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EX-32.1 - EX-32.1 - ONYX PHARMACEUTICALS INCf55679exv32w1.htm
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EX-31.2 - EX-31.2 - ONYX PHARMACEUTICALS INCf55679exv31w2.htm
EX-10.31 - EX-10.31 - ONYX PHARMACEUTICALS INCf55679exv10w31.htm
EX-10.30 - EX-10.30 - ONYX PHARMACEUTICALS INCf55679exv10w30.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 0-28298
ONYX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
     
     
Delaware   94-3154463
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer ID Number)
2100 Powell Street
Emeryville, California 94608
(Address of principal executive offices)
(510) 597-6500
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller Reporting Company  o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The number of outstanding shares of the registrant’s common stock, $0.001 par value, was 62,635,755 as of April 30, 2010.
 
 

 


 

INDEX
         
    Page  
    3  
    3  
    3  
    4  
    5  
    6  
    17  
    22  
    23  
 
       
    24  
    24  
    24  
    41  
    41  
    41  
    41  
    42  
    44  
 EX-10.30
 EX-10.31
 EX-31.1
 EX-31.2
 EX-32.1


Table of Contents

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
                 
    March 31,     December 31,  
    2010     2009  
    (Unaudited)     (Note 1)  
    (In thousands)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 125,865     $ 107,668  
Marketable securities, current
    422,000       442,440  
Restricted cash
    27,603       27,600  
Receivable from collaboration partner
    44,385       51,418  
Prepaid expenses and other current assets
    11,430       9,597  
 
           
Total current assets
    631,283       638,723  
Marketable securities, non-current
    37,368       37,174  
Property and equipment, net
    6,898       7,473  
Intangible assets — in-process research and development
    438,800       438,800  
Goodwill
    193,675       193,675  
Other assets
    8,583       8,835  
 
           
Total assets
  $ 1,316,607     $ 1,324,680  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 1,264     $ 1,363  
Accrued liabilities
    9,000       11,852  
Accrued clinical trials and related expenses
    13,873       13,815  
Accrued compensation
    6,021       13,148  
Liability for contingent consideration, current
    40,000       40,000  
Escrow account liability
    27,603       27,600  
 
           
Total current liabilities
    97,761       107,778  
 
               
Deferred rent and lease incentives
    4,871       5,059  
Convertible senior notes due 2016
    145,826       143,669  
Liability for contingent consideration, non-current
    163,976       160,528  
Deferred tax liability
    157,090       157,090  
 
               
Commitments and contingencies
               
 
               
Stockholders’ equity:
               
Common stock
    62       62  
Receivable from stock option exercises
    (11 )     (5 )
Additional paid-in capital
    1,215,069       1,207,010  
Accumulated other comprehensive loss
    (1,444 )     (1,962 )
Accumulated deficit
    (466,593 )     (454,549 )
 
           
Total stockholders’ equity
    747,083       750,556  
 
           
Total liabilities and stockholders’ equity
  $ 1,316,607     $ 1,324,680  
 
           
See accompanying notes.

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ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 
    Three Months Ended
March 31,
 
    2010     2009  
    (In thousands, except per share amounts)  
Revenue:
               
Revenue from collaboration agreement
  $ 62,903     $ 53,717  
 
           
Total operating revenue
    62,903       53,717  
 
           
 
               
Operating expenses:
               
Research and development
    43,575       28,820  
Selling, general and administrative
    24,721       21,953  
Contingent consideration
    3,448        
 
           
Total operating expenses
    71,744       50,773  
 
           
 
               
Income (loss) from operations
    (8,841 )     2,944  
Investment income
    789       1,121  
Interest expense
    (4,724 )      
 
           
Income (loss) before provision (benefit) for income taxes
    (12,776 )     4,065  
Provision (benefit) for income taxes
    (732 )      
 
           
Net income (loss)
  $ (12,044 )   $ 4,065  
 
           
 
               
Net income (loss) per share:
               
Basic
  $ (0.19 )   $ 0.07  
 
           
Diluted
  $ (0.19 )   $ 0.07  
 
           
 
               
Shares used in computing net income (loss) per share:
               
Basic
    62,353       56,715  
 
           
Diluted
    62,353       57,197  
 
           
See accompanying notes.

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ONYX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
    Three Months Ended March 31,  
    2010     2009  
    (In thousands)  
Cash flows from operating activities:
               
Net income (loss)
  $ (12,044 )   $ 4,065  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    634       385  
Stock-based compensation
    5,121       4,456  
 
               
Amortization of convertible senior notes discount and debt issuance costs
    2,313        
Changes in fair value of liability for contingent consideration
    3,448        
Changes in operating assets and liabilities:
               
Receivable from collaboration partner
    7,033       (1,748 )
Restricted cash
    (3 )      
Prepaid expenses and other current assets
    (1,833 )     654  
Other assets
    96       6  
Accounts payable
    (99 )     1,100  
Advance payable to collaboration partner
          (6,130 )
Accrued liabilities
    (2,852 )     980  
Accrued clinical trials and related expenses
    58       1,354  
Accrued compensation
    (7,127 )     (2,575 )
Escrow liability
    3        
Deferred rent and lease incentives
    (188 )     (73 )
 
           
Net cash provided by (used in) operating activities
    (5,440 )     2,474  
 
           
 
               
Cash flows from investing activities:
               
Purchases of marketable securities
    (93,957 )     (165,338 )
Sales of marketable securities
    24,331       20,068  
Maturities of marketable securities
    90,390       55,000  
Capital expenditures
    (59 )     (40 )
 
           
Net cash provided by (used in) investing activities
    20,705       (90,310 )
 
           
 
               
Cash flows from financing activities:
               
Purchases of treasury stock
    (27 )     (18 )
Net proceeds from issuances of common stock
    2,959       5,174  
 
           
Net cash provided by financing activities
    2,932       5,156  
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    18,197       (82,680 )
Cash and cash equivalents at beginning of period
    107,668       235,152  
 
           
Cash and cash equivalents at end of period
  $ 125,865     $ 152,472  
 
           
 
               
Supplemental cash flow data
               
Cash paid during the period for income taxes
  $ 612     $  
Cash paid during the period for interest
  $ 4,677     $  
See accompanying notes.

