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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE YEAR ENDED DECEMBER 31, 1998.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 0-28298
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ONYX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3154463
(State or other jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
3031 RESEARCH DRIVE
RICHMOND, CALIFORNIA 94806
(510) 222-9700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK $.001 PAR VALUE NASDAQ NATIONAL MARKET
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant based upon the last trade price of the common stock reported on the
Nasdaq National Market on March 19, 1999 was approximately $44,162,000.
The number of shares of common stock outstanding as of March 19, 1999 was
11,463,012.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Company's Definitive Proxy Statement filed with the Commission
pursuant to Regulation 14A in connection with the 1999 Annual Meeting are
incorporated herein by reference into Part III of this Report.
Certain Exhibits filed with the Company's Registration Statement on Form
SB-2 (Registration No. 333-3176-LA), as amended, the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, the Company's Quarterly Reports
on Form 10-Q for the quarters ended June 30, 1996, March 31, 1997 and September
30, 1997 and the Company's Current Report on Form 8-K filed on January 26, 1998,
are incorporated by reference into Part IV of this Report.
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PART I.
ITEM 1. BUSINESS
OVERVIEW
Onyx Pharmaceuticals, Inc. ("Onyx" or the "Company") is engaged in the
discovery and development of novel therapeutics based upon the genetics of human
disease, with an emphasis on cancer. The Company's strategy is to capitalize on
the discoveries that have established cancer as a genetic disease. When certain
genes are mutated, cells grow and proliferate unchecked and become resistant to
internal mechanisms that would normally cause their death. The Company's drug
discovery and development programs focus on innovative therapies that target the
most frequent mutations causing cancer.
The Company's lead product, ONYX-015, is an adenovirus that has been
modified to replicate in and kill cancer cells that have abnormal p53-pathway
function. Mutations in the p53 gene occur in over 50% of human cancer cases, but
it is believed that many other cancers have abnormal p53 function due to other
mutations in the p53-pathway. The Company has completed Phase II studies of
ONYX-015 as a single agent and in combination with chemotherapy in patients with
head and neck cancer, and the results will be updated in the second quarter of
1999. The Company is also currently conducting a Phase I/II human clinical trial
in pancreatic cancer designed to determine the efficacy of ONYX-015 when
administered intratumorally using endoscopic ultrasound, both as a single agent
and in combination with chemotherapy. The Company is also conducting a Phase
I/II human clinical trial in patients with colorectal cancers that have
metastasized to the liver. The trial is designed to determine the safety,
maximum tolerated dose, and efficacy of ONYX-015 when administered via the
hepatic artery, both as a single agent and in combination with chemotherapy.
Additionally, a Phase I clinical trial is ongoing in ovarian cancer.
Onyx has established six therapeutic drug discovery and development programs
based on the following genetic mutations in cancer: p53, RB, ras, cell cycle
checkpoints, BRCA1 and APC. The Company has two product development platforms to
address these mutations. The first is a proprietary therapeutic virus platform,
and the second is a small molecule drug discovery platform.
The Company's overall business strategy is to enter into collaborations with
corporate partners at different development stages depending on the platform in
each of its drug development programs in order to gain complementary resources
and skills in clinical trials, regulatory affairs, and marketing and sales
operations. Small molecule drug discovery collaborations also access chemistry
technology.
The Company is engaged in collaborative research with corporate partners in
two of its cancer programs--Warner-Lambert Company ("Warner-Lambert") in the
cell cycle program and Eli Lilly & Company ("Eli Lilly") in the BRCA1 program.
The Company also is engaged in a collaborative research partnership with
Warner-Lambert in the area of inflammation and autoimmune diseases.
Additionally, as of February 1, 1999, the Company's cancer program collaboration
with Bayer Corporation ("Bayer") in the ras program transitioned from research
activities to co-development of a clinical candidate.
CANCER
Cancer is a heterogeneous group of diseases characterized by uncontrolled
growth and proliferation of abnormal cells. Cancer accounts for 25% of all
deaths in the United States, ranking second only to cardiovascular disease.
According to estimates by the American Cancer Society, approximately 1.2 million
new cases of cancer are expected to be diagnosed in 1999, and approximately
563,100 cancer deaths are expected to occur. Despite increased cancer screening
and earlier diagnosis, and notwithstanding improved surgical procedures and new
therapeutic regimens, there has been a steady rise in the overall cancer
mortality rate in the United States over the past 50 years. However, recent
studies have reported a decline in the incidence and death rates for cancer
between 1990 and 1995.
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Estimates for 1999 of new cancer cases and cancer deaths in the United
States are presented below for some of the solid tumors that are targeted by the
Company's drug discovery programs.
ESTIMATED DEATHS AND NEW CANCER CASES
UNITED STATES, 1999
CANCER TYPE DEATHS NEW CASES
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Lung....................................................................................... 158,900 171,600
Colon and rectum........................................................................... 56,600 129,400
Breast..................................................................................... 43,700 176,300
Prostate................................................................................... 37,000 179,300
Pancreas................................................................................... 28,600 28,600
Ovary...................................................................................... 14,500 25,200
Head and neck*............................................................................. 12,300 40,400
Kidney..................................................................................... 11,900 30,000
Bladder.................................................................................... 12,100 54,200
Melanoma................................................................................... 7,300 44,200
Uterus..................................................................................... 6,400 37,400
Cervix..................................................................................... 4,800 12,800
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* Includes cancers of the larynx, tongue, mouth, oral cavity and pharynx.
Source: American Cancer Society
According to the National Institutes of Health, the direct costs of cancer
patient care in the United States are estimated at $37 billion per year. The
cancer drug market in the United States was estimated to be approximately $4
billion in 1998, which accounts for slightly more than 10% of the direct costs
of cancer patient care. The Company believes that the worldwide cancer drug
market is approximately $7.5 billion per year.
A major limitation in the treatment of cancer is the use of chemotherapy
regimens that utilize cytotoxic drugs which discriminate poorly between
malignant tumor cells and other normal healthy cells in the human body.
Therefore, treatment with these drugs can have serious adverse side effects,
which frequently limit therapy. Biological drugs, such as interferons, have, in
some cases, represented an improvement over classic cytotoxic therapy but have
proven effective on a limited basis in only certain types of cancer.
GENETIC BASIS OF CANCER
Cancer is caused by a number of genetic changes, or mutations, which give
the cancer cell a selective growth and survival advantage over normal cells.
Some of these mutations result in an increased rate of cell division while
others result in a decreased rate of cell death, the result of which is
uncontrolled cell proliferation. The precise mechanisms by which these mutations
achieve their effects are becoming better understood, providing opportunities
for therapeutic intervention directly at the cause of the disease.
Mutations that increase the rate of cell division affect two major growth
control events in cells. The first regulates the cell cycle, which is the
process by which all cells duplicate themselves. During the cell cycle, certain
proteins act as natural checkpoints to control orderly replication and to ensure
the fidelity of the process. If cells grow too rapidly or an error occurs in the
replication of DNA, these checkpoint proteins act to stop cell growth. If
mutations occur in checkpoint genes, uncontrolled growth can result. The Company
believes that the cell cycle checkpoints are deactivated in approximately 90% of
human cancer cells. Growth regulatory genes whose loss of function results in
uncontrolled cell growth are referred to as tumor suppressor genes. Certain
tumor suppressor genes, such as p53 and RB, also act as
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checkpoint controls for cell growth and division. Mutations occur in the p53 and
RB genes themselves and in genes in the pathways that regulate their function.
The second major set of growth control events is in the ras pathway. Ras is
normally involved in instructing cells to divide in response to external
signals, such as growth factors. Mutations in the ras gene cause the cell to
divide continuously, even in the absence of external signals. The ras gene is
thus activated in many types of cancer cells. Growth regulatory genes that are
activated when mutated are referred to as oncogenes. Mutations in ras are
detected in 90% of pancreatic cancers, 50% of colon and small cell lung cancers
and approximately 30% of many other cancers.
In addition, cells in the body possess a programmed cell death mechanism
that can be activated under certain conditions. This process is referred to as
apoptosis or cell suicide. Apoptosis can be triggered if uncontrolled cell
division is detected or if the cell has sustained irreparable damage to its
macromolecular components. The most frequent mechanism for inactivating the
apoptosis pathway is through mutations in the p53 gene. These p53 mutations
allow damaged or abnormal cells to survive and proliferate and are observed in
over 50% of human cancer cases. Recently, a gene known as p14ARF has been
identified that appears to regulate the activity of p53 protein in cells.
Mutations in p14ARF can also result in the apparent loss of p53 protein
function, even though the p53 gene itself is unaltered. The relationship between
p14ARF, p53 and the downstream targets of p53 is referred to as the
"p53-pathway". Alterations of the p14ARF locus have been detected in a large
percentage of human cancers of different tissue origins. Mutations in p53 or
p14ARF are shown to be exclusive, suggesting that a great majority of human
cancers may alter the p53-pathway and escape cell growth control via either p53
or p14ARF gene inactivations.
In addition to the pathways described above, there are other genes that play
a major role in human cancer. These include the tumor suppressor gene BRCA1
which is associated with hereditary breast and ovarian cancers, and the APC
gene, whose loss of function is implicated in nearly all colon cancers.
ONYX TECHNOLOGY
Onyx's research is directed toward identifying the function of genes
associated with cancer, including p53, RB, ras, cell cycle checkpoints, APC, and
BRCA1. Insights into the pathways through which these genes operate are used by
Onyx to identify components that might be targets for drug intervention.
The methodologies used to assign functions to genes are collectively
referred to as "functional genomics." Onyx scientists have been involved in this
process and have ascribed functions to a number of cancer genes and delineated
the signaling pathways by which they regulate function. This has been
accomplished through the use of a number of technologies, including expression
of recombinant proteins in different cell systems, novel tagging methods which
allow rapid purification of recombinant proteins for functional studies,
screening technologies which identify interactions of unknown gene products with
known proteins, and various methods used to either inhibit protein expression or
function in human cells.
Proteins, that are either directly encoded by cancer genes or situated along
pathways in which the cancer genes operate, are potential targets for
therapeutic intervention. Once the biochemical functions of a gene are
identified, Onyx employs various technologies, including "reverse genetics," to
interfere with these functions and assess the consequences in cell-based
systems. Potential targets are then "validated" by confirming that interference
with the target either modulates or reverses the cancerous process.
After a target is validated, Onyx evaluates and implements work on potential
approaches for using the target for drug discovery. One such approach is to
develop high throughput screening assays to identify small molecule drugs that
interfere with the function of the target. This approach is particularly
applicable to targets such as oncogenes, which are activated by mutation.
