Interpretations of tax laws and regulations vary, and as a result, significant
disputes could arise with these tax authorities involving issues of the timing and amount of
allocations of income and deductions among various tax jurisdictions, which could have a material
impact on our financial results and financial position.
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. 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.
In order to succeed in our research and development efforts, we will need to continue to hire
individuals with the appropriate scientific skills.
We plan to move our headquarters and may face disruption and turnover of employees.*
In 2011, we plan to move our corporate headquarters from Emeryville, California to South San
Francisco, California. As a result, we expect to incur additional expenses, including exit costs, and
may encounter disruption of operations related to the move, all of which could have an adverse
effect on our financial condition and results of operations. In addition, relocation of our
corporate headquarters may make it more difficult to retain certain of our employees, and any resulting need to
recruit and train new employees could be disruptive to our business.
We may not be able to realize the potential financial or strategic benefits of future business
acquisitions or strategic investments, which could hurt our ability to grow our business, develop
new products or sell our products.
In addition to our agreements with BTG and S*BIO and our acquisition of Proteolix, we may enter
into future acquisitions of, or investments in, businesses, in order to complement or expand our
current business or enter into a new product area. Negotiations associated with an acquisition or
strategic investment could divert managements attention and other company resources. Any of the
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following risks associated with future acquisitions or investments could impair our ability to grow
our business, develop new products, or sell Nexavar, and ultimately could have a negative impact on
our growth or our financial results:
| difficulty in combining the products, operations or workforce, including key personnel, of any acquired business with our business; | ||
| difficulty in operating in a new or multiple new locations; | ||
| disruption of our ongoing businesses or the ongoing business of the company that we invest in or acquire; | ||
| difficulty in realizing the potential financial or strategic benefits of the transaction; | ||
| difficulty in maintaining uniform standards, controls, procedures and policies; | ||
| disruption of or delays in ongoing research, clinical trials and development efforts; | ||
| diversion of capital and other resources; | ||
| assumption of liabilities; | ||
| changes in or interpretations of tax laws governing our acquisitions or investments; | ||
| diversion of resources and unanticipated expenses resulting from litigation arising from potential or actual business acquisitions or investments; | ||
| difficulties in entering into new markets in which we have limited or no experience and where competitors in such markets have stronger positions; and | ||
| impairment of relationships with our or the acquired businesses employees and other third parties, such as clinical research organizations, contract manufacturing organizations, licensors, suppliers, or the loss of such relationships as a result of our acquisition or investment. |
In addition, the consideration for any future acquisition could be paid in cash, shares of our
common stock, the issuance of convertible debt securities or a combination of cash, convertible
debt and common stock. If we make an investment in cash or use cash to pay for all or a portion of
an acquisition, our cash and investment balances would be reduced which could negatively impact our
liquidity, the growth of our business or our ability to develop new products. However, if we pay
the consideration with shares of common stock, or convertible debentures, the holdings of our
existing stockholders would be diluted. The significant decline in the trading price of our common
stock would make the dilution to our stockholders more extreme and could negatively impact our
ability to pay the consideration with shares of common stock or convertible debentures. We cannot
forecast the number, timing or size of future strategic investments or acquisitions, or the effect
that any such investments or acquisitions might have on our operations or financial results.
We face product liability risks and may not be able to obtain adequate insurance.
The sale of Nexavar and the use of it and other products in clinical trials expose us to product
liability claims. In the United States, FDA approval of a drug may not offer protection from
liability claims under state law (i.e., federal preemption defense), the tort duties for which may
vary state to state. If we cannot successfully defend ourselves against product liability claims,
we may incur substantial liabilities or be required to limit commercialization of Nexavar and/or
future products.
We believe that we have obtained reasonably adequate product liability insurance coverage that
includes the commercial sale of Nexavar and clinical trials of Nexavar and our other product
candidates. However, 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.