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nexavar

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 or for any other future operating periods.
The condensed consolidated balance sheet at December 31, 2009 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Onyx Pharmaceuticals, Inc. (the “Company” or “Onyx” and the references “we,” “us” and “our”) Annual Report on Form 10-K for the year ended December 31, 2009.
Note 2. Revenue from Collaboration Agreement
Nexavar is currently marketed and sold primarily in the United States, the European Union and other territories worldwide for the treatment of unresectable liver cancer and advanced kidney cancer. Nexavar also has regulatory applications pending in other territories internationally. The Company co-promotes Nexavar in the United States with Bayer HealthCare Pharmaceuticals, or Bayer, under collaboration and co-promotion agreements. In March 2006, the Company and Bayer entered into a co-promotion agreement to co-promote Nexavar in the United States. This agreement amends the collaboration agreement and supersedes the provisions of that agreement that relate to the co-promotion of Nexavar in the United States. Outside of the United States, the terms of the collaboration agreement continue to govern under which Bayer has exclusive marketing rights and the Company shares equally in the profits or losses, excluding Japan. In the United States, under the terms of the 2006 co-promotion agreement and consistent with the collaboration agreement, the Company and Bayer share equally in the profits or losses of Nexavar, if any, in the United States, subject only to the Company’s continued co-funding of the development costs of Nexavar worldwide, excluding Japan, and the Company’s continued co-promotion of Nexavar in the United States. The collaboration was created through a contractual arrangement, not through a joint venture or other legal entity.
Outside of the United States, excluding Japan, Bayer incurs all of the sales and marketing expenditures, and the Company reimburses Bayer for half of those expenditures. In addition, for sales generated outside of the United States, excluding Japan, the Company reimburses Bayer a fixed percentage of sales for their marketing infrastructure. Research and development expenditures on a worldwide basis, excluding Japan, are equally shared by both companies regardless of whether the Company or Bayer incurs the expense. In Japan, Bayer is responsible for all development and marketing costs, and the Company receives a royalty on net sales of Nexavar.
In the United States, Bayer provides all product distribution and all marketing support services for Nexavar, including managed care, customer service, order entry and billing. Bayer is compensated for distribution expenses based on a fixed percent of gross sales of Nexavar in the United States. Bayer is reimbursed for half of its expenses for marketing services provided by Bayer for the sale of Nexavar in the United States. The companies share equally in any other out-of-pocket marketing expenses (other than expenses for sales force and medical science liaisons) that the Company and Bayer incur in connection with the marketing and promotion of Nexavar in the United States.
Bayer manufactures all Nexavar sold in the United States and is reimbursed at an agreed transfer price per unit for the cost of goods sold.
In the United States, the Company contributes half of the overall number of sales force personnel required to market and promote Nexavar and half of the medical science liaisons to support Nexavar. The Company and Bayer each bear its own sales force and medical science liaison expenses. These expenses are not included in the calculation of the profits or losses of the collaboration.

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Revenue from collaboration agreement consists of the Company’s share of the pre-tax commercial profit generated from its collaboration with Bayer, reimbursement of the Company’s shared marketing costs related to Nexavar and royalty revenue. Under the collaboration, Bayer recognizes all sales of Nexavar worldwide. The Company records revenue from collaboration agreement on a quarterly basis. Revenue from collaboration agreement is derived by calculating net sales of Nexavar to third-party customers and deducting the cost of goods sold, distribution costs, marketing costs (including without limitation, advertising and education expenses, selling and promotion expenses, marketing personnel expenses and Bayer marketing services expenses), Phase 4 clinical trial costs and allocable overhead costs. Reimbursement by Bayer of the Company’s shared marketing costs related to Nexavar and royalty revenue is also included in the revenue from collaboration agreement line item.
The Company’s portion of shared collaboration research and development expenses is not included in this line item, but is reflected under operating expenses. According to the terms of the collaboration agreement, the companies share all research and development, marketing and non-U.S. sales expenses. United States sales force and medical science liaison expenditures incurred by both companies are borne by each company separately and are not included in the calculation. Some of the revenue and expenses recorded to derive the revenue from collaboration agreement during the period presented are estimates of both parties and are subject to further adjustment based on each party’s final review should actual results differ from these estimates.
Revenue from collaboration agreement was $62.9 million and $53.7 million for the three months ended March 31, 2010 and 2009, respectively, calculated as follows:
                 
    Three Months Ended March 31,  
    2010     2009  
    (In thousands)  
 
               
Onyx’s share of collaboration commercial profit
  $ 55,084     $ 47,547  
Reimbursement of Onyx’s shared marketing expenses
    5,824       5,393  
Royalty revenue
    1,995       777  
 