Targets that involve loss of function through mutation, such as tumor
suppressor genes, have been more difficult to approach. Onyx has discovered and
is developing a proprietary new technology based on the use of therapeutic
viruses to target human cancer cells containing mutant tumor suppressor genes,
such
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as p53. The therapeutic virus technology uses genetically engineered viruses to
selectively kill cancer cells in which the tumor suppressor gene is
nonfunctional.
In addition to cancer genes, functional genomics can be applied to any other
gene of unknown function, including novel genes discovered by the Human Genome
Project and other groups engaged in gene sequencing. The Company intends to
continue to apply its functional genomics technology to the discovery of new
therapeutic strategies for cancer and for other major diseases that have a
genetic component.
DRUG DISCOVERY AND DEVELOPMENT PROGRAMS
Onyx has established six drug discovery and development programs based on
genetic mutations in cancer and an additional program focused on signaling
pathways involved in inflammatory and immune disorders. Although the focus of
the initial six programs is the treatment of cancer, there may be other diseases
addressed by product leads discovered in these programs, as evidenced by the
inflammation drug discovery program.
ONYX DRUG DISCOVERY AND DEVELOPMENT PROGRAMS
PROGRAM PRODUCT INDICATION STATUS PARTNER
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p53 ONYX-015 Head and neck cancer Phase II
therapeutic virus Pancreatic cancer; colorectal metastases Phase I/II
to the liver
Ovarian cancer Phase I
Other cancers Preclinical
RB ONYX-838 and other RB pathway mutations Preclinical
therapeutic viruses
under evaluation for
RB pathway
selectivity
Cell Cycle Small molecule Most cancer indications; other Preclinical, lead Warner-
inhibitors proliferative diseases compound Lambert
designated
Ras Small molecule Colon, lung, pancreatic, and other Development Bayer
inhibitors cancers; other proliferative diseases
BRCA1 Inhibitors of BRCA1 Breast and ovarian cancer Research Eli Lilly
pathways
APC Inhibitors of Colon cancer and other cancers with Research
-catenin pathways alterations in -catenin pathway
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PROGRAM PRODUCT INDICATION STATUS PARTNER
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Inflammation Small molecule Inflammation and autoimmunity Discovery Warner-
inhibitors Lambert
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Phase II: Second phase of human clinical testing to obtain additional safety data and
to determine an optimal treatment protocol for potential use in a pivotal
trial.
Phase I: Initial phase of human clinical testing to determine safety and maximum
tolerated dose.
Development: Formulation development, expanded efficacy and formal toxicology testing of
compound selected for IND.
Preclinical: Pharmacological and exploratory toxicological testing in animals prior to a
decision to begin IND.
Discovery: Initiation of screening by Onyx's partner using validated assays developed by
Onyx.
Research: Identifying and validating mutated genes and protein targets
P53 PROGRAM
Mutations in the p53 gene occur in over 50% of human cancer cases, but it is
believed that many other cancers have abnormal p53 function due to other
mutations in the p53-pathway. In cells, p53 protein levels and activity may
increase in response to a number of stimuli including DNA damage, viral DNA
replication and protein expression. One of the functions of normal p53 in the
cells is to either stop the cell cycle from proceeding until such errors are
corrected or to induce apoptosis (cell suicide). Loss of p53-pathway function is
associated with decreased survival rates in patients afflicted with breast,
prostate, lung and bladder cancers.
The Company's lead product, ONYX-015, is a genetically engineered adenovirus
that, when tested in preclinical studies IN VITRO, in immunodeficient mice, and
in patients in human clinical studies, has replicated in and killed tumor cells
deficient in p53-pathway function.
Adenoviruses are common, relatively benign viruses that are widespread in
human populations. When an unmodified adenovirus infects a normal cell, it turns
the cell into a factory for producing viral DNA and proteins and the eventual
assembly of these macromolecules into infectious viral particles in the cell's
nucleus. The infection cycle is complete when the cell is killed and thousands
of new virus particles are released to infect neighboring cells. To take control
of the cell, the virus must inactivate p53, which acts to prevent abnormal DNA
replication. To inactivate p53, the virus makes a protein called E1B 55k, which
binds directly to p53 and blocks its function. Once p53 has been inactivated,
the virus can replicate its DNA and proceed through its infection cycle.
ONYX-015 is a serotype 5 human adenovirus that has been modified so that it
cannot make E1B 55k. As a result, it is incapable of disarming the p53 protein
when it infects normal cells. Thus the virus is attenuated in its ability to
complete its infection cycle and kill normal cells. However, in the majority of
cancer cells, the p53-pathway is already disarmed through mutation of the p53
gene or other mechanisms that control the quantities of p53 protein in normal
cells but are dysfunctional in cancer cells. For example, alterations in the
p14ARF and mdm-2 genes result in degradation of the p53 protein and, therefore,
decrease its function in the cell. When ONYX-015 infects cells lacking
p53-pathway function, the virus growth cycle should proceed unchecked. It is
expected that the cancer cells will be killed, new virus particles will be
produced, and neighboring cancer cells will be infected and killed.
IN VITRO and IN VIVO animal tests by the Company have shown that ONYX-015
replicates in and kills tumor cells with mutant p53 gene sequence. In addition,
the Company has shown that tumor cells with normal p53 gene sequence but lacking
p53 function are also destroyed by ONYX-015. The ONYX-015 replication and cell
killing effect is markedly reduced in numerous normal cell types. The p53
program
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includes a research program which studies ONYX-015, and other viruses as well,
to learn more about their impact on normal cells and cells deficient in
p53-pathway function.
In animal studies, ONYX-015 was shown to cause tumor shrinkage and complete
tumor regressions in some immunodeficient mice in which p53-deficient human
tumor cell lines of various types were grown. ONYX-015 was found to be well
tolerated in safety studies in animals. However, ONYX-015 efficacy has not been
tested in animals with a fully functioning immune system, and the effect of the
human immune response on ONYX-015 efficacy is unknown. No reliable
immunocompetent animal tumor model currently exists. The Company has a project
underway to develop such a mouse tumor model. Based in part on a study conducted
in the 1950s with unmodified adenovirus, the Company believes that the human
immune response may reduce anti-tumor effects of ONYX-015 that would be observed
in the absence of such a response. However, the extent of this effect cannot be
predicted. If such reduction in anti-tumor effect is substantial, the Company
may be required to engineer additional genes into the virus, to explore
alternative viral strains, or to include immunosuppressive drugs as part of the
clinical regimen for ONYX-015.
Initial research and clinical development of ONYX-015 in the p53 program was
focused on direct intratumoral dosing of the virus. The next step was to
introduce the virus regionally, as has been done in the ovarian cancer Phase I
trial, by delivering the virus into the peritoneal cavity via indwelling
catheter, and in the Phase I/II trial involving colorectal cancer that has
metastasized to the liver, via infusion into the hepatic artery. In order to
meet the needs of a wider spectrum of cancer patients and to treat metastatic
cancers, the virus would need to be delivered systemically. Research is underway
to attempt to formulate or modify the virus for systemic delivery. Onyx has
collaborated with a third party, which has proprietary technology for coating
adenovirus with polyethylene glycol ("PEG"), a process called PEGylation.
Preclinical studies have shown that ONYX-015 can be PEGylated and maintain
infectivity. PEGylation of the virus may increase the circulating lifetime of
the virus in the bloodstream by reducing the clearing efficiency of the liver
with consequential increased uptake of the virus by tumors. If PEGylation is not
successful, other modifications to the virus to improve targeting to specific
tumor types or reduce inherent immunogenicity of the virus may be required.
Since fewer virus particles are likely to reach the target tumor cells, a number
of enhancements to the virus may be desirable. One area of research focuses on
engineering changes to the viral genome to enhance potency by increasing
replication or cell lysis efficiencies.
PHASE I HEAD & NECK CLINICAL TRIAL
In April 1996, the Company initiated a Phase I, open label, dose escalation
clinical trial in recurrent or locally advanced squamous cell carcinoma of the
head and neck. The trial was conducted in the United States and the United
Kingdom. The primary objectives of this Phase I study were to determine the
safety of directly injecting ONYX-015 into tumors of the head and neck, to
determine the maximum tolerated dose, and to assess the safety of repeat
treatment. Patients in this study had previously received a range of treatments
including surgery, radiation and chemotherapy, individually or in combination.
A total of 32 patients were treated in the Phase I trial, of which 13
patients received repeat treatments. Two dosing regimens were utilized.
Twenty-three patients received a single, direct intratumoral injection that
could be repeated every 28 days for patients whose tumors did not progress after
the first injection. An additional nine patients received direct intratumoral
injections daily over five days, also with the option of repeat treatment.
ONYX-015 was well tolerated, and investigators observed no dose limiting
toxicities. Mild, transient flu-like symptoms were observed in approximately 30%
of the single dose patients and in approximately 60% of the multiple dose
patients.
While the focus of this study was safety, the effect of injection on tumor
growth was a secondary objective of the study. Of the 23 patients receiving
single injection treatment, three experienced more than 50% reduction in the
size of their injected tumors. Several patients experienced lesser degrees of
tumor necrosis, including nine patients whose tumors were stable and
non-progressive following initial treatment.
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Of the nine patients treated with the virus daily for five days, three
experienced more than 50% reduction in the size of their injected tumors. An
additional three patients were stable and non-progressive following initial
treatment. In some patients, tumor necrosis was associated with clinical
benefit, including decreased pain, improved ability to swallow and improved
speech.
Researchers also studied the ability of ONYX-015 to replicate in tumors, as
well as the local and systemic immune response to the virus. Viral replication
was detected in two of 13 patients with evaluable biopsies on the single dose
regimen, and in four of four patients with evaluable biopsies on the multiple
dose regimen, seven or eight days following the patient's first ONYX-015
injection. Viral replication was less pronounced than was the case in animal
studies. While approximately 70% of the 28 patients tested entered the study
with neutralizing antibodies to the adenovirus, after treatment, all patients in
the study had neutralizing antibodies, including those patients who experienced
tumor necrosis. Additional clinical research is planned to determine if other
immune and inflammatory factors may be either limiting or enhancing tumor
necrosis.
OTHER PHASE I CLINICAL TRIALS
The Company opened three additional Phase I open label, dose escalation
clinical trials with ONYX-015 in 1997. Two of these trials utilized direct
intratumoral dosing regimens; one in patients with pancreatic cancer, and one in
patients with gastrointestinal metastases to the liver. The Company also opened
a Phase I trial in patients with ovarian cancer--the first trial to test use of
ONYX-015 in a regional administration by intraperitoneal injection. During 1998,
the Company reported the results of the Phase I trials in patients with
pancreatic cancer and in patients with gastrointestinal metastases to the liver.
The trial in patients with ovarian cancer is still in progress and results have
not yet been reported.