Whether or not we are insured, a product liability claim or product recall may result in
significant losses. Regardless of merit or eventual outcome, product liability claims may result
in:
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| decreased demand for a product; | ||
| injury to our reputation; | ||
| distraction of management; | ||
| withdrawal of clinical trial volunteers; and | ||
| loss of revenues. |
We or Bayer may not be able to protect or enforce our or their intellectual property and we may not
be able to operate our business without infringing 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, effectively maintained as trade secrets, or
otherwise protected as confidential information or know-how. We depend in part on our ability to:
| obtain patents; | ||
| license technology rights from others; | ||
| protect trade secrets; | ||
| operate without infringing upon the proprietary rights of others; and | ||
| prevent others from infringing on our proprietary rights, particularly generic drug manufacturers. |
Patents and patent applications covering Nexavar are owned by Bayer. Those Nexavar patents that
arose out of our collaboration agreement with Bayer are licensed to us, including two United States
patents covering Nexavar and pharmaceutical compositions of Nexavar. Both patents will expire
January 12, 2020. These two patents are listed in the FDAs Approved Drug Product List (Orange
Book). Based on publicly available information, Bayer also has patents in several European
countries covering Nexavar, which will expire in 2020. Bayer has other patents and 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, in part because Bayer does not
share with us information related to its Nexavar patent portfolio. We cannot be certain that these
issued patents and future patents if they issue will provide adequate protection for Nexavar or
will not be challenged by third parties in connection with the filing of an ANDA, or otherwise.
Similarly, we cannot be certain that the patents and patent applications acquired in the Proteolix
acquisition, or licensed to us by any licensor, will provide adequate protection for carfilzomib or
any other product, or will not be challenged by third parties in connection with the filing of an
ANDA, or otherwise. Third parties may claim to have rights in the assets that we acquired with
Proteolix, including carfilzomib, or to have intellectual property rights that will be infringed by
our commercialization of the assets that we acquired with Proteolix. If third parties were to
succeed in such claims, our business and company would be harmed.
The patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve
complex legal and factual questions. Our patents, or patents that we license from others, may not
provide us with proprietary protection or competitive advantages against competitors with similar
technologies. Competitors may challenge or circumvent our patents or patent applications. Courts
may find our patents invalid. Due to the extensive time required for development, testing and
regulatory review of our potential products, our patents may expire or remain in existence for only
a short period following commercialization, which would reduce or eliminate any advantage the
patents may give us.
We may not have been the first to make the inventions covered by each of our issued or pending
patent applications, or we may not have been the first to file patent applications for these
inventions. Third party patents may cover the materials, methods of treatment or dosage related to
our product, or compounds to be used in combination with our products; those third parties may make
allegations of infringement. We cannot provide assurances that our products or activities, or those
of our licensors or licensees, will not infringe patents or other intellectual property owned by
third parties. Competitors may have independently developed technologies similar or complementary
to ours, including compounds to be used in combination with our products. We may need to license
the right to use third-party patents and intellectual property to develop and market our product
candidates. We may be unable to acquire required
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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 in the United States Patent and Trademark Office.
These activities are uncertain, making any outcome difficult to predict and costly and may be a
substantial distraction for our management team.
Bayer may have rights to publish data and information in which we have rights. In addition, we
sometimes engage individuals, entities or consultants, including clinical investigators, to conduct
research that may be relevant to our business. The ability of these third parties to publish or
otherwise publicly disclose information generated during the course of their research is subject to
certain contractual limitations; however, these contracts may be breached and we may not have
adequate remedies for any such breach. If we do not apply for patent protection prior to
publication or if we cannot otherwise maintain the confidentiality of our 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. The requirements for patentability may differ in certain
countries, particularly developing countries. In 2009, we became aware that a third-party had filed
an opposition proceeding with the Chinese patent office to invalidate the patent that covers
Nexavar. Unlike other countries, China has a heightened requirement for patentability, and
specifically requires a detailed description of medical uses of a claimed drug, such as Nexavar.