           
Revenue from collaboration agreement
  $ 62,903     $ 53,717  
 
           
Note 3. Acquisition of Proteolix
In November 2009, the Company acquired Proteolix Inc., or Proteolix, a privately-held biopharmaceutical company located in South San Francisco, California. Proteolix focused primarily on the discovery and development of novel therapies that target the proteasome for the treatment of hematological malignancies, solid tumors and autoimmune disorders. Proteolix’s lead compound, carfilzomib, is a proteasome inhibitor currently in multiple clinical trials, including an advanced Phase 2b clinical trial for patients with relapsed and refractory multiple myeloma. This acquisition provided the Company with an opportunity to expand into the hematological malignancies market.
Under the Agreement and Plan of Merger, the aggregate consideration payable by the Company to former Proteolix stockholders at closing consisted of $276.0 million in cash, less $27.6 million that is temporarily held in an escrow account that would be released subject to terms described below under Escrow Account Liability. In addition, the Company paid $40.0 million in April 2010 related to a development milestone and may be required to pay up to an additional $535.0 million in earnout payments as outlined below under Liability for Contingent Consideration.
Goodwill
The excess of the consideration transferred over the fair values assigned to the assets acquired and liabilities assumed was $193.7 million, which represents the goodwill amount resulting from the acquisition. None of the goodwill is expected to be deductible for income tax purposes. The Company tests goodwill for impairment on an annual basis or sooner, if deemed necessary. As of March 31, 2010, there were no changes in the recognized amount of goodwill resulting from the acquisition of Proteolix.
Liability for Contingent Consideration
In addition to the cash consideration paid to Proteolix, the Company may be required to pay up to an additional $575.0 million in earnout payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones. The first earnout payment of $40.0 million was paid in April 2010, 180 days after completion of enrollment in an ongoing pivotal Phase 2b clinical study involving relapsed and refractory multiple myeloma patients, known as the “003-A1” trial. The remaining $535.0 million of earnout

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payments will become payable in up to four additional installments, upon the achievement of regulatory approvals in the U.S. and Europe within pre-specified timeframes for carfilzomib as follows:
    $170.0 million would be triggered by the achievement of accelerated marketing approval in the United States for relapsed/refractory multiple myeloma;
 
    $65.0 million would be triggered by marketing approval in the European Union for relapsed/refractory multiple myeloma;
 
    $150.0 million would be triggered by marketing approval in the United States for relapsed multiple myeloma; and
 
    $150.0 million would be triggered by marketing approval for relapsed multiple myeloma in the European Union.
The range of the undiscounted amounts the Company could be required to pay for the remaining earnout payments is between zero and $535.0 million. The fair value of the liability for the contingent consideration recognized on the acquisition date was $199.0 million, of which $40.0 million related to the first milestone payment and was classified as a current liability and the remaining balance of $159.0 million was classified as a non-current liability in the Condensed Consolidated Balance Sheet. The Company determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. For the three months ended March 31, 2010, the recognized amount of the non-current liability for contingent consideration increased by $3.4 million, principally as result of the change in fair value from the passage of time.
Escrow Account Liability
Of the $276.0 million total cash consideration payable to former Proteolix stockholders, $27.6 million, or 10%, was placed in an escrow account to be held until December 31, 2010 to secure the indemnification rights of Onyx and other indemnitees with respect to certain matters, including breaches of representations, warranties and covenants of Proteolix. As a result of the first earnout payment of $40.0 million being paid in April 2010, an additional $4.0 million, or 10% of the earnout payment, was included in the escrow account. The escrow account is reported as restricted cash on the Company’s Condensed Consolidated Balance Sheets at December 31, 2009 and March 31, 2010.
Note 4. Fair Value Measurements
In accordance with Accounting Standards Codification (“ASC”) Subtopic 820-10 the Company measures certain assets and liabilities at fair value on a recurring basis using the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three tiers include:
    Level 1, defined as observable inputs such as quoted prices for identical assets in active markets;
 
    Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
 
    Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring management to develop its own assumptions based on best estimates of what market participants would use in pricing an asset or liability at the reporting date.
The Company’s fair value hierarchies for its financial assets and liabilities (cash equivalents, current and non-current marketable securities, convertible senior notes and current and non-current liabilities for contingent consideration), which require fair value measurement on a recurring basis are as follows:

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    As of March 31, 2010  
    (In thousands)  
    As reflected on the                          
    unaudited balance                          
    sheet     Level 1     Level 2     Level 3     Total  
Assets:
                                       
Money market funds
  $ 19,832     $ 19,832     $     $     $ 19,832  
Corporate and financial institutions debt
    155,530             155,530             155,530  
Auction rate securities
    37,418             50       37,368       37,418  
U.S. government agencies
    178,170             178,170             178,170  
U.S. treasury bills
    140,096       140,096                   140,096  
 
                             
Total
  $ 531,046     $ 159,928     $ 333,750     $ 37,368     $ 531,046  
 
                             
 
                                       
Liabilities:
                                       
Liability for contingent consideration, current and non-current
  $ 203,976     $ 40,000     $     $ 163,976     $ 203,976  
Convertible senior notes due 2016 (face value $230,000)
    145,826             249,113             249,113  
 
                             
 
  $ 349,802     $ 40,000     $ 249,113     $ 163,976     $ 453,089  
 
                             
                                         
    As of December 31, 2009  
    (In thousands)  
    As reflected on the                          
    unaudited balance                          
    sheet     Level 1     Level 2     Level 3     Total  
Assets:
                                       
Money market funds
  $ 83,115     $ 83,115     $     $     $ 83,115  
Corporate and financial institutions debt
    110,644             110,644             110,644  
Auction rate securities
    37,274             100       37,174       37,274  
U.S. government agencies
    168,692             168,692             168,692  
U.S. treasury bills
    183,090       183,090                   183,090  
 
                             
Total
  $ 582,815     $ 266,205     $ 279,436     $ 37,174     $ 582,815  
 
                             
 
                                       
Liabilities:
                                       