In the Phase I pancreatic cancer trials, results were reported on 18
evaluable patients of the 23 treated to date. Intratumoral injection of ONYX-015
under CT guidance was well tolerated; symptoms consisted of either mild,
transient flu-like illness, or those associated with pancreatic cancer. Eleven
of the patients received at least two cycles of therapy. One case of dose
limiting toxicity (DLT), indicative of liver toxicity, was observed at an
intermediate dose, but dose escalation to the highest planned dose was continued
following safe treatment of additional patients at that intermediate dose. Six
of the 18 patients experienced minor regressions, defined as 25% to 50%
reduction in tumor size, and some patients experienced transient amelioration of
their clinical symptoms. The median survival time of these patients, 6.2 months,
is similar to that of these patients historically.
Following this demonstration that intratumoral injection of ONYX-015 is well
tolerated and leads to demonstrable anti-tumor activity and anecdotal clinical
benefit, the Company initiated a Phase I/II study in pancreatic cancer patients
in September 1998 using a procedure that allows more intensive treatment. In
this study, being conducted at three sites, ONYX-015 is injected into pancreatic
carcinomas using endoscopic ultrasound guidance and equipment. This technique
allows for multiple injections per treatment and for multiple treatments at
lower cost and lower patient discomfort than with CT-guided injection. If
patients tolerate the initial cycles of treatment with ONYX-015 alone,
Gemzar-Registered Trademark- (gemcitabine) is added to ONYX-015 in subsequent
treatment cycles.
The results of the completed Phase I trial in 19 patients with
gastrointestinal cancer metastases to the liver were reported in May 1998.
Intratumoral injection of ONYX-015 into liver metastases was well tolerated with
no dose limiting toxicity reported. Symptoms consisted of either mild, transient
flu-like illness or those associated with gastrointestinal metastases to the
liver. Radiographic evaluation of the patients' tumors indicated non-progressive
disease or minor regressions in some of the patients. Following this
demonstration of safety and, specifically, the lack of significant liver
toxicity, in December 1998 the Company initiated a Phase I/II trial of ONYX-015
infused via the hepatic artery in patients with liver metastases of colorectal
cancer. This intra-arterial route allows delivery of ONYX-015 to multiple tumor
9
sites simultaneously. Patients who tolerate the initial cycles of treatment with
ONYX-015 alone will receive a combination of the virus plus Fluorouracil
("5-FU") and Leucovorin for subsequent treatment cycles.
PHASE II HEAD & NECK CLINICAL TRIALS
During 1997, the Company initiated two Phase II efficacy trials with
ONYX-015 in patients with head and neck cancer. The results of the first trial
in head and neck cancer patients with recurrent and refractory tumors were
reported in May 1998. For the 14 patients evaluated at that time, four had
complete or greater than 50% reduction in the size of their injected tumors.
Intratumoral injection in these patients has been well tolerated. Mild,
transient flu-like symptoms were observed in approximately 40% of the patients,
compared with 30% of the patients in the Phase I trial where single injections
were used. No toxicities were reported in cases where the virus was injected
into the adjacent normal tissue. This study has been closed with a total of 21
evaluable patients. The results will be updated in the second quarter of 1999.
The results of the second Phase II trial utilizing ONYX-015 in combination
with two chemotherapeutic drugs, Cisplatin-TM- and 5-FU were reported, in
preliminary form, in May and updated in November 1998. This clinical trial
included head and neck cancer patients with recurrent disease whose recurrent
tumor scheduled for treatment must not have been treated with Cisplatin-TM- or
5-FU. The dosing regimen provided for five daily direct intratumoral injections
of ONYX-015 on days 1-5, intravenous dosing of Cisplatin-TM- on day 1 and
intravenous dosing of 5-FU on days 1-5. Onyx conducted the trial at seven sites
in the United States, the United Kingdom and Canada. The participating patients
received injections of ONYX-015 directly into the target tumor. If the patients
had more than one tumor on recurrence, only the largest, most symptomatic tumor
was injected. Among the 26 patients who were evaluable in November, 16 had
experienced tumor regressions of greater than 50% in the injected tumor,
including six patients with complete regressions. This equaled an overall
response rate of 62%, compared to approximately 35% historically with
chemotherapy alone (in randomized, multi-center studies), and a complete
response rate of 23%, compared to less than 10% with chemotherapy alone. None of
the 16 patients, who had been followed for a range of 1.5 to 11 months, had
progressed at the site of the injected tumor. In contrast to the injected
tumors, distant tumors that were not injected with ONYX-015 did progress in some
cases. The median time to progression had not yet been reached with a median
follow-up of 4.8 months. Historically, the median time to progression for
chemotherapy alone is approximately three to four months. An additional four
evaluable patients have been treated in the ONYX-015/chemotherapy study, and no
further patients will be treated. The results of the completed trial will be
presented in the second quarter of 1999.
In March 1998, the Company announced the commencement of a third Phase II
clinical trial of ONYX-015 in patients with recurrent and refractory head and
neck cancer. The trial involved the administration of ONYX-015 as a single agent
with a more aggressive dosing regimen than in the trial that commenced in July
1997. In this trial, patients were treated with ONYX-015 daily for five days for
two consecutive weeks. After a third week with no treatment, patients were
evaluated and could continue for another intensive two-week treatment cycle or
receive maintenance treatment. There are six evaluable patients in this trial.
Reports from the clinical sites indicate that this more aggressive regimen has
biological activity. However, in view of the superior activity in the Phase II
clinical trial of ONYX-015 in combination with chemotherapy as noted above, the
Company has decided not to treat any more patients in this trial.
The Company expects to release the final results of the above Phase II
clinical trials in patients with head and neck cancer in the second quarter of
1999. There is no assurance regarding the results of any of these trials. See
Additional Business Risks--"Uncertainty Regarding Clinical Trials of ONYX-015."
Onyx has self-funded the development of ONYX-015 to date. The Company is
seeking a partner for further clinical development and commercialization of
ONYX-015. The Company is engaged in ongoing
10
discussions with potential partners. However, the Company has not reached
agreement with any such company regarding this program, and there is no
assurance that any such collaboration will be established.
RAS PROGRAM
The ras family of oncogenes was the first to be identified in human cancer.
They are present in 90% of pancreatic cancers, 50% of colon cancer and certain
lung cancers, and approximately 30% of cancers of many other types, as well as
some other proliferative diseases. ras proteins play a central role in
transmitting signals from the extracellular environment, via growth factor
receptors on the cell surface, to the nucleus of the cell where transcription is
activated and the cell cycle is initiated. This series of signals is called the
"signal transduction pathway." These signals result in cell growth and division.
In normally functioning cells, when the extracellular signal stops, the signal
transduction pathway also stops and cells stop growing. In cancer cells,
abnormal ras proteins are produced that lock the signal transduction pathway in
an active state even when extracellular signals are not being received, and
cells, therefore, do not stop growing.
It has been established in preclinical studies that inhibition of ras
oncogene function in cancer cells is sufficient to reverse the cancerous changes
caused by these oncogenes. ras proteins play a crucial role in the transmission
of extracellular signals through a number of different pathways into the nucleus
of the cell. A key property of these proteins is that they exist in two states:
an inactive or off state, and an active or on state. These two states are
subject to regulation at numerous points during this cycle of activation and
inactivation. Mutations in the ras oncogenes destroy the off switch so that the
proteins stay locked in the on state, thus resulting in uncontrolled growth.
Onyx has made significant contributions to the delineation of the components
of the ras signaling pathway and has converted these findings into drug
discovery efforts to identify small molecule inhibitors of the activated
pathways.
Effective February 1994, the Company entered into a research and development
collaboration agreement with Bayer with respect to the ras Program. Bayer was
obligated, subject to certain conditions, to fund Onyx's research under the
collaboration through January 31, 1999.
In February 1999, Bayer and Onyx declared one of the lead candidates under
evaluation in the MAP kinase pathway as a development compound. This compound
has a good pharmacological profile and therapeutic index in animal models. Bayer
and Onyx expect to complete preclinical efficacy and toxicological studies with
this development compound and if merited, plan to file an IND by the second or
third quarter of 2000. In addition, Bayer and Onyx have amended their agreement
and have transitioned the program from its research stage to the co-development
phase. Under the terms of this agreement, Onyx has the opportunity to co-develop
collaboration compounds worldwide except Japan, in return for up to a 50 percent
share of profits if Onyx co-promotes the product in the United States. To assist
in funding its share of development costs, Onyx could receive up to $40 million
in advances on the achievement of clinical milestones.
CELL CYCLE PROGRAM
The cell cycle is the process by which cells progress from quiescence,
duplicate their DNA and then divide into two identical cells. This cycle is
strictly regulated, so that cells only duplicate their DNA when conditions are
favorable, and then only divide into two new cells when DNA has been precisely
and completely duplicated. Before cells commit to making DNA, they must pass
through a checkpoint. If conditions appear favorable, they pass through the
checkpoint and may then begin DNA replication. In cancer cells, however, this
checkpoint is defective and cancer cells can, therefore, duplicate their DNA in
an unregulated manner. The molecular basis of this checkpoint is now relatively
well known and understood to be a pathway that includes cyclin-dependent
kinases, the retinoblastoma tumor suppressor protein, pRb, and a number of
regulatory proteins such as the p16 tumor suppressor protein. The
11
Company believes that mutations are found in one of these components in over 90%
of all cancers, resulting in a loss of checkpoint control.
Onyx has developed screening assays to search for small molecule inhibitors
of mutant cell cycle checkpoint genes that regulate DNA replication. The Company
also has initiated research efforts to identify pathways regulating a second
checkpoint in the cell cycle that controls the decision to begin cell division.
In May 1995, the Company entered into a collaboration agreement with
Warner-Lambert on the Cell Cycle Program. Under the terms of this collaboration,
Onyx is responsible for performing research into cell cycle regulatory pathways,
identifying and validating targets for drug screening, and developing assays for
screening small molecules. Warner-Lambert (i) uses these assays to screen its
compound libraries, (ii) synthesizes and tests chemical analogs of classes of
compounds which are identified in the screens, and (iii) conducts preclinical
and clinical testing of compounds selected for development. In this agreement,
Warner-Lambert is obligated, subject to certain conditions, to partially fund
Onyx's research costs. Each of the parties must commit an equivalent number of
researchers to the collaboration. In December 1997, Onyx and Warner-Lambert
extended the Cell Cycle collaboration through 2001. Warner-Lambert increased its
funding to the full complement of 15 staff working on this project at Onyx in
return for expanded worldwide rights to products arising out of the
collaboration. See "Research and Development Collaborations."
From the initial set of assays transferred by Onyx, the collaboration
identified two lead compounds that Warner-Lambert is advancing into preclinical
study. Additional compounds have been identified from other assays transferred
for high throughput screening at Warner-Lambert and are undergoing early
analoging for consideration as potential leads or additional product candidates.