Bayer also has a patent in India the covers Nexavar. Cipla Limited, an Indian generic drug
manufacturer, applied to the Drug Controller General of India (DCGI) for market approval for
Nexavar, which Bayer sought to block based on its patent. Bayer sued the DCGI and Cipla Limited in
the Delhi High Court requesting an injunction to bar the DCGI from granting Cipla Limited market
authorization. The Court ruled against Bayer, stating that in India, unlike the U.S., there is no
link between regulatory approval of a drug and its patent status. Bayer appealed, which it recently
lost. Consequently, Bayer has appealed to the Indian Supreme Court, and has filed a patent
infringement suit against Cipla. 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 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 related to the promotion
of drugs in the United States or elsewhere.
To date, the FDA has approved Nexavar only for the treatment of advanced kidney cancer and
unresectable liver cancer. Physicians are not prohibited from prescribing Nexavar for the treatment
of diseases other than advanced kidney cancer or unresectable liver cancer, however, we and Bayer
are prohibited from promoting Nexavar for any non-approved indication, often called off label
promotion. The FDA and other regulatory agencies actively enforce regulations prohibiting off label
promotion and the promotion of products for which marketing authorization has not been obtained. A
company that is found to have improperly promoted an off label use may be subject to significant
liability, including civil and administrative remedies, as well as criminal sanctions.
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 medical and
scientific communication concerning their products. We engage in the support of medical education
activities and engage investigators and potential investigators interested in 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.
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Unstable market and economic conditions may have serious adverse consequences on our business.
Our general business may be adversely affected by the recent economic downturn and volatile
business environment and continued unpredictable and unstable market conditions. We believe we are
well positioned with significant capital resources to meet our current working capital and capital
expenditure requirements. However, if the current equity and credit markets do not sustain
improvement or begin to deteriorate again, it may make any necessary future debt or equity
financing more difficult, more costly and more dilutive, and may result in adverse changes to
product reimbursement and pricing and sales levels, which would harm our operating results. 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
also 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 cost-effectively raise funds in the
public markets.
Additionally, other challenges resulting from the current economic environment include fluctuations
in foreign currency exchange rates, global pricing pressures, increases in national unemployment
impacting patients ability to access drugs, increases in uninsured or underinsured patients
affecting their ability to afford pharmaceutical products and increased U.S. free goods to
patients. 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 us.
If we use hazardous or potentially hazardous materials in a manner that causes injury or violates
applicable law, we may be liable for damages.
Our research and development activities involve the controlled use of hazardous or potentially
hazardous materials, including chemical, biological and radioactive materials. In addition, our
operations produce hazardous waste products. Federal, state and local laws and regulations govern
the use, manufacture, storage, handling and disposal of hazardous materials. We may incur
significant additional costs to comply with these and other applicable laws in the future. Also,
even if we are in compliance with applicable laws, we cannot completely eliminate the risk of
contamination or injury resulting from hazardous materials and we may incur liability as a result
of any such contamination or injury. In the event of an accident, we could be held liable for
damages or penalized with fines, and the liability could exceed our resources. We do not have any
insurance for liabilities arising from hazardous materials. Compliance with applicable
environmental laws and regulations is expensive, and current or future environmental regulations
may impair our research, development and manufacturing efforts, which could harm our business.
Our operating results are unpredictable and may fluctuate. If our operating results fail to meet
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 potential changes in 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 or region. In addition, we expect to incur significant operating expenses
associated with the development activities of ONX 0801 and carfilzomib. If we exercise our option
rights related to ONX 0803 and ONX 0805, we will be required to pay significant license fees and
would expect to incur significant development expenses for these compounds. We believe that our
quarterly and annual results of operations may be negatively affected by a variety of factors,
including but not limited to, the level of demand for Nexavar, reimbursement availability for
Nexavar in various countries, 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 ONX 0801, carfilzomib, ONX 0803 and additional products.
In addition, 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.