Liability for contingent consideration, current and non-current
  $ 200,528     $     $     $ 200,528     $ 200,528  
Convertible senior notes due 2016 (face value $230,000)
    143,669             242,098             242,098  
 
                             
 
  $ 344,197     $     $ 242,098     $ 200,528     $ 442,626  
 
                             
The estimated fair value of the Company’s convertible senior notes as of March 31, 2010 is provided in accordance with ASC Subtopic 825-10. The Company’s convertible senior notes are not marked-to-market and are shown in the accompanying unaudited condensed balance sheet at their original issuance value net of amortized discount.
Level 2 assets consist of debt securities issued by corporate and financial institutions and U.S. government agencies. The fair value of these securities is estimated using a weighted average price based on market prices from a variety of industry standard data providers, security master files from large financial institutions and other third-party sources.
Level 3 assets consist of securities with an auction reset feature (“auction rate securities”), which are classified as available-for-sale securities and reflected at fair value. In February 2008, auctions began to fail for these securities and each auction for the majority of these securities since then has failed. As of March 31, 2010, the fair value of each of these securities is estimated utilizing a discounted cash flow analysis that is based on a specific term and liquidity assumptions. The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets:

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    Auction Rate Securities  
    Three Months Ended March 31,  
    2010     2009  
    (In thousands)  
Fair value at beginning of period
  $ 37,174     $ 39,622  
Redemptions
    (200 )      
Transfer to Level 2
    (50 )     (5,000 )
Change in valuation
    444       1,834  
 
           
Fair value at end of period
  $ 37,368     $ 36,456  
 
           
Transfers of auction rate securities from Level 3 to Level 2 are recognized when the Company becomes aware of actual redemptions of such securities. As a result of the decline in fair value of the Company’s auction rate securities, which the Company believes is temporary and attributes to liquidity rather than credit issues, the Company has recorded an unrealized loss of $1.6 million included in the accumulated other comprehensive income (loss) line of stockholders’ equity. All of the auction rate securities held by the Company at March 31, 2010, consist of securities collateralized by student loan portfolios, which are substantially guaranteed by the United States government. Any future fluctuation in fair value related to the non-current marketable securities that the Company deems to be temporary, including any recoveries of previous write-downs, will be recorded in accumulated other comprehensive income (loss). If the Company determines that any decline in fair value is other than temporary, it will record a charge to earnings as appropriate.
Level 3 liabilities consist of the acquisition-related non-current liability for contingent consideration the Company recorded that represents the amounts payable to former Proteolix stockholders upon the achievement of specified regulatory approvals within pre-specified timeframes for carfilzomib. The fair value of this Level 3 liability is estimated using a probability-weighted discounted cash flow analysis. Subsequent changes in the fair value of this liability is recorded to the “contingent consideration” expense line item in the Condensed Consolidated Statements of Operations under operating expenses. For the three months ended March 31, 2010, the recognized amount of this non-current liability for contingent consideration increased by $3.4 million, principally as result of the change in fair value from the passage of time. The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities:
         
    Liability for Contingent Consideration  
    March 31, 2010
    (In thousands)  
Fair value at beginning of period
  $ 200,528  
Transfers to Level 1
    (40,000 )
Change in valuation
    3,448  
 
     
Fair value at end of period
  $ 163,976  
 
     
Transfers of these liabilities between Levels are recognized when the Company becomes aware of changes in the circumstances causing the transfer. In April 2010, the Company paid $40.0 million related to a development milestone that is recorded as a current liability on the Company’s Condensed Consolidated Balance Sheets. As a result of the payment, $40.0 million was transferred from Level 3 to Level 1. Refer to Liability for Contingent Consideration in Note 3 for further details.
Note 5. Marketable Securities
Marketable securities consist of securities that are classified as “available for sale”. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and shown separately as a component of accumulated other comprehensive income (loss) within stockholders’ equity. The cost of a security sold or the amount reclassified out of accumulated other comprehensive income (loss) into earnings is determined using specific identification. The Company may pay a premium or receive a discount upon the purchase of marketable securities. Interest earned and gains realized on marketable securities and amortization of discounts received and accretion of premiums paid on the purchase of marketable securities are included in investment income. The weighted-average maturity of the Company’s marketable securities as of March 31, 2010 was five months.
Available-for-sale marketable securities consisted of the following:

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    March 31, 2010  
    Adjusted     Unrealized     Unrealized     Estimated  
    Cost     Gains     Losses     Fair Value  
    (In thousands)  
Agency bond investments:
                               
Current
  $ 298,345     $ 85     $ (63 )   $ 298,367  
 
                       
Total agency bond investments
    298,345       85       (63 )     298,367  
 
                       
Corporate debt investments:
                               
Current
    123,518       162       (47 )     123,633  
Non-current
    38,950             (1,582 )     37,368  
 
                       
Total corporate investments
    162,468       162       (1,629 )     161,001  
 
                       
Total available-for-sale marketable securities
  $ 460,813     $ 247     $ (1,692 )   $ 459,368  
 
                       
                                 
    December 31, 2009  
    Adjusted     Unrealized     Unrealized     Estimated  
    Cost     Gains     Losses     Fair Value  
    (In thousands)  
Agency bond investments:
                               
Current
  $ 349,254     $ 162     $ (156 )   $ 349,260  
 
                       
Total agency bond investments
    349,254       162       (156 )     349,260  
 
                       
Corporate debt investments:
                               
Current
    93,119       92       (31 )     93,180  
Non-current
    39,200             (2,026 )     37,174  
 
                       
Total corporate investments
    132,319       92       (2,057 )     130,354  
 
                       
Total available-for-sale marketable securities
  $ 481,573     $ 254     $ (2,213 )   $ 479,614  
 