The Company cannot predict whether the results of these efforts will yield a
clinical development compound, and in any event, the Company does not expect
that Warner-Lambert will commence clinical trials of a compound from the Cell
Cycle Program prior to the year 2000.
BRCA1 PROGRAM
Breast cancer is the most common cause of cancer-related mortality in women.
A subset of breast cancers, representing an estimated 10% of the total number of
cases, has an inherited component. As is the case with most inherited cancer
genes, it is expected that the breast cancer genes identified to date may play a
role in non-inherited breast cancers as well. One of the breast cancer genes,
termed BRCA1, was identified through genetic studies of families exhibiting a
high frequency of disease.
Onyx has commenced a research effort to identify the function of the BRCA1
gene. This project was initiated by Eli Lilly as part of its BRCA1 research
program, and is intended to lead to a pathway that will present opportunities
for therapeutic intervention. The first objective of this project is to identify
proteins that bind directly to the BRCA1 gene product. Onyx has isolated novel
genes of interest. The proteins expressed from these genes physically interact
with BRCA1 in IN VITRO assays. Further analysis of these genes and their
associated proteins is in progress. The Company currently does not expect that
Eli Lilly will commence clinical trials of any potential products from the BRCA1
Program for at least several years, if at all.
The BRCA1 Program was initiated in May 1995 with Eli Lilly as a one-year
collaborative research and license agreement. In June 1996, Onyx and Eli Lilly
agreed to extend and expand their collaboration for an additional three years.
Under the terms of this agreement, Eli Lilly is funding a specific number of
Onyx's researchers to conduct investigations into the identification of drug
targets and compounds relevant to the BRCA1 signaling pathway. Each of the
parties must dedicate a specified number of researchers to the collaboration.
The collaboration has not been successful to date in identifying validated
targets for drug discovery.
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APC PROGRAM
Onyx's APC Program targets proteins that are regulated by the APC tumor
suppressor gene. This gene, first identified through genetic studies of families
exhibiting the disease familial adenomatous polyposis, is mutated in over 80% of
human colon cancers and is now considered essential for cancer progression in
this tissue. Recent studies have indicated that the APC gene may be mutated in
other cancers as well. Onyx has validated APC as a target for drug discovery by
demonstrating that reintroduction of the normal APC gene into colon cancer cells
will reverse the cancerous properties of these cells.
Onyx has shown that the loss of APC activity results in overexpression of
the -catenin protein, which in turn promotes uncontrolled growth through its
interaction with other protein targets. These targets are now being identified
and include certain transcription factors, the epidermal growth factor receptor,
and certain kinases, such as GSK3-beta. The Company is evaluating these targets
as a basis for therapeutic intervention and is creating assays for high
throughput screening. The Company currently does not expect to commence clinical
trials of any potential products from the APC Program for at least several
years.
The APC Program has been funded by the Company with support from Federal
government funding in the form of a Phase I and a Phase II Small Business
Innovation Research (SBIR) Grant through September 1999.
INFLAMMATION PROGRAM
Onyx's research in the area of inflammation stems from findings in the ras
program whereby molecules involved in the ras cascade play a role, outside of
cancer, in inflammation and autoimmunity. The Company has developed a research
program to identify the molecular components of pathways that regulate the
activation of neutrophils and other phagocytes, the immune cells responsible for
destruction of pathogens and tissue debris. This knowledge would allow
development of novel therapeutic strategies for intervention into these
pathways, potentially impacting both upstream and downstream events associated
with neutrophil and other immune system cell activation.
In addition to the beneficial infection fighting properties of phagocytes,
these aggressive cells can cause extensive tissue damage. They are implicated in
a number of acute inflammatory disorders including Adult Respiratory Distress
Syndrome (ARDS) and ischaemia reperfusion injury, and chronic inflammatory
disorders, such as arthritis, inflammatory bowel disease, asthma and psoriasis.
Phagocyte mediated tissue injury is caused by the release of toxic phagocyte
granule components (proteolytic enzymes and cationic proteins) and oxygen-free
radicals extracellularly, rather than into the phagocytic vacuole, as occurs
during active killing of parasites. Inhibition of phagocyte activity would be
expected to inhibit tissue damaging mechanisms such as formation of oxygen
radicals, activation of metalloproteinases and inactivation of antiproteinases.
This selective inhibition of phagocytes may decrease tissue damage while still
allowing the immune system to respond to infection.
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Effective July 1997, the Company entered into a collaboration agreement with
Warner-Lambert on the Inflammation Program. Under the terms of this
collaboration, Onyx is responsible for performing research on the pathways that
regulate the activation of neutrophils and other phagocytes, identifying and
validating targets for drug screening, and developing assays for screening small
molecules. Warner-Lambert (i) uses these assays to screen its compound
libraries, (ii) synthesizes and tests chemical analogs of classes of compounds
that are identified in the screens, and (iii) conducts preclinical and clinical
testing of compounds selected for development. Warner-Lambert is obligated,
subject to certain conditions, to fund Onyx's researchers. Each of the parties
must commit an equivalent number of researchers to the collaboration. As of
January 1999, the Company had transferred four assays for high throughput
screening at Warner-Lambert. The Company does not expect that Warner-Lambert
will commence clinical trials of any potential products from the Inflammation
Program for at least several years.
RESEARCH AND DEVELOPMENT COLLABORATIONS
Onyx continues to review its strategy for research, development and
commercialization of its development programs. The Company currently intends to
develop products that are discovered through the Company's research only in
partnership with pharmaceutical companies. The stage at which the Company will
seek a partner and the roles of Onyx and the partner will vary, depending on the
nature of the program:
- THERAPEUTIC VIRUSES. Onyx plans to conduct research and preclinical
studies, file for regulatory approval to initiate human clinical studies,
and conduct early clinical research on products based on therapeutic
viruses, prior to seeking partnerships for such programs. The initiation
of such partnerships, if any, could vary from the preclinical stage to
Phase II clinical trials or later. The p53 Program is an example of this
strategy.
- SMALL MOLECULE DRUGS. Onyx intends to focus its efforts on identifying
the function of novel genes, validating targets, and developing assays for
high throughput screening of small molecule compound libraries. The
Company plans to seek partners with diverse compound libraries, strong
chemistry capabilities, and established preclinical, clinical and
regulatory capabilities for small molecule drug development. The Company
intends to establish such collaborations early in the discovery stage or
in the research stage to access the partner's complementary discovery
capabilities in chemistry and its library of small molecules. The ras,
Cell Cycle and Inflammation Programs are examples of this strategy.
The Company's strategy for entering collaborative partnerships is to seek
partners with significant global presence and financial resources, whose
development capabilities are complementary with those of the Company. To date,
the Company has established collaborations with Bayer for the ras Program,
Warner-Lambert for the Cell Cycle Program and the Inflammation Program, and Eli
Lilly for the BRCA1 Program. The Company is presently pursuing collaboration
discussions with a number of major pharmaceutical companies in the United
States, Europe and Japan with respect to its p53 Program. The Company cannot
predict whether or when any of such discussions will result in a completed
agreement or on what terms.
The success of the Company's research and development programs is largely
dependent upon the performance of its collaborative partners with respect to
each program, as well as the achievement of certain milestones under such
collaboration, including the clearance of Investigational New Drug ("IND")
applications, the initiation of human clinical trials, and the receipt of United
States Food and Drug Administration ("FDA") approval to market products. No
assurance can be given that any of such milestones will be achieved, that the
Company's collaborative partners will fulfill their research, development and
funding obligations or that they will not terminate such agreements without
cause. Any such failure to achieve milestones or to perform such obligations, or
any such termination of the agreements,
14
would have a material adverse effect on the Company's business, financial
condition and results of operations.
BAYER CORPORATION
Effective February 1994, Onyx established a research and development
collaboration with Bayer to discover, develop and market compounds that inhibit
the function of the ras pathway or that appropriately modulate the activity of
such pathway in order to treat cancer and other diseases.
The collaboration agreement provided for Bayer to pay Onyx an aggregate of
$25.0 million to fund Onyx's research efforts over the five-year research term,
of which $3.7 million was recorded as revenue in 1998, $4.7 million in 1997, and
$5.2 million in 1996. In addition, Bayer made a $13.5 million equity investment
in the Company in 1994. Bayer also has the right to have its nominee elected to
the Company's Board of Directors until the later of (i) the end of the research
term, or (ii) if the parties have a compound in clinical development, until such
time as the parties do not have a compound in clinical development.
Under the agreement as amended on February 1, 1999, a lead compound was
established by the Joint Research and Development Committee ("JRDC"). Bayer will
fund the preclinical work necessary to determine whether to take this compound
into clinical development and to obtain approval for conducting clinical trials.
Upon filing of an IND, the parties will share equally all costs of
developing the product (the "Collaboration Product") worldwide (excluding
Japan), subject to each party's right to elect not to pay such costs. Under the
agreement, Bayer shall make substantial payments to Onyx, based on achievement
of development milestones. These payments are subject to repayment by Onyx out
of its share of marketing profits and royalties, subject to certain annual
limitations. Bayer shall market the Collaboration Product worldwide and Onyx has
the option to co-promote the product in the United States, provided that the
Company shares equally all costs of development, (excluding Japan). Onyx and
Bayer will share equally the marketing profits or losses from commercializing
the jointly developed Collaboration Product, although in the calculation of such
net profits recognition is given to Bayer's investment in sales and marketing
infrastructure. At any time during the development of the Collaboration Product,
either party may terminate paying its share of such development costs, with the
other party retaining exclusive, royalty-bearing rights to the product.
Bayer has the sole and exclusive right to develop and market the
Collaboration Compound as a royalty-bearing product in Japan and will bear all
related development expenses. Further, Bayer has the sole and exclusive right to
develop and market the Collaboration Compound active against Bayer proposed
targets as royalty-bearing products. As part of the transition from the research
to the co-development phase, Bayer's rights following the end of the research
phase have been renegotiated. The original research collaboration agreement
provided Bayer with rights to compounds with defined ras activity, which were
identified by screening against numerous molecular targets involved in ras
signaling. Such rights potentially extended for up to three years after the end
of the research phase of the agreement. The collaboration agreement has been
amended and Bayer's rights are now limited to compounds that have activity
against certain molecular targets involved in ras signaling. Therefore, Onyx now
has the ability to engage another partner to screen for drugs with ras activity
against those molecular targets that Bayer did not select.