As a result of the acquisition of Proteolix, we made a payment of $40.0 million in April 2010 and
may be required to pay up to an additional $535.0 million in four earn-out payments upon the
receipt of certain regulatory approvals and the satisfaction of other
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milestones. We recorded a liability for this contingent consideration for the four earn-out
payments with a fair value of $261.6 million at September 30, 2010 based upon a discounted cash
flow model that uses significant estimates and assumptions. Any changes to these estimates and
assumptions could significantly impact the fair values recorded for this liability resulting in
significant charges to our Condensed Consolidated Statements of Operations. In addition, the terms
of the development and license agreement dated November 6, 2008 with BTG provide that we may be
required to make payments to BTG of up to $65.0 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.
It is, therefore, difficult for us to accurately forecast profits or losses. It is possible that in
some quarters our operating results could disappoint securities analysts or investors, which could
cause the trading price of our common stock to decline, perhaps substantially.
Our stock price is volatile and we are at risk of securities litigation, including class action
litigation, due to our expected stock price volatility.*
Our stock price is volatile and is likely to continue to be volatile. In the period beginning
January 1, 2007 and ending September 30, 2010, our stock price ranged from a high of $59.50 and a
low of $10.74. A variety of factors may have a significant effect on our stock price, including:
| fluctuations in our results of operations; | ||
| interim or final results of, or speculation about, clinical trials of Nexavar; | ||
| development progress of our early stage compounds; | ||
| decisions by regulatory agencies, or changes in regulatory requirements; | ||
| announcements by us regarding, or speculation about, our business development activities; | ||
| ability to accrue patients into clinical trials; | ||
| developments in our relationship with Bayer; | ||
| public concern as to the safety and efficacy of our product candidates; | ||
| changes in healthcare reimbursement policies; | ||
| announcements by us or our competitors of technological innovations or new commercial therapeutic products; | ||
| government regulation; | ||
| developments in patent or other proprietary rights or litigation brought against us; | ||
| sales by us of our common stock or debt securities; | ||
| changes in tax laws or interpretations of tax positions; | ||
| foreign currency fluctuations, which would affect our share of collaboration profits or losses; and | ||
| general market conditions. |
In the past, stockholders have often brought securities 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
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Phase 3 trials for NSCLC 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.
With our acquisition of Proteolix, we may be required to pay up to $535.0 million in earn-out
payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones.
We may, at our discretion, make any of the earn-out payments, except the first, that become payable
to former holders of Proteolix preferred stock, in the form of cash, shares of Onyx common stock or
a combination thereof. If we elect to issue shares of our common stock in lieu of making an
earn-out payment in cash, this would have a dilutive effect on our common stock and could cause the
trading price of our common stock to decline.
We may in the future be the target of securities litigation, including 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.
We have a history of losses, and we may be unable to sustain profitability.*
For the nine months ended September 30, 2010, we reported a net loss of $67.7 million, following
profitability in the amounts of $16.2 million and $1.9 million for the years ended December 31,
2009 and 2008, respectively. Prior to these periods, we have sustained substantial losses. As of
September 30, 2010, we had an accumulated deficit of approximately $522.3 million. We have incurred
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 might
incur operating losses in the future 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, and
if approved, commercialization of ONX 0801, carfilzomib and our other product candidates. Upon the
attainment of specified milestones, we are required to make milestone payments to BTG. Similarly,
with the acquisition of Proteolix, we made a payment of $276.0 million in cash upon closing, a
$40.0 million milestone related payment in April 2010 and may be required to make up to
$535.0 million in earn-out payments upon the receipt of certain regulatory approvals and the
satisfaction of other milestones. Exercising any of our option rights under our agreement with
S*BIO will also cause us to incur additional operating expenses. 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, obtaining regulatory approval for and successfully commercializing
carfilzomib, and control of our operating expenses.
We incurred significant indebtedness through the sale of our 4.0% convertible senior notes due
2016, and we may incur additional indebtedness in the future. The indebtedness created by the sale
of the notes and any future indebtedness we incur exposes us to risks that could adversely affect
our business, financial condition and results of operations.