                       
The Company’s investment portfolio includes $39.0 million of AAA rated auction rate securities that are collateralized by student loans. Since February 2008, these types of securities have experienced failures in the auction process. However, a limited number of these securities have been redeemed at par by the issuing agencies. As a result of the auction failures, interest rates on these securities reset at penalty rates linked to LIBOR or Treasury bill rates. The penalty rates are generally higher than interest rates set at auction. Due to the failures in the auction process, these securities are not currently liquid. Of the $39.0 million of par value auction rate securities, $0.1 million in securities were redeemed at par in April 2010. Therefore, the Company has classified a portion of the auction rate securities with a fair value of $0.1 million, based on the amount redeemed in April 2010, as current marketable securities and the remaining auction rate securities with an estimated fair value of $37.4 million, based on a discounted cash flow model, as non-current marketable securities on the accompanying unaudited condensed consolidated balance sheet at March 31, 2010. The Company has reduced the carrying value of the marketable securities classified as non-current by $1.6 million through accumulated other comprehensive income or loss instead of earnings because the Company has deemed the impairment of these securities to be temporary.
Note 6. Other Long-Term Assets
In December 2008, the Company entered into a development collaboration, option and license agreement with S*BIO Pte Ltd, or S*BIO. Under the terms of the agreement, in December 2008 the Company made a $25.0 million payment to S*BIO, of which the Company expensed an up-front payment of $20.7 million and recognized an equity investment of $4.3 million. As a result, the accompanying unaudited Condensed Consolidated Balance Sheet at March 31, 2010 includes $4.3 million for this long-term private equity investment in other long-term assets. This equity investment is accounted for using the cost method of accounting. The Company’s carrying value of this asset was not impaired as there were no adverse events or changes in circumstances identified by the Company that would impact the fair value of this investment.
In June 2009, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 167, or SFAS 167, “Amendments to FASB Interpretation No. 46(R),” which amends the consolidation guidance applicable to variable interest entities. This statement was effective for the Company as January 1, 2010 and has currently not been codified in the ASC. The adoption of SFAS 167 did not have any significant impact on the Company’s financial statements.

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Note 7. Convertible Senior Notes due 2016
In August 2009, the Company issued, through an underwritten public offering, $230.0 million aggregate principal amount of 4.0% convertible senior notes due 2016 (the “2016 Notes”). The 2016 Notes will mature on August 15, 2016 unless earlier redeemed or repurchased by the Company or converted. The 2016 Notes bear interest at a rate of 4.0% per year, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2010.
The 2016 Notes are general unsecured senior obligations of the Company and rank equally in right of payment with all of the Company’s future senior unsecured indebtedness, if any, and senior in right of payment to our future subordinated debt, if any.
The 2016 Notes will be convertible, under certain circumstances and during certain periods, at an initial conversion rate of 25.2207 shares of common stock per $1,000 principal amount of the 2016 Notes, which is equivalent to an initial conversion price of approximately $39.65 per share of common stock. The conversion rate is subject to adjustment in certain circumstances. Upon conversion of a 2016 Note, the Company will deliver, at its election, shares of common stock, cash or a combination of cash and shares of common stock.
Upon the occurrence of certain fundamental changes involving the Company, holders of the 2016 Notes may require the Company to repurchase all or a portion of their 2016 Notes for cash at a price equal to 100% of the principal amount of the 2016 Notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Beginning August 20, 2013, the Company may redeem all or part of the outstanding 2016 Notes, provided that the last reported sale price of the common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day prior to the date the Company provides the notice of redemption to holders of the 2016 Notes exceeds 130% of the conversion price in effect on each such trading day. The redemption price will equal 100% of the principal amount of the 2016 Notes to be redeemed, plus all accrued and unpaid interest, plus a “make-whole premium” payment. The Company must make the make-whole premium payments on all 2016 Notes called for redemption prior to August 15, 2016, including the 2016 Notes converted after the date the Company delivered the notice of redemption.
The 2016 Notes are accounted for in accordance with ASC Subtopic 470-20. Under ASC Subtopic 470-20 issuers of certain convertible debt instruments that have a net settlement feature and may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of any outstanding debt instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument.
The following is a summary of the principal amount of the liability component of the 2016 Notes, its unamortized discount and its net carrying amount as of March 31, 2010:
                         
    March 31, 2010
Long-term   Principal   Discount   Net Carrying Value
    (In thousands)
2016 Notes — 4.00%
  $ 230,000     $ (84,174 )   $ 145,826  
The effective interest rate used in determining the liability component of the 2016 was 12.5%. The application of ASC Subtopic 470-20 resulted in an initial recognition of $89.5 million as the debt discount with a corresponding increase to paid-in capital, the equity component, for the 2016 Notes. The debt discount and debt issuance costs are amortized as interest expense through August 2016. The cash interest expense for the three months ended March 31, 2010 for the 2016 Notes was $2.3 million relating to the 4.0% stated coupon rate. The non-cash interest expense relating to the amortization of the debt discount for the 2016 Notes for the three months ended March 31, 2010 was $2.2 million.