WARNER-LAMBERT COMPANY: CELL CYCLE AGREEMENT
In May 1995, Onyx entered into a research, development and marketing
collaboration agreement with Warner-Lambert to discover and commercialize
therapeutic agents that restore control of or otherwise intervene in
misregulated cell cycle transitions related to pathological conditions, such as
in tumor cells or proliferating vascular smooth muscle cells in arterial
disease. Under the research collaboration, Onyx develops screening assays for
particular targets selected by the parties, and transfers such assays to Warner-
15
Lambert for high throughput screening of Warner-Lambert's compound library to
identify active compounds. Warner-Lambert is responsible for subsequent
medicinal chemistry and preclinical investigations on such active compounds.
Warner-Lambert will conduct and fund all clinical development, make regulatory
filings and manufacture for sale the collaboration compounds.
The initial collaboration agreement was scheduled to expire in May 1998. In
December 1997, Onyx and Warner-Lambert extended this collaboration for another
three years through May 2001. The original agreement obligated Warner-Lambert to
make additional payments for achievement of milestones in the development of
collaboration compounds and provided Warner-Lambert with exclusive rights to
manufacture, market and sell products emerging from the collaboration in all
areas of the world except Japan, subject to payment of royalties to Onyx and to
Onyx's right to co-promote such compounds in the United States. Moreover, Onyx's
co-promotion rights terminate if there is a change of control of Onyx or if Onyx
files a New Drug Application ("NDA") on a competing product or receives FDA
approval to market a competing product. The extension expanded Warner-Lambert's
development and royalty-bearing marketing rights to include Japan for all
products stemming from the collaboration. Warner-Lambert increased its funding
to the full complement of 15 staff working on this project in return for these
worldwide rights to products arising out of the collaboration. In addition, Onyx
will receive milestone payments tied specifically to development efforts in
Japan.
Onyx retains the right to develop a certain number of collaboration
compounds independently, provided that Warner-Lambert does not accept Onyx's
request that Warner-Lambert commence development of such compounds. Such
compounds will be royalty bearing to Warner-Lambert, and Onyx will be obligated
to pay Warner-Lambert certain milestone payments for achievement of development
milestones.
Under the initial collaboration agreement, each party must dedicate a
specified number of scientific personnel to the collaborative research over the
three-year research period, and Warner-Lambert will provide Onyx approximately
$6.2 million of funding to support a substantial portion of Onyx's research
efforts related to the collaboration. In addition, Warner-Lambert made a $10.3
million equity investment in the Company over three years. Under the extended
agreement, each party must continue to dedicate a specified number of scientific
personnel to the collaborative research over the three-year research period, and
Warner-Lambert will provide Onyx approximately $10.1 million of funding to
support Onyx's research efforts related to the collaboration. The Company
recorded revenue of $2.8 million in 1998, $1.8 million in 1997 and $2.1 million
in 1996 under this agreement.
Onyx and Warner-Lambert also entered into the Compound Library Access
Agreement, in which Warner-Lambert agreed to screen its compound library against
assays for targets outside the Cell Cycle Program selected by Onyx and approved
by Warner-Lambert, in its sole discretion. Based on the results of the
screening, Onyx may select a number of active leads for further work, and Onyx
will have exclusive rights to any products resulting from such leads for use
against the identified targets, subject to payment of royalties and development
milestone payments to Warner-Lambert on such products.
WARNER-LAMBERT COMPANY: INFLAMMATION AGREEMENT
In July 1997, Onyx entered into its second research, development and
marketing collaboration agreement with Warner-Lambert. This collaboration will
focus on the discovery and commercialization of therapeutic agents that regulate
the activation of neutrophils and other phagocytes implicated in a number of
acute and chronic inflammatory disorders. Under the research collaboration, Onyx
develops screening assays for particular targets selected by the parties, and
transfers such assays to Warner-Lambert for high throughput screening of
Warner-Lambert's compound library to identify active compounds. Warner-Lambert
is responsible for subsequent medicinal chemistry and preclinical investigations
on such active compounds. Warner-Lambert will conduct and fund all clinical
development, make regulatory filings and manufacture for sale the collaboration
compounds.
16
Warner-Lambert is also obligated to make additional payments for achievement
of milestones in the development of collaboration compounds and has exclusive
rights to manufacture, market and sell such products worldwide, subject to
payment of royalties to Onyx.
Under the inflammation collaboration agreement, each party must dedicate a
specified number of scientific personnel to the collaborative research over the
three-year research period, and Warner-Lambert will provide Onyx approximately
$6.2 million of funding to support Onyx's research efforts related to the
collaboration. Additionally, Warner-Lambert will make a $2.0 million license
payment over three years. The Company recorded revenue of $2.6 million for
research funding and $0.5 million for a license payment in 1998. No funds were
received by the Company and no revenue was recognized for the year ended
December 31, 1997.
ELI LILLY & COMPANY
In May 1995, Onyx entered into a collaborative research and license
agreement with Eli Lilly to conduct a one-year research program to discover and
develop targets for drug discovery in the modulation of the BRCA1 breast cancer
gene pathway. Under the agreement, Onyx was obligated to dedicate a specified
number of scientists over the course of the year to identify targets and
compounds reactive with the BRCA1 gene product. Eli Lilly provided funding to
Onyx to support the costs of the researchers working on the project at Onyx, and
Eli Lilly was also obligated to dedicate several Eli Lilly scientists to work on
the research. In addition, Eli Lilly made a $600,000 equity investment in the
Company in 1995.
Under the collaboration agreement, Eli Lilly has the exclusive
royalty-bearing right to market products resulting from the research provided
that, if Eli Lilly does not elect to do so, Onyx has the option to obtain an
exclusive royalty-bearing license to market such products. If Onyx were to
develop and market such products, Onyx may be required to pay Myriad Genetics,
Inc., Eli Lilly's licensor of certain BRCA1 technology, royalties on such
products as well.
In June 1996, Onyx and Eli Lilly agreed to extend the collaboration to June
1999 and to expand their research and development collaboration to discover and
develop targets for drug discovery in the modulation of the BRCA1 breast cancer
gene pathway. Under the collaboration agreement, each party must dedicate a
specified number of scientific personnel to the collaborative research over the
three-year research period.
Eli Lilly will conduct and fund all clinical development, make regulatory
filings and manufacture for sale the collaboration compounds. Eli Lilly is also
obligated to make additional payments for achievement of milestones in the
development of collaboration compounds and has exclusive rights to manufacture,
market and sell such products worldwide subject to payment of royalties to Onyx.
In September 1996, Eli Lilly made a milestone payment of $685,000 for the
achievement of the collaboration's first milestone. Eli Lilly will provide Onyx
approximately $3.0 million of research funding, exclusive of milestone payments,
to support a substantial portion of Onyx's research efforts related to the
collaboration. The Company recorded revenue of $1.2 million in 1998, $1.2
million in 1997, and $910,000 in 1996 under this agreement.
The agreement also provides Eli Lilly the right to terminate the agreement
upon thirty (30) days written notice if within sixty (60) days following the
departure of Dr. Paul Polakis, Onyx is unable to select a replacement that is
reasonably acceptable to Eli Lilly.
CHIRON CORPORATION
In April 1992, the Company was established by means of the transfer from
Chiron Corporation ("Chiron") to the Company of the drug discovery program being
conducted at Chiron by Dr. Frank McCormick, the scientific founder of Onyx, and
his research team. The work being conducted by this team at that time was
primarily in the field of ras research. As part of such transaction, Chiron and
Onyx executed a Technology Transfer Agreement dated April 24, 1992 (the
"Transfer Agreement"), pursuant to
17
which Chiron consented to the transfer of such research program, including the
research team and its trade secrets and materials used in its research. Chiron
also granted a license to Onyx under certain patent rights held by Chiron which
are useful in such research. Such license was generally nonexclusive, although
as part of such agreement, Chiron agreed not to reestablish its research program
in the field for a period of three years. In May 1994, in connection with the
formation of the collaboration between Bayer and Onyx, the Transfer Agreement
was amended to make Onyx the sole licensee under one of the research assays
transferred from Chiron until January 1, 1999, in consideration of which the
covenant against Chiron reestablishing its research program in the field was
eliminated.
In addition, through April 2007, Chiron has an option to receive a
royalty-bearing license with respect to diagnostic and vaccine products of Onyx.
Such license would be exclusive unless an arbitrator determines that Chiron does
not have the ability to commercialize the product in question so as to provide
Onyx with a reasonable return, in which case such license will be co-exclusive.
If Chiron does not exercise such option rights with respect to a particular
product, then prior to the completion of Phase II clinical trials of the
product, the Company may seek a third party licensee of the product in question,
subject to a right of first refusal in favor of Chiron, and after the completion
of Phase II clinical trials, the option rights of Chiron expire.
The Transfer Agreement also provides that Onyx may propose collaborations to
Chiron in the field of gene therapy. Such proposal would require that Onyx
disclose to Chiron the material information known to Onyx regarding the program
in question and also propose a set of terms. If such a proposal is made, and
Onyx and Chiron do not reach agreement within 60 days after the proposal by
Onyx, then the Company may, within 120 days thereafter, enter into an agreement
regarding such program with a third party on terms no more favorable taken as a
whole, to the third party than the terms which Onyx offered to Chiron. Chiron
has advised Onyx that it believes the foregoing provision, in the context of
other provisions of the Transfer Agreement, imposes an obligation on Onyx to
offer gene therapy programs to Chiron pursuant to this mechanism before it
licenses any such program to a third party. The Company does not agree that such
provision imposes an obligation on Onyx to make such proposals. Separately,
Chiron has agreed that this provision does not apply to the p53 Program for
therapeutic applications, although the exact scope of this agreement by Chiron
beyond ONYX-015 itself remains subject to uncertainty.
MARKETING AND SALES
The Company currently has no sales, marketing or distribution capability.
The Company intends to rely on relationships with one or more pharmaceutical
companies with established distribution systems and direct sales forces to
market its products. In the event that the Company is unable to reach agreement
with one or more pharmaceutical companies to market its products, it may be
required to market its products directly and to develop a marketing and sales
force with technical expertise and with supporting distribution capability.
There can be no assurance that the Company will be able to establish in-house
sales and distribution capabilities or relationships with third parties, or that
it will be successful in gaining market acceptance for its products. To the
extent that the Company enters into co-promotion or other licensing
arrangements, any revenues received by the Company will depend upon the efforts
of third parties, and there can be no assurance that such efforts will be
successful.
MANUFACTURING
The Company expects that its collaborative partners will manufacture
products for clinical development and commercialization. Under the existing
agreements, the Company's collaborative partners have the exclusive right to
manufacture the products that result from those programs. The Company currently
does not have the facilities to manufacture products for small or large-scale
clinical trials or in commercial quantities, and has no experience in such
manufacturing. To manufacture its products for clinical trials or on a
commercial scale, if the Company is required to or chooses to do so, it will
have to build or gain access to a manufacturing facility, which will require a
significant amount of funds.