We incurred $230.0 million of senior indebtedness in August 2009 when we sold $230.0 million
aggregate principal amount of 4.0% convertible senior notes due 2016, or the 2016 Notes. We may
also incur additional long-term indebtedness or obtain additional working capital lines of credit
to meet future financing needs. Our indebtedness could have significant negative consequences for
our business, results of operations and financial condition, including:
| increasing our vulnerability to adverse economic and industry conditions; | ||
| limiting our ability to obtain additional financing; | ||
| requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes; | ||
| limiting our flexibility in planning for, or reacting to, changes in our business; and | ||
| placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources. |
We cannot assure stockholders that we will continue to maintain sufficient cash reserves or that
our business will continue to generate cash flow from operations at levels sufficient to permit us
to pay principal, premium, if any, and interest on our indebtedness, or that
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our cash needs will not increase. If we are unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments, or if we fail to comply with the various
requirements of the 2016 Notes, or any indebtedness which we may incur in the future, we would be
in default, which would permit the holders of the 2016 Notes and such other indebtedness to
accelerate the maturity of the notes and such other indebtedness and could cause defaults under the
2016 Notes and such other indebtedness. Any default under the notes or any indebtedness which we
may incur in the future could have a material adverse effect on our business, results of operations
and financial condition.
The conditional conversion features of the 2016 Notes, if triggered, may adversely affect our
financial condition and operating results.
In the event the conditional conversion features of the 2016 Notes are triggered, holders of the
2016 Notes will be entitled to convert the 2016 Notes at any time during specified periods at their
option. If one or more holders elect to convert their 2016 Notes, unless we elect to satisfy our
conversion obligation by delivering solely shares of our common stock, we would be required to make
cash payments to satisfy all or a portion of our conversion obligation based on the applicable
conversion rate, which could adversely affect our liquidity. In addition, even if holders do not
elect to convert their 2016 Notes, we could be required under applicable accounting rules to
reclassify all or a portion of the outstanding principal of the 2016 Notes as a current rather than
long-term liability, which could result in a material reduction of our net working capital.
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, carfilzomib and ONX 0801, and if we exercise our
option rights, ONX 0803 and ONX 0805, including manufacturing, clinical trials and regulatory
approval. Also, we may need funds to develop our early stage product candidates ONX 0912 and ONX
0914, to acquire rights to additional product candidates, or acquire new or complementary
businesses. Our future capital requirements will depend upon a number of factors, including:
| revenue from our product sales; | ||
| global product development and commercialization activities; | ||
| the cost involved in enforcing patents against third parties and defending claims by third parties; | ||
| the costs associated with acquisitions or licenses of additional products; | ||
| the cost of acquiring new or complementary businesses; | ||
| competing technological and market developments; and | ||
| future fee and milestone payments to BTG, S*BIO and former stockholders of Proteolix. |
We may not be able to raise additional capital on favorable terms, or at all. 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 seek to acquire new or complementary businesses, we may need
additional funds sooner than we expect. In addition, we anticipate that our expenses related to the
development of ONX 0801, carfilzomib and our share of expenses under our collaboration with Bayer
will increase over the next several years. While these costs are unknown at the current time, we
may need to raise additional capital and may be unable to do so.
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.
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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 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.
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.
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 or
unintended consequences from our currency contracts.*
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. Under our collaboration agreement, we are currently funding 50% of mutually agreed
development costs worldwide, excluding Japan. In all foreign countries, except Japan, Bayer first
receives a portion of product revenues to repay Bayer for its foreign commercialization
infrastructure, after which we receive 50% of net profits on sales of Nexavar. Bayer is funding
100% of development costs in Japan and pays us a single-digit royalty on Nexavar sales in Japan.
Therefore, when these sales and expenses are translated into U.S. dollars by Bayer in determining
amounts payable to us or payable by us, we are exposed to fluctuations in foreign currency exchange
rates. In July 2010 we began entering into transactions to manage our exposure to fluctuations in
foreign currency exchange rates. These contracts are intended to reduce the effects of variations
in currency exchange rates. Such transactions may expose us to the risk of financial loss in
certain circumstances, including instances in which there is a change in the expected differential
between the underlying exchange rate in the contracts and actual exchange rate.