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Note 8. Stock-Based Compensation
The Company accounts for stock-based compensation to employees and directors by estimating the fair value of stock-based awards using the Black-Scholes option-pricing model and amortizing the fair value of the stock-based awards granted over the applicable vesting period. Total employee stock-based compensation expense was $4.9 million and $4.0 million for the three months ended March 31, 2010 and 2009, respectively.
Valuation Assumptions
As of March 31, 2010 and 2009, the weighted-average assumptions used in the Black-Scholes option-pricing model to estimate the fair value of stock-based awards for employee stock option awards and employee stock purchases made under the Employee Stock Purchase Plan were as follows:
                 
    Three Months Ended
    March 31,
    2010   2009
Stock Options:
               
Risk-free interest rate
    2.38 %     1.78 %
Expected life
  4.4 years     4.3 years  
Expected volatility
    54 %     66 %
Expected dividends
  None     None  
Weighted-average option fair value
  $ 13.82     $ 15.73  
 
               
Stock Awards:
               
Expected life
  3 years     3 years  
Expected dividends
  None     None  
Weighted-average fair value per share
  $ 30.14     $ 29.00  
 
               
ESPP:
               
Risk-free interest rate
    0.05 %     0.26 %
Expected life
  6 months     6 months  
Expected volatility
    47 %     66 %
Expected dividends
  None     None  
Weighted-average shares fair value
  $ 7.67     $ 10.42  
Note 9. Income Taxes
The Company calculates its quarterly income tax provision in accordance with ASC 740-270, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company has established and continues to maintain a full valuation allowance against its deferred tax assets as the Company does not currently believe that realization of those assets is more likely than not.
For the quarter ended March 31, 2010, the Company recorded an income tax benefit of $732,000. The Company’s income tax benefit is principally related to its election to carryback net operating losses under the recently enacted Worker, Homeownership and Business Association Act of 2009. The election enabled the Company to eliminate all federal Alternative Minimum Taxes (AMT) recorded  in 2009.
There were no material changes to the Company’s unrecognized tax benefits for the three months ended March 31, 2010, and the Company does not expect to have any significant changes to unrecognized tax benefits over the next twelve months. The tax years from 1993 and forward remain open to examination by the federal and state taxing authorities due to net operating loss and credit carryforward. The Company is currently not under examination by the Internal Revenue Service or any other taxing authorities.

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Note 10. Net Income (Loss) per Share
Basic net income (loss) per share amounts for each period presented were computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding. Diluted net income (loss) per share for each period presented was computed by dividing net income (loss) plus interest on dilutive convertible senior notes by the weighted-average number of shares of common stock outstanding during each period plus all additional common shares that would have been outstanding assuming dilutive potential common shares had been issued for dilutive convertible senior notes and other dilutive securities.
Dilutive potential common shares for dilutive convertible senior notes are calculated based on the “if-converted” method. Under the “if-converted” method, when computing the dilutive effect of convertible senior notes, the numerator is adjusted to add back the amount of interest and debt issuance costs recognized in the period and the denominator is adjusted to add back the amount of shares that would be issued if the entire obligation is settled in shares. As of March 31, 2010, the Company’s outstanding indebtedness consisted of its 4.0% convertible senior notes due 2016.
Dilutive potential common shares also include the dilutive effect of the common stock underlying in-the-money stock options and are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option, the average amount of compensation cost, if any, for future service that the Company has not yet recognized when the option is exercised, are assumed to be used to repurchase shares in the current period.
The computations for basic and diluted net income (loss) per share were as follows:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
    (In thousands, except per share amounts)  
Numerator:
               
Net income (loss) — basic
  $ (12,044 )   $ 4,065  
Add: interest and issuance costs related to convertible senior notes
           
 
           
Net income (loss) — diluted
  $ (12,044 )   $ 4,065  
 
           
 
               
Denominator:
               
Weighted average common shares outstanding — basic
    62,353       56,715  
Dilutive effect of convertible senior notes
           
Dilutive effect of options
          482  
 
           
Weighted-average common shares outstanding and dilutive potential common shares — diluted
    62,353       57,197  
 
           
 
               
Net income (loss) per share:
               
Basic
  $ (0.19 )   $ 0.07  
 
           
Diluted
  $ (0.19 )   $ 0.07  
 
           
Under the “if-converted” method, 5.8 million potential common shares relating to the 2016 Notes were not included in diluted net income (loss) per share for the three months ended March 31, 2010 because their effect would be anti-dilutive. Diluted net income (loss) per share does not include the effect of 3.9 million and 3.4 million stock-based awards that were outstanding during the three months ended March 31, 2010 and 2009, respectively, because their effect would have been anti-dilutive.
The table below sets the potential common shares related to convertible notes and equity plans and the interest expense related to the convertible notes not included in dilutive shares because their effect would be anti-dilutive.

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    Three Months Ended
    March 31,
    2010   2009
    (In thousands)
Potential common shares — 2016 Notes
    5,801        
Potential common shares — equity plans
    3,893       3,447  
2016 Notes interest and issuance expense not added back under the “if-converted” method
  $ 4,613     $  
Note 11. Comprehensive Income (Loss)
Comprehensive income (loss) is composed of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) is comprised of unrealized holding gains and losses on the Company’s available-for-sale securities that are excluded from net income and reported separately in stockholders’ equity. Comprehensive income and its components are as follows:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
    (In thousands)  
Net income (loss) — as reported
  $ (12,044 )   $ 4,065  
Other comprehensive income (loss):
               
Change in unrealized gain (loss) on available-for-sale securities
    518       1,473  
 
           
Comprehensive income (loss)
  $ (11,526 )   $ 5,538  
 
           
The activities in other comprehensive income (loss) are as follows:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
    (In thousands)  
Increase (decrease) in unrealized gain (loss) on available-for-sale securities
  $ 518     $ 1,473  
Reclassification adjustment for net gains on available-for-sale securities included in net income
           
 
           
Change in unrealized gain (loss) on available-for-sale securities
  $ 518     $ 1,473  
 