18
The Company has been employing a contract manufacturer, MAGENTA Corporation
("MAGENTA"), for the clinical trial production of ONYX-015 and intends to use
MAGENTA and other contract manufacturers for some or all of the Company's
clinical trial production. The Company is aware of only a limited number of
manufacturers who it believes would have the ability and capacity to manufacture
this product or any other therapeutic viruses the Company may develop. Failure
of any such third-party manufacturer to comply with state and federal
regulations and to deliver the required quantities on a timely basis and at
commercially reasonable prices would materially adversely affect the Company's
business, financial condition and results of operations. No assurance can be
given that the Company, alone or with a third party, will be able to make the
transition to commercial-scale production of its potential products
successfully, if at all, or that if successful, the Company will be able to
maintain such production.
The Company anticipated that substantial improvements in the current
manufacturing process would be required to produce commercial quantities of
ONYX-015. Therefore, the Company built and staffed a process development
laboratory to investigate the feasibility of improving the manufacturing
process. While substantial progress has been made in the development of a
scaleable, commercially feasible new process, there can be no assurance that
such a process will be achieved. In December 1998, the Company entered into an
agreement with Molecular Medicine LLC to complete development of the new process
and to manufacture Phase III grade ONYX-015. No assurance can be given as to the
ability of the Company to produce or obtain clinical or commercial quantities of
its potential products in compliance with applicable regulations or at an
acceptable cost.
PATENTS AND PROPRIETARY RIGHTS
The Company believes that patent and trade secret protection is crucial to
its business and that its future will depend in part on its ability to obtain
patents, maintain trade secret protection and operate without infringing the
proprietary rights of others, both in the United States and other countries. In
October 1997, the Company was awarded a United States patent, No. 5,677,178 from
the United States Patent and Trademark Office for claims covering the use of
ONYX-015 for the treatment of functionally p53-deficient cancers. The Company
has received two additional United States patents, the first of which claims the
use of certain adenoviral mutants that kill functionally Rb-deficient tumor
cells and another that claims compositions of matter that consist of ONYX-015
and a chemotherapeutic. These are No. 5,801,029 and No. 5,846,945, respectively.
As of March 5, 1999, the Company owned or had licensed rights to 24 United
States patents and 55 United States patent applications, and generally, foreign
counterparts of these filings. These patents and patent applications cover in
most cases discoveries made with respect to biological materials and
interactions of biological materials, including research tools used by the
Company in its drug discovery programs. The Company's rights under five of the
United States patents and nine of the United States patent applications are
nonexclusive rights held under a license from Chiron that was granted to the
Company in connection with its formation. Additionally, the Company has
exclusive rights to one patent application under the Chiron license. The Company
also has nonexclusive rights under one United States patent held under license
from the State University of New York-Stony Brook.
The Company's existing patent rights may not have a deterrent effect on
competitors who are conducting or desire to commence competitive research
programs with respect to the biological targets or fields of inquiry being
pursued by the Company. The Company's ultimate patent position will depend on
the success of its drug discovery program and its ability to obtain effective
patent coverage for the compositions of matter identified in such drug discovery
programs. Because the Company's drug discovery programs are at an early stage
and, except in the p53 Program, potential products have not yet been identified,
it cannot be determined whether potential products that may be derived from the
Company's drug discovery program may be subject to the patent rights of third
parties.
Since patent applications in the United States are maintained in secrecy
until patents issue and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the
19
Company cannot be certain that it was the first to make the inventions covered
by each of its pending patent applications or that it was the first to file
patent applications for such inventions. The patent positions of biotechnology
and pharmaceutical companies are highly uncertain and involve complex legal and
factual questions. Therefore, the breadth of claims allowed in biotechnology and
pharmaceutical patents, or their enforceability, cannot be predicted. To date
there has emerged no consistent policy regarding the breadth of claims allowed
in biotechnology patents. There can be no assurance that any of the Company's
patents or patent applications, if issued, will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide proprietary
protection or competitive advantages to the Company against competitors with
similar technology. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by the Company. Because of the extensive time required for development, testing
and regulatory review of a potential product, it is possible that before any of
the Company's products can be commercialized, any related patent may expire, or
remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent.
The Company is aware of pending patent applications that have been filed by
others that may pertain to certain aspects of the Company's programs. If patents
are issued to others containing preclusive or conflicting claims and such claims
are ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. The
Company's breach of an existing license or failure to obtain a license to
technology required to commercialize its products may have a material adverse
effect on the Company's business, financial condition and results of operations.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce any patents issued to the Company or to determine the scope
and validity of third-party proprietary rights. If competitors of the Company
prepare and file patent applications in the United States that claim technology
also claimed by the Company, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company. An adverse
outcome could subject the Company to significant liabilities to third parties
and require the Company to seek licenses of the disputed rights from third
parties or to cease using such technology if such licenses are not available,
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
In respect of the foregoing, the Company is aware of a patent application
filed in the United States, Europe, Japan and Canada by General Hospital
Corporation, an affiliate of Massachusetts General Hospital. This patent
application is related to research involving a modified herpes simplex virus but
it also includes broader claims that, if they were to issue, would cover the p53
Program including ONYX-015. The Company believes, and has received an opinion
from outside counsel to the effect, that claims made in the General Hospital
patent application that may impinge on ONYX-015 and the p53 Program are not
patentable. Consistent with this opinion is a review of the European patent
status of the General Hospital patent application which shows that the Examiner
is requiring that the claims be limited to herpes. However, there can be no
assurance that broad claims applicable to ONYX-015 or the p53 Program will not
issue from the General Hospital patent application in one or more countries,
that the Company would be successful in challenging any such claims, or that a
license would be available under any such patent if it were to issue.
In June 1997, ICT Pharmaceuticals, Inc. ("ICT") notified the Company of two
issued U.S. Patents, Nos. 4,980,281 and 5,266,464 that ICT believes cover the
use of a cell for the screening, testing or pharmacological characterization of
new drugs or other substances. Foreign counterparts of the U.S. Patents are
pending. ICT has offered the Company a license to the patents. The Company has
not determined whether to negotiate a license. In any event, the Company does
not believe that these patents will have a material adverse effect on the
Company's business, assets, liabilities, financial condition, operations or
prospects.
20
The Company has identified two issued U.S. Patents, Nos. 5,499,755 and
5,645,999 that cover recombinant cyclin E compositions, or methods of using the
same to identify possible drug candidates, respectively. Foreign counterparts of
the U.S. Patents are pending. Mitotix Corporation ("Mitotix") either owns, or
has licensed the rights to the two patents. The Company may seek a license under
the patents from Mitotix. If such license is not available at commercially
reasonable terms, or at all, then the Company would be required to develop
assays that are not covered by the patents. In any event, the Company does not
believe that these patents will have a material adverse effect on the Company's
business, assets, liabilities, financial condition, operations or prospects.
The Company has identified U.S. Patent No. 5,837,520 that covers methods of
purification of viral vectors. Canji, Inc. ("Canji") either owns or has licensed
the rights to this patent. The Company may seek a license under this patent from
Canji. However, if such license is not available at commercially reasonably
terms, or at all, the Company would develop methods that are not covered by the
patent. In any event, the Company does not believe that this patent will have a
material adverse effect on the Company's business assets, liabilities, financial
condition, operations or prospects.
The Company and its licensors also rely on trade secrets to protect its
technology, especially where patent protection is not believed to be appropriate
or obtainable. However, trade secrets are difficult to protect. The Company
protects its proprietary technology and processes, in part, by confidentiality
agreements with its employees, consultants, collaborators and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors. To the extent that Onyx or its consultants or
research collaborators use intellectual property owned by others in their work
for the Company, disputes may also arise as to the rights in related or
resulting know-how and inventions.
GOVERNMENT REGULATION
Regulation by government authorities in the United States and other
countries will be a significant factor in the manufacturing and marketing of any
products that may be discovered or developed by the Company, or that may arise
out of the Company's research. All of the Company's products will require
regulatory approval by government agencies prior to commercialization. The
Company anticipates that its products will be subject to rigorous preclinical
and clinical testing and premarket approval procedures by the FDA and similar
health authorities in foreign countries. Various federal statutes and
regulations also govern or influence the manufacturing, testing, labeling,
storage, recordkeeping and marketing and promotion of such products.
The steps ordinarily required before a drug or biological product may be
marketed in the United States include (a) preclinical and clinical studies, (b)
the submission to the FDA of an IND which must become effective before human
clinical trials may commence, (c) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug or biologic, (d) the
submission of a marketing application to the FDA, and (e) FDA approval of the
marketing application, including inspection and approval of the product
manufacturing facility.
Preclinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the preclinical tests are submitted to the FDA as part
of an IND and are reviewed by the FDA before the commencement of clinical
trials. Unless the FDA objects to an IND, the IND will become effective 30 days
following its receipt by the FDA. There can be no assurance that submission of
an IND will result in FDA clearance to commence clinical trials or that the lack
of an objection means that the FDA will ultimately approve an application for
marketing approval.
21
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. In the
United States, clinical trials must be conducted in accordance with Good
Clinical Practices under protocols submitted to the FDA as part of the IND. In
addition, each clinical trial must be approved and conducted under the auspices
of an Institutional Review Board ("IRB") and with patient informed consent. The
IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution conducting the clinical
trial. The United Kingdom and certain other European and Asian countries have
similar regulations.
In January 1996 and December 1995, Onyx submitted an IND in the United
States and a CTX in the United Kingdom, respectively, for permission from the
FDA and comparable regulatory authorities in the United Kingdom to initiate
human clinical studies with ONYX-015. Both applications were cleared.
The goal of Phase I clinical trials is to establish initial data about
safety and tolerance of the investigational product in humans. In Phase II
clinical trials, evidence is sought about the desired therapeutic efficacy of
the investigational product, in limited studies with small numbers of carefully
selected subjects. Efforts are made to evaluate the effects of various dosages
and to establish an optimal dosage level and dosage schedule. Additional safety
data are also gathered from these studies. The Phase III clinical trial program
consists of expanded, large-scale, multicenter studies in the target patient
population. The goal of these studies is to obtain definitive statistical
evidence of the efficacy and safety of the proposed product and dosage regimen.
All data obtained from this comprehensive development program are submitted
as a marketing application to the FDA and the corresponding agencies in other
countries for review and approval. FDA approval of a marketing application is
required before marketing may begin in the United States. The FDA may elect to
present data on the Company's products to one of its advisory committees for
review and recommendation before approval is granted. Essentially all proposed
products of the Company will be subject to demanding and time-consuming approval
procedures in the countries where the Company intends to commercialize its
products. These regulations define not only the form and content of the
development of safety and efficacy data regarding the proposed product, but also
impose specific requirements regarding manufacture of the product, testing,
quality assurance, packaging, storage, documentation, recordkeeping, labeling,
advertising, and marketing procedures. Effective commercialization also requires
inclusion of the Company's products in national, state, provincial, or
institutional formularies or cost reimbursement systems.
FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the United States. The process
of obtaining FDA approval can be costly, time consuming and subject to
unanticipated delays. The FDA may refuse to approve an application if it
believes that applicable regulatory criteria are not satisfied. The FDA may also
require additional testing for safety and efficacy of the drug. Moreover, if
regulatory approval of a drug product is granted, the approval will be limited
to specific indications. There can be no assurance that approvals of the
Company's proposed products, processes or facilities will be granted on a timely
basis, if at all. Any failure to obtain, or delay in obtaining, such approvals
would have a material adverse affect on the Company's business, financial
condition and results of operations. Moreover, even if regulatory approval is
granted, such approval may include significant limitations on indicated uses for
which a product could be marketed. In some instances, regulatory approval may be
granted with the condition that confirmatory (Phase IV) clinical studies be
carried out. If these Phase IV studies do not confirm the results of previous
studies, regulatory approval for marketing may be withdrawn. Failure to comply
with FDA and other applicable regulatory requirements may result in, among other
things, warning letters, civil penalties, criminal prosecution, injunctions,
seizure or recall of products, total or partial suspension of production,
refusal of the government to grant approval, or withdrawal of approval of the
Company's products.
22
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Nuclear Regulatory
Commission, the Resource Conservation and Recovery Act, and other present and
potential future federal, state or local regulations. Certain of the Company's
potential products may require review by the Recombinant DNA Advisory Committee
(RAC) of the United States National Institutes of Health. In other countries,
similar regulations may apply. The Company's research and development involves
the controlled use of hazardous materials and chemicals. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities will be necessary in foreign countries prior
to the commencement of marketing of the product in such countries. The approval
procedure varies among countries, can involve additional testing, and the time
required may differ from that required for FDA approval. Although there is now a
centralized European Community approval mechanism in place, each European
country may nonetheless impose its own procedures and requirements, many of
which are time consuming and expensive. Thus, there can be substantial delays in
obtaining required approvals from both the FDA and foreign regulatory
authorities after the relevant applications are filed. The Company expects to
rely on corporate partners and licensees, along with Company expertise, to
obtain governmental approval in foreign countries of drug and biological
products discovered by the Company or arising from the Company's programs.
COMPETITION
Onyx is engaged in a rapidly changing and highly competitive field. Other
products and therapies that will compete directly with the products that the
Company is seeking to develop and market currently exist or are being developed.
Many other companies are actively seeking to develop products that have disease
targets similar to those being pursued by the Company. Some of these competitive
products are in clinical trials. In particular, Schering-Plough Corporation is
conducting a Phase I clinical trial in colon metastases to the liver, and
Introgen Therapeutics, Inc. is conducting a Phase II clinical trial in head and
neck cancer with p53 gene therapy products, and other companies are in earlier
stages of research with small molecule drug and antisense approaches to treat
p53-deficient tumors. Such products would compete directly with ONYX-015. Other
companies, including Merck & Co. and Genentech, Inc., are developing small
molecule drugs to inhibit targets involving the ras pathways. Such products may
compete with potential products identified in the Company's ras Program. Other
companies are in earlier stages of research with small molecule drugs, gene
therapy and antisense approaches to treat ras-related cancers. Other companies,
such as Mitotix Corporation, are developing proprietary positions including
patented reagents and assays that may require the Company to seek licenses to
the technology or may impact the Company's research by limiting the use of
certain technology. There can be no assurance that the Company's competitors
will not succeed in developing cancer specific therapies that are more effective
than any that are being developed or that may be developed by the Company, or
that would render the Company's technologies obsolete and noncompetitive.
Moreover, there are currently commercially available products for the treatment
of certain disease targets being pursued by the Company.
23
Competition from fully integrated pharmaceutical companies and more
established biotechnology companies is intense and is expected to increase.
Substantially all of these companies have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical
and clinical testing, obtaining regulatory approvals, and marketing than the
Company. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and
established biotechnology companies. Many of these competitors have significant
products that have been approved or are in development and operate large,
well-funded research and development programs. Academic institutions,
governmental agencies and other public and private research organizations also
conduct research, seek patent protection and establish collaborative
arrangements for products, and clinical development and marketing, that compete
with the Company's programs. These companies and institutions also compete with
the Company in recruiting and retaining highly qualified scientific and
management personnel. In addition to the above factors, Onyx will face
competition based on product efficacy and safety, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. There is no assurance that
the Company's competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization than
the Company.
EMPLOYEES
As of December 31, 1998, the Company had 128 full-time employees of whom 48
hold Ph.D. or M.D. degrees. 103 of the Company's employees are in research and
development and 25 are in business development, finance and administration. No
Company employee is represented by a labor union and the Company considers its
employee relations to be good.
In order to refocus the Company's resources on more near-term product
opportunities, in February 1999, the Company reduced its workforce by 14 regular
full-time employees as part of a corporate downsizing and incurred an expense of
approximately $250,000.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board ("SAB") consists of individuals with
expertise in many aspects of molecular oncology that advise the Company and
provide critical review of the various development activities of the Company.
The SAB meets several times a year. In addition, the SAB members consult with
and meet informally with the Company on a frequent basis. Certain SAB members
own shares of common stock of the Company. Every member of the SAB has entered
into a consulting agreement with the Company covering the terms of their
positions as consultants to the Company and as members of the SAB. The members
of the Company's SAB are as follows:
ERIC R. FEARON, M.D., PH.D. has served as the Maisel Professor of Oncology,
as an Associate Professor in the Departments of Internal Medicine, Human
Genetics and Pathology, and as Associate Director for Basic Research, at the
University of Michigan Comprehensive Cancer Center since 1995. Prior to that,
Dr. Fearon served as an Assistant Professor at Yale University School of
Medicine in the Departments of Pathology and Biology. Dr. Fearon's research
focuses on the understanding of the genetic defects that underlie the invasive
and metastatic behavior of advanced forms of human cancer, particularly cancers
of the gastrointestinal tract and breast.
DOUGLAS HANAHAN, PH.D. has served as Associate Director of the Hormone
Research Institute since July 1992 and has served as a Professor in the
Department of Biochemistry at the University of California San Francisco since
August 1988. Dr. Hanahan's laboratory is a leader in developing genetically
engineered mouse models of cancer, and applying those models to identify key
genetic and cellular changes that specify a tumor's developmental pathway and
essential characteristics, including the control of angiogenesis and cell death,
and increasingly in exploring transgenic mice as platforms for preclinical
evaluation of therapeutic strategies.
24
EDWARD E. HARLOW, JR., PH.D. has served as Chairman of the SAB since
September 1997 and previously from April 1992 to March 1996. He has served as
Scientific Director of the Massachusetts General Hospital Cancer Center and has
served as Professor and Chair of Biological Chemistry and Molecular Pharmacology
at the Harvard Medical School since 1990. Dr. Harlow's research interests
include regulation of the mammalian cell cycle, biochemistry of the
retinoblastoma protein and related proteins and cdc2 kinases. Dr. Harlow is a
member of the National Academy of Sciences.
FRANK MCCORMICK, PH.D., F.R.S., founder of the Company, served as Chairman
of the SAB from March 1996 to September 1997, Vice President and Chief
Scientific Officer of the Company from 1995 until December 31, 1996, and as a
director of the Company from April 1992 to May 1997. He served as Vice President
of Research from April 1992 until 1995. Prior to founding the Company, Dr.
McCormick served as Vice President of Therapeutic Research at Chiron from
December 1991 until April 1992. Prior to that, Dr. McCormick was employed at
Cetus in various positions from 1982 until December 1991, serving as Vice
President of Discovery Research of Cetus from 1990 until December 1991. Dr.
McCormick received a Ph.D. in biochemistry from Cambridge University in England,
and completed post-doctoral research at the State University of New York at
Stony Brook and the Imperial Cancer Research Fund in London. He is a Fellow of
the Royal Society of Great Britain. Currently, Dr. McCormick serves as Director
of the UCSF Cancer Center and Cancer Research Institute, the David A. Wood
Professor of Tumor Biology and Cancer Research, and the Associate Dean of the
School of Medicine at the University of California San Francisco.
OWEN N. WITTE, M.D. has served as Professor of Microbiology at the
University of California at Los Angeles since 1980 and as a Howard Hughes
Institute Investigator since 1984. Dr. Witte's research focuses on genes
associated with cancer and other diseases, including the Abelson murine leukemia
virus tyrosine kinase oncogene, the BCR-ABL oncogene, and the gene responsible
for X-linked agammaglobulinemia. Dr. Witte has been the recipient of the
Rosenthal Prize from the American Association of Cancer Research, the Dameshek
Prize of the American Society of Hematology and the Milken Family Award in
Cancer Research. Dr. Witte is a member of the National Academy of Sciences.
ADDITIONAL BUSINESS RISKS
THE DISCUSSION IN THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
SIGNIFICANTLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE FACTORS DISCUSSED BELOW
AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
ANNUAL REPORT.
OUR PRODUCTS ARE AT AN EARLY STAGE OF DEVELOPMENT AND THERE IS A HIGH RISK OF
FAILURE
We have no products that have received regulatory approval for commercial
sale. All of our products are in an early stage of development. We will have to
conduct significant additional research and preclinical (animal) and clinical
(human) testing before we can file applications with the FDA for product
approval. If any products result from our research and development programs, we
do not expect that they will be commercially available for a number of years. We
cannot assure you that any of our product development efforts will be
successfully completed, that any of the Company's products will be proven to be
safe and effective, that regulatory approvals will be obtained at all or be as
broad as sought, that the Company's products will be capable of being produced
in commercial quantities at reasonable cost or that any products, if introduced,
will achieve market acceptance.
THERE ARE SPECIAL RISKS ASSOCIATED WITH NEW TECHNOLOGY
Drug discovery methods based upon the genetic basis of cancer are relatively
new, and there can be no assurance that the Company will be able to employ these
methods of drug discovery successfully or that
25
these methods will lead to the discovery of commercially viable pharmaceutical
products. Only one of our compounds, the ONYX-015 therapeutic virus, has entered
human clinical trials. We cannot assure you that our current or future research
and development programs will lead to additional compounds which will be
submitted for clinical testing or advance to human clinical trials.