The primary foreign currencies in which we have exchange rate fluctuation exposure are the Euro and
the Japanese Yen. As we expand our business geographically, we could be exposed to exchange rate
fluctuation in other currencies. Exchange rates between these currencies and the U.S. dollar 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.
Changes in accounting may affect our financial position and results of operations.*
U.S. generally accepted accounting principles and related implementation guidelines and
interpretations can be highly complex and involve subjective judgments. Changes in these rules or
their interpretation, the adoption of new pronouncements or the application of existing
pronouncements to changes in our business could significantly affect our financial position and
results of operations.
For example, in May 2008, Accounting Standards Codification (ASC) 470-20 was issued. Under ASC
470-20 issuers of certain convertible debt instruments that have a net settlement feature and may
be settled in cash upon conversion, including partial cash settlement, are required to separately
account for the liability (debt) and equity (conversion option) components of the instrument. The
carrying amount of the liability component of any outstanding debt instrument is computed by
estimating the fair value of a similar liability without the conversion option. The amount of the
equity component is then calculated by deducting the fair value of the liability component from the
principal amount of the convertible debt instrument. We adopted ASC 470-20 beginning January 1,
2009. Based on the requirements of ASC 470-20, we reported imputed interest expense related to the
2016 Notes of approximately $2.3 million and $6.7 million for the three and nine months ended
September 30, 2010.
In December 2007, the FASB issued ASC 805. which establishes principles and requirements for
recognizing and measuring assets acquired, liabilities assumed and any non-controlling interests in
the acquired target in a business combination. ASC 805 also provides
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guidance for recognizing and measuring goodwill acquired in a business combination; requires
purchased in-process research and development to be capitalized at fair value as intangible assets
at the time of acquisition; requires acquisition-related expenses and restructuring costs to be
recognized separately from the business combination; expands the definition of what constitutes a
business; and requires the acquirer to disclose information that users may need to evaluate and
understand the financial effect of the business combination. We adopted ASC 805 as of January 1,
2009, which had a material impact on the accounting for our acquisition of Proteolix in November
2009. Additionally, any changes in the fair value of the contingent consideration liability that
resulted from the Proteolix acquisition could have a material impact on our financial position and
results of operations.
In October 2009, the FASB issued ASU 2009-13, impacting the determination of when the individual
deliverables included in a multiple element arrangement may be treated as separate units of
accounting. Additionally, ASU 2009-13 modifies the manner in which the transaction consideration is
allocated across the separately identified deliverables by no longer permitting the residual method
of allocating arrangement consideration. In April 2010, the FASB issued ASU 2010-17, to (1) limit
the scope of this ASU to research or development arrangements and (2) require that guidance in this
ASU be met for an entity to apply the milestone method (record the milestone payment in its
entirety in the period received). However, the FASB clarified that, even if the requirements in
this ASU are met, entities would not be precluded from making an accounting policy election to
apply another appropriate accounting policy that results in the deferral of some portion of the
arrangement consideration. Entities can apply ASU 2009-13 and ASU 2010-17 prospectively to
milestones achieved after adoption, and retrospective application to all prior periods is also
permitted.
We elected to early adopt ASU 2009-13 effective January 1, 2010. If we account for new transactions that we may enter into under ASU 2009-13 and subsequently determine that such transactions need to be accounted for in a
different manner, this could have a material impact on our financial position and results of
operations.
Provisions in our collaboration agreement with Bayer may impact certain change in control transactions.*
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, or if a single entity other than Bayer or its affiliate
acquires ownership of a majority of the Companys outstanding voting stock, 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. Under the royalty formula, an acquisition transaction that
occurred prior to the fifth anniversary of the initial regulatory
approval of Nexavar, or December 20, 2010, could substantially reduce the economic value derived from the sales of Nexavar to us or our successor as compared to the
economic value of the profit share interest we would have received absent such an acquisition. However, in the
event of an acquisition transaction that closes on or after December 20, 2010, we believe the economic value of the
royalty amount, which would depend in part on the expected profitability of Nexavar for the remaining patent life of
Nexavar, could be substantially equivalent to the economic value of the profit share interest for Nexavar during the
remaining patent life absent such an acquisition transaction.