           
Note 12. Related Party Transactions
The Company’s related parties consist of its directors and officers. Transactions with officers and directors include notes receivable as described below.
At March 31, 2010, the Company had a loan with a non-executive employee of which $151,000 was outstanding. The loan bears interest at 0.72% per annum and is payable in a lump sum within eighteen months from the date of the loan.
Note 13. Recent Accounting Pronouncements
In October 2009, the FASB issued new standards for revenue recognition for agreements with multiple deliverables. These new standards impact the determination of when the individual deliverables included in a multiple element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction consideration is allocated

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across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards will be effective for the Company beginning in the first quarter of 2011 with early adoption permitted, and the Company is still assessing the potential impact of adoption, if any.
In April 2010, the FASB issued Accounting Standard Update No. 2010-17 Milestone Method of Revenue Recognition, or ASU 2010-17, to (1) limit the scope of this ASU to research or development arrangements and (2) require that guidance in this ASU be met for an entity to apply the milestone method (record the milestone payment in its entirety in the period received). However, the FASB clarified that, even if the requirements in this ASU are met, entities would not be precluded from making an accounting policy election to apply another appropriate accounting policy that results in the deferral of some portion of the arrangement consideration. The ASU will be effective for periods beginning on or after June 15, 2010. Early application is permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. The Company is still assessing the potential impact of adoption, if any.
Note 14. Subsequent Events
In May 2010, S*BIO and the Company announced the expansion of its development collaboration and option and license commercialization agreement for S*BIO’s novel JAK2 inhibitors, ONX 0803 and ONX 0805. The expanded agreement builds upon the development and commercialization collaboration between the two companies announced in January 2009. The Company agreed to provide an additional $20.0 million in funding to broaden and accelerate the existing development program for both compounds. S*BIO agreed to continue to perform the clinical development of ONX0803 and preclinical through clinical development of ONX 0805.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. We use words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions to identify forward-looking statements. These statements appearing throughout our Form 10-Q are statements regarding our intent, belief, or current expectations, primarily regarding our operations. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those set forth under Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.
Overview
Changing the way cancer is treated®
We are a biopharmaceutical company dedicated to developing innovative therapies that target the molecular mechanisms that cause cancer. With our collaborators, we are developing anticancer therapies, and we are applying our expertise to develop and commercialize therapies designed to exploit the genetic differences between cancer cells and normal cells.
Our first commercially available product, Nexavar® (sorafenib) tablets, being developed with our collaborator, Bayer HealthCare Pharmaceuticals, or Bayer, is approved by the United States Food and Drug Administration, or FDA, for the treatment of patients with unresectable liver cancer and advanced kidney cancer. Nexavar is a novel, orally available kinase inhibitor and is one of a new class of anticancer treatments that target both cancer cell proliferation and tumor growth through the inhibition of key signaling pathways. In December 2005, Nexavar became the first newly approved drug for patients with advanced kidney cancer in over a decade. In November 2007, Nexavar was approved as the first and is currently the only systemic therapy for the treatment of patients with unresectable liver cancer. Nexavar is now approved in more than 90 countries for the treatment of unresectable liver cancer and advanced kidney cancer. We and Bayer are also conducting clinical trials of Nexavar in several important cancer types in addition to advanced kidney cancer and unresectable liver cancer, including lung, breast, thyroid, ovarian and colon cancers.
We and Bayer are commercializing Nexavar, for the treatment of patients with unresectable liver cancer and advanced kidney cancer. Nexavar has been approved and is marketed for these indications in the United States and in the European Union, as well as other territories worldwide. In the United States, we co-promote Nexavar with Bayer. Outside of the United States, Bayer manages all commercialization activities. For the three months ended March 31, 2010, worldwide net sales of Nexavar as recorded by Bayer were $214.4 million.
In collaboration with Bayer, we initially focused on demonstrating Nexavar’s ability to benefit patients suffering from a cancer for which there were no or few established therapies. With the approval of Nexavar for the treatment of unresectable liver cancer and advanced kidney cancer, the two companies have established the Nexavar brand and created a global commercial oncology presence. In order to benefit as many patients as possible, we and Bayer are also investigating the administration of Nexavar with previously approved and investigational anticancer therapies in many common cancers, with the objective of enhancing the anti-tumor activity of existing therapies through combination with Nexavar.
We and Bayer are developing and marketing Nexavar under our collaboration and co-promotion agreements. We fund 50% of the development costs for Nexavar worldwide, excluding Japan. With Bayer, we co-promote Nexavar in the United States and share equally in any profits or losses. Outside of the United States, excluding Japan, Bayer has exclusive marketing rights and we share profits equally. In Japan, Bayer funds all product development, and we receive a royalty on any sales.
In November 2009, we made a significant move towards achieving our goal in becoming a multi-product portfolio company by acquiring Proteolix, Inc., or Proteolix, a privately-held biopharmaceutical company located in South San Francisco, California. Proteolix focused primarily on the discovery and development of novel therapies that target the proteasome for the treatment of hematological malignancies, solid tumors and autoimmune disorders. This acquisition, which included carfilzomib, has provided us with an opportunity to expand into the hematological malignancies market. The aggregate cash consideration to former Proteolix stockholders at closing was $276.0 million with another $40.0 million paid in April 2010 upon achievement of a pre-specified milestone. In addition, we may be required to pay up to an additional $535.0 million in earnout payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones.