THE CLINICAL SUCCESS OF ONYX-015 IS UNCERTAIN
We have self-funded three Phase II clinical trials of ONYX-015 for the
treatment of head and neck cancer. Interim clinical results announced to date
represent partial unaudited information from the clinical sites and
investigators. Final data based on audited case report forms may differ from the
interim results. We expect to release the final results of these trials in the
second quarter of 1999. Our ability to obtain a corporate partner for the p53
program and to continue to develop ONYX-015 as a potential product will depend
materially on the results of these trials. We are currently conducting Phase
I/II human clinical trials to determine the safety, maximum tolerated dose, and
efficacy of ONYX-015 in pancreatic cancer and in colorectal cancers that have
metastasized to the liver, both as a single agent and in combination with
chemotherapy.
In addition, ONYX-015 efficacy has not been tested in animals with a fully
functioning immune system, and the effect of the human immune response on
ONYX-015 efficacy continues to be uncertain. If the human immune response causes
a substantial reduction in anti-tumor effect, we may be required to engineer
additional genes into the virus, to explore alternative viral strains, or to
include immunosuppressive drugs as part of the clinical regimen for ONYX-015.
Furthermore, in order to meet the needs of a wider spectrum of cancer patients
and to treat metastatic cancers, the virus would need to be delivered
systemically. We cannot assure you that these efforts will be successful.
Although we plan to meet with the FDA to discuss the results of these
trials, we cannot be assured that agreement will be reached with the FDA
regarding design and commencement of a Phase III pivotal trial. In that case, we
would be required to conduct additional Phase I and Phase II clinical trials to
determine an appropriate indication and treatment regimen for ONYX-015, if we
were to continue development of such product at all.
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES WILL BE EXPENSIVE AND THEIR OUTCOMES
ARE UNCERTAIN
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any of
our product candidates, we or our collaborative partners must demonstrate
through preclinical testing and clinical trials that the product is safe and
effective for use in humans. We will incur substantial expense for, and devote a
significant amount of time to, preclinical and clinical testing and clinical
trials. Historically, the results from preclinical testing and early clinical
trials have not been predictive of results obtained in later clinical trials
involving large-scale testing of patients in comparison to control groups.
Clinical trials may require the enrollment of large numbers of patients and
suitable patients may be difficult to identify and recruit. A number of
companies in the pharmaceutical industry have suffered significant setbacks in
every stage of clinical trials, even in advanced clinical trials after promising
results in earlier trials.
In addition, our other product candidates are in preclinical development,
and we have not submitted investigational new drug applications nor begun
clinical trials for such product candidates. Our preclinical or clinical
development efforts may not be successfully completed. We may not file further
investigational new drug applications. Our clinical trials may not commence as
planned.
Completion of clinical trials may take several years or more. The length of
time generally varies substantially according to the type, complexity, novelty
and intended use of the product candidate. Our commencement and rate of
completion of clinical trials may be delayed by many factors, including:
- inability to manufacture sufficient quantities of materials used for
clinical trials;
26
- inability to adequately follow patients after treatment;
- unforeseen safety issues;
- lack of efficacy during the clinical trials; or
- government or regulatory delays.
We have limited experience in conducting and managing clinical trials. We
rely on third parties, including our collaborative partners, to assist us in
managing and monitoring clinical trials. Our reliance on such third parties may
result in delays in completing, or failing to complete, such trials if they fail
to perform under our agreements with them.
Our product candidates may fail to demonstrate safety and efficacy in
clinical trials. Such failure may delay development of other product candidates,
and hinder our ability to conduct related preclinical testing and clinical
trials. As a result of such failures, we may also be unable to obtain additional
financing. Our business, financial condition and results of operations will be
materially adversely affected by any delays in, or termination of, our clinical
trials.
WE WILL NEED ADDITIONAL FUNDS
We will require substantial funds to conduct the costly and time-consuming
research and preclinical testing and clinical trials necessary to develop our
technology and proposed products, and to establish relationships with
collaborative partners to bring our product candidates to market. Our future
capital requirements will depend upon a number of factors, including continued
scientific progress in the research and development of our technology programs,
the size and complexity of these programs, our ability to establish and maintain
collaborative arrangements, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the cost
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments and product
commercialization activities.
FAILURE TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS WILL ADVERSELY
AFFECT OUR BUSINESS
Because of the scientific nature of our business, we are highly dependent on
principal members of our scientific and management staff. In addition, we rely
on consultants and advisors, including the members of our Scientific Advisory
Board, to assist us in formulating our research and development strategy. None
of our consultants or advisors are employees of the Company and all have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability. In order to pursue its product development plans,
we will also be required to hire additional qualified scientific personnel to
perform research and development, as well as personnel with expertise in
clinical testing, government regulation and manufacturing. These requirements
are also expected to demand additional management personnel and the development
of additional expertise by existing management personnel. We face competition
for qualified individuals from numerous pharmaceutical and biotechnology
companies, universities and other research institutions. The failure to maintain
our management and scientific staff and to attract additional key personnel
could materially adversely affect our business, financial condition and results
of operations, including our ability to enter into and maintain collaborative
arrangements. Although we intend to provide incentive compensation to attract
and retain our key personnel, we cannot guarantee these efforts will be
successful.
27
WE ARE DEPENDENT UPON COLLABORATIONS WITH PARTNERS TO COMPLETE DEVELOPMENT AND
COMMERCIALIZE OUR PRODUCTS
Our strategy for the development, clinical trials, manufacturing and
commercialization of our products depends in large part upon maintaining and
entering into various collaborations with corporate partners, licensors,
licensees and others. Such collaborations are necessary in order for us to:
- Fund our research and development activities;
- Fund preclinical testing, clinical trials and manufacturing;
- Seek and obtain regulatory approvals; and
- Successfully commercialize existing and future product candidates.
We are currently seeking a collaborative partner for the p53 Program,
including the development and commercialization of ONYX-015. If we fail to
maintain or establish such arrangements, we will be required to undertake such
activities at our own expense, which would significantly increase our capital
requirements and limit the programs we are able to pursue. In addition, we may
encounter significant delays in introducing products into certain markets or
find that the development, manufacture or sale of our products in such markets
is adversely affected by the absence of such collaborative agreements.
There are other risks associated with corporate collaborations, including:
- The amount and timing of expenditure of resources by the partner can vary
for reasons outside our control;
- Business combinations and changes in a partner's business strategy may
adversely affect a partner's willingness or ability to complete its
obligations under the agreement;
- The right of the partner to terminate the agreement on limited notice and
for reasons outside our control;
- The partner may develop or have rights to competing products and withdraw
support of our products;
- If an agreement is terminated, the program will be delayed and we will be
required to devote additional resources to the program, seek another
partner, or abandon the program; and
- Disagreements may arise with a partner regarding breach of the agreement
or ownership of proprietary rights.
These factors and other possible disagreements with partners or
collaborators could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time consuming and expensive, and
would have a material adverse effect on our business, financial condition and
results of operations.
WE DO NOT HAVE COMMERCIAL SCALE MANUFACTURING EXPERTISE
We lack the resources and capability to manufacture our products for small
or large-scale clinical trials or in commercial quantities, and we have no
experience in such manufacturing. It would require substantial funds to
establish that capability. Our collaborative partners generally have the
exclusive right to manufacture products resulting from the collaborations, and
we expect to have similar manufacturing arrangements in future collaborations.
Consequently, we are dependent on third parties, including collaborative
partners, to manufacture our products. Contract manufacturers often encounter
difficulties in scaling up production, including problems involving production
yields, quality control and quality assurance and shortage of qualified
personnel. Our contract manufacturer may not perform as agreed or may not remain
in the contract manufacturing business for the time required by us to
successfully produce
28
and market our product candidates. If our contract manufacturer fails to deliver
the required quantities of our product candidates for clinical use on a timely
basis and at commercially reasonable prices, and we fail to find a replacement
manufacturer or develop our own manufacturing capabilities, our business,
financial condition and results of operations will be materially adversely
affected. Additional manufacturing risks include the following:
- We are dependent upon a sole source for clinical supply of ONYX-015;
- We are aware of only a limited number of manufacturers who could supply
ONYX-015 and other therapeutic viruses we may develop; and
- Substantial improvements in the current manufacturing process will be
required to produce commercial quantities of ONYX-015, and Onyx is
dependent upon a third party to develop such a process.
MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payers and the medical community. We may not achieve market
acceptance even if the requisite regulatory approvals are obtained for our
potential products or for products developed with collaboration partners.
Uncertainty exists as to whether such products will be accepted by the market. A
number of additional factors also may limit the market acceptance of products
including the following:
- Rate of adoption by healthcare practitioners;
- Indications for which the product is approved;
- Rate of the products' acceptance by the target population;
- Timing of market entry relative to competitive products;
- Availability of alternative therapies;
- Price of the Company's product relative to alternative therapies;
- Availability of third-party reimbursement;
- Extent of marketing efforts by the Company and third-party distributors or
agents retained by the Company; and
- Side effects or unfavorable publicity concerning our products or similar
products.
WE DO NOT HAVE MARKETING AND SALES EXPERIENCE
We do not have a marketing, sales or distribution capability. For certain
products, we may establish an internal marketing and sales force. We intend to
enter into arrangements with third parties to market and sell most of our
products. We may not be able to enter into marketing and sales arrangements with
others on acceptable terms, if at all. To the extent that we enter into
marketing and sales arrangements with other companies, our revenues, if any,
will depend on the efforts of others. These efforts may not be successful. If we
are unable to enter into third-party arrangements, then we must develop a
marketing and sales force, which may need to be substantial in size, in order to
achieve commercial success for any product candidate approved by the FDA. To the
extent that we enter into co-promotion or other licensing arrangements, we may
have to develop our own sales, marketing or distribution capability. We may not
successfully develop marketing and sales experience or have sufficient resources
to do so. If we do develop such capabilities, we will compete with other
companies that have experienced and well-funded marketing and sales operations.
If we fail to establish successful marketing and sales capabilities or fail to
enter into successful marketing arrangements with third parties, our business,
financial condition and results of operations will be materially adversely
affected.
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WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR OPERATE OUR BUSINESS
WITHOUT INFRINGING INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Our technology will be protected from unauthorized use by others only to the
extent that it is covered by valid and enforceable patents or effectively
maintained as trade secrets. As a result, our success depends in part on our
ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
We cannot be certain that our patents or patents that we license from others
will be enforceable and afford protection against competitors. The patent
positions of biotechnology and pharmaceutical companies are highly uncertain and
involve complex legal and factual questions. Therefore, we cannot predict the
breadth of claims that will be allowed under our patent applications or their
enforceability. Our patents or patent applications, issued or pending,
respectively, may be challenged, invalidated or circumvented. Our patent rights
may not provide us with proprietary protection or competitive advantages against
competitors with similar technologies. Others may independently develop
technologies similar to ours or independently duplicate our technologies. Due to
the extensive time required for development, testing and regulatory review of
our potential products, our patents