The potential for disagreements and disputes with Bayer regarding interpretation and implementation of these
provisions could have the effect of delaying or preventing a change in control, or a sale of all or substantially all of
our assets, or could reduce the number of companies interested in acquiring us. However, we believe that a
reorganization transaction in which the persons who held majority ownership of Onyx prior to the transaction
continue to hold majority ownership of Onyx, directly or through a parent company, after the transaction would be
outside the scope of the foregoing provision of the collaboration agreement. Moreover, we believe that a merger
transaction in which Onyx was the surviving entity would also be outside the scope of the foregoing provision of the
collaboration agreement.
Existing stockholders have significant influence over us.
Our executive officers, directors and 5% stockholders own, in the aggregate, approximately 28% 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.
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Provisions in the indenture for the 2016 Notes may deter or prevent a business combination.
If a fundamental change occurs prior to the maturity date of the 2016 Notes, holders of the notes
will have the right, at their option, to require us to repurchase all or a portion of their notes.
In addition, if a fundamental change occurs prior to the maturity date of 2016 Notes, we will in
some cases be required to increase the conversion rate for a holder that elects to convert its
notes in connection with such fundamental change. In addition, the indenture for the notes
prohibits us from engaging in certain mergers or acquisitions unless, among other things, the
surviving entity assumes our obligations under the 2016 Notes. These and other provisions could
prevent or deter a third party from acquiring us even where the acquisition could be beneficial to
our stockholders.
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:
| the board of directors approved the transaction where the stockholder acquired 15% or more of the corporations stock; | ||
| 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 | ||
| on or after this date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder. |
As such, these laws could prohibit or delay mergers or a change of control of us and may discourage
attempts by other companies to acquire us.
Our certificate of incorporation and bylaws include a number of provisions that may deter or impede
hostile takeovers or changes of control or management. These provisions include:
| our board is classified into three classes of directors as nearly equal in size as possible with staggered three-year terms; | ||
| the authority of our board to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of these shares, without stockholder approval; | ||
| all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent; | ||
| special meetings of the stockholders may be called only by the chairman of the board, the chief executive officer, the board or 10% or more of the stockholders entitled to vote at the meeting; and | ||
| 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. (Removed and Reserved)
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
2.1 (1)*
|
Agreement and Plan of Merger dated as of October 10, 2009 among Onyx Pharmaceuticals, Inc., Proteolix, Inc., Profiterole Acquisition Corp., and Shareholder Representative Services LLC. | |
3.1 (2)
|
Restated Certificate of Incorporation of the Company. | |
3.2 (3)
|
Amended and Restated Bylaws of the Company. | |
3.3 (4)
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation. | |
3.4 (5)
|
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 (2)
|
Specimen Stock Certificate. | |
4.3(6)
|
Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National Association. | |
4.4(6)
|
First Supplemental Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National Association. | |
4.5(6)
|
Form of 4.00% Convertible Senior Note due 2016. | |
10.13 (i) (7)+
|
2005 Equity Incentive Plan, as amended. | |
10.31+
|
Letter Agreement between the Company and Kaye Foster-Cheek, effective as of September 30, 2010. | |
10.32+
|
Separation and Consulting Agreement between the Company and Judy Batlin, effective as of September 30, 2010. | |
10.33
|
Lease Agreement between the Company and ARE-SAN FRANCISCO No. 12, LLC, dated as of July 9, 2010, as amended by that certain Letter Agreement between the Company and ARE-SAN FRANCISCO No. 12, LLC, dated as of July 9, 2010. | |
10.34
|
Sublease between the Company and Exelixis, Inc., dated as of July 9, 2010. | |
10.35
|
License, Development and Commercialization Agreement between the Company and Ono Pharmaceutical Co., Ltd., dated as of September 7, 2010. | |
31.1 (8)
|
Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2 (8)
|
Certification of Chief Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
32.1 (8)
|
Certifications required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |
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101***
|
The following materials from Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, (ii) Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009, (iii) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009, and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
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| Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission. | |
* | Certain schedules related to identified agreements and persons have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Securities and Exchange Commission. | |
+ | Management contract or compensatory plan. | |
(1) | Filed as an exhibit to the Companys Current Report on Form 8-K filed on October 13, 2009. | |
(2) | Filed as an exhibit to the Companys Registration Statement on Form SB-2 (No. 333-3176-LA). | |
(3) | Filed as an exhibit to Companys Current Report on Form 8-K filed on December 5, 2008. | |
(4) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. | |
(5) | Filed as an exhibit to the Companys Registration Statement on Form S-3 (No. 333-134565) filed on May 30, 2006. | |
(6) | Filed as an exhibit to Companys Current Report on Form 8-K filed on August 12, 2009. | |
(7) | Filed as an exhibit to Companys Current Report on Form 8-K filed on May 28, 2010. | |
(8) | This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. | |
*** | XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Exchange Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
ONYX PHARMACEUTICALS, INC. |
||||
Date: November 3, 2010 | By: | /s/ N. Anthony Coles | ||
N. Anthony Coles | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: November 3, 2010 | By: | /s/ Matthew K. Fust | ||
Matthew K. Fust | ||||
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | ||||
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EXHIBIT INDEX
2.1 (1)*
|
Agreement and Plan of Merger dated as of October 10, 2009 among Onyx Pharmaceuticals, Inc., Proteolix, Inc., Profiterole Acquisition Corp., and Shareholder Representative Services LLC. | |
3.1 (2)
|
Restated Certificate of Incorporation of the Company. | |
3.2 (3)
|
Amended and Restated Bylaws of the Company. | |
3.3 (4)
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation. | |
3.4 (5)
|
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 (2)
|
Specimen Stock Certificate. | |
4.3(6)
|
Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National Association. | |
4.4(6)
|
First Supplemental Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National Association. | |
4.5(6)
|
Form of 4.00% Convertible Senior Note due 2016. | |
10.13 (i) (7)+
|
2005 Equity Incentive Plan, as amended. | |
10.31+
|
Letter Agreement between the Company and Kaye Foster-Cheek, effective as of September 30, 2010. | |
10.32+
|
Separation and Consulting Agreement between the Company and Judy Batlin, effective as of September 30, 2010. | |
10.33
|
Lease Agreement between the Company and ARE-SAN FRANCISCO No. 12, LLC, dated as of July 9, 2010, as amended by that certain Letter Agreement between the Company and ARE-SAN FRANCISCO No. 12, LLC, dated as of July 9, 2010. | |
10.34
|
Sublease between the Company and Exelixis, Inc., dated as of July 9, 2010. | |
10.35
|
License, Development and Commercialization Agreement between the Company and Ono Pharmaceutical Co., Ltd., dated as of September 7, 2010. | |
31.1 (8)
|
Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2 (8)
|
Certification of Chief Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
32.1 (8)
|
Certifications required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
101***
|
The following materials from Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, (ii) Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009, (iii) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009, and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
| Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission. | |
* | Certain schedules related to identified agreements and persons have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Securities and Exchange Commission. | |
+ | Management contract or compensatory plan. |
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(1) | Filed as an exhibit to the Companys Current Report on Form 8-K filed on October 13, 2009. | |
(2) | Filed as an exhibit to the Companys Registration Statement on Form SB-2 (No. 333-3176-LA). | |
(3) | Filed as an exhibit to the Companys Current Report on Form 8-K filed on December 5, 2008. | |
(4) | Filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. | |
(5) | Filed as an exhibit to the Companys Registration Statement on Form S-3 (No. 333-134565) filed on May 30, 2006. | |
(6) | Filed as an exhibit to Companys Current Report on Form 8-K filed on August 12, 2009. | |
(7) | Filed as an exhibit to Companys Current Report on Form 8-K filed on May 28, 2010. | |
(8) | This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing. | |
*** | XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Exchange Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
56