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We have also expanded our development pipeline through the acquisition of rights to development-stage novel anticancer agents. In November 2008, we entered into an agreement to license worldwide development and commercialization rights to ONX 0801, previously known as BGC 945, from BTG International Limited, or BTG, a London-based specialty pharmaceuticals company. ONX 0801 is in clinical development and is believed to work by combining two established approaches to improve outcomes for cancer patients, selectively targeting tumor cells through the alpha-folate receptor, which is overexpressed in a number of tumor types, and inhibiting thymidylate synthase, a key enzyme responsible for cell growth and division. In December 2008, we acquired options to license SB1518 (designated by Onyx as ONX 0803) and SB1578 (designated by Onyx as ONX 0805), which are both Janus Kinase 2, or JAK2, inhibitors, from S*BIO Pte Ltd, or S*BIO, a Singapore-based company. The activation of JAK2 stimulates blood cell production and the JAK2 pathway is known to play a critical role in the proliferation of certain types of cancer cells and in the anti-inflammatory pathway. ONX 0803 is in multiple Phase 1 studies and ONX 0805 is in preclinical development.
For the three months ended March 31, 2010, we reported a net loss of $12.0 million. With the exception of the years ended December 31, 2009 and 2008, we have incurred annual net losses since our inception. Our ability to achieve continued and sustainable profitability is uncertain and is dependent on a number of factors. These factors include, but are not limited to, the level of patient demand for Nexavar, the ability of Bayer’s distribution network to process and ship product on a timely basis, investments in sales and marketing efforts to support the sales of Nexavar, Bayer and our investments in the research and development of Nexavar, fluctuations in foreign exchange rates and expenditures we may incur to acquire or develop and commercialize additional products. Our operating results will likely fluctuate from quarter to quarter and from year to year, and are difficult to predict. Since inception, we have relied on public and private financings, combined with milestone payments from our collaborators, to fund our operations and may continue to do so in future periods. As of March 31, 2010, our accumulated deficit was approximately $466.6 million.
Our business is subject to significant risks, including the risks inherent in our development efforts, the results of the Nexavar clinical trials, the marketing of Nexavar as a treatment for patients in approved indications, our dependence on collaborative parties, uncertainties associated with obtaining and enforcing patents, the lengthy and expensive regulatory approval process and competition from other products. For a discussion of these and some of the other risks and uncertainties affecting our business, see Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and the Use of Estimates
Critical accounting policies are those that require significant estimates, assumptions and judgments by management about matters that are inherently uncertain at the time that the financial statements are prepared such that materially different results might have been reported if other assumptions had been made. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Significant estimates used in 2010 included assumptions used in the determination of the fair value of marketable securities, revenue from collaboration agreement, the effect of business combinations, fair value measurements of tangible and intangible assets and liabilities, goodwill and other intangible assets, fair value of convertible senior notes, research and development expenses, stock-based compensation related to stock options granted and provision for income taxes. Actual results could differ materially from these estimates. There were no changes to our critical accounting policies since we filed our 2009 Annual Report on Form 10-K for the year ended December 31, 2009 with the Securities and Exchange Commission, or SEC. For a description of our critical accounting policies, please refer to our 2009 Annual Report.
Results of Operations
Three months ended March 31, 2010 and 2009
Revenue
Nexavar, our only marketed product, was approved in the United States in December 2005. In accordance with our collaboration agreement with Bayer, Bayer recognizes all revenue from the sale of Nexavar. As such, for the three months ended March 31, 2010 and 2009, we reported no product revenue. For the three months ended March 31, 2010, Nexavar net sales recorded by Bayer were $214.4 million, primarily in the United States, the European Union and other territories worldwide and includes the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act. This represents an increase of $36.3 million, or 20%, over Nexavar net sales of $178.1 million recorded by Bayer for the three months ended March 31, 2009.

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Revenue from Collaboration Agreement
Nexavar is currently marketed and sold in the United States, most countries in the European Union and other territories worldwide. We co-promote Nexavar in the United States with Bayer under collaboration and co-promotion agreements. Under the terms of the co-promotion agreement and consistent with the collaboration agreement, we and Bayer share equally in the profits or losses of Nexavar worldwide, excluding Japan. In the United States, we contribute half of the overall number of sales force personnel required to market and promote Nexavar and half of the medical science liaisons to support Nexavar. We and Bayer each bear our own sales force and medical science liaison expenses. These expenses are not included in the calculation of the profits or losses of the collaboration.
Revenue from collaboration agreement consists of our share of the pre-tax commercial profit generated from our collaboration with Bayer, reimbursement of our shared marketing costs related to Nexavar and royalty revenue. Under the collaboration, Bayer recognizes all sales of Nexavar worldwide. We record revenue from collaboration agreement on a quarterly basis. Revenue from collaboration agreement for the three months ended March 31, 2010 and 2009 is calculated as follows:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
    (In thousands)  
Nexavar product revenue, net (as recorded by Bayer)
  $ 214,361     $ 178,069  
 
           
 
               
Nexavar revenue subject to profit sharing (as recorded by Bayer)
  $ 185,867     $ 166,974  
Combined cost of goods sold, distribution, selling, general and administrative expenses
    75,698       71,879  
 
           
Combined collaboration commercial profit
  $ 110,169     $ 95,095  
 
           
 
               
Onyx’s share of collaboration commercial profit
  $ 55,084     $ 47,547  
Reimbursement of Onyx’s shared marketing expenses
    5,824       5,393  
Royalty revenue
    1,995       777  
 
           
Revenue from collaboration agreement
  $ 62,903     $ 53,717  
 
           
The increase in revenue from collaboration agreement is primarily a result of increased net product revenue on sales of Nexavar as recorded by Bayer in countries around the world and royalty revenue.
Revenue from collaboration agreement increases with increased Nexavar net revenue, or decreases with decreased Nexavar net revenue, over and above the associated cost of goods sold, distribution, selling and general administrative expenses. Increases to the associated costs of goods sold, distribution, selling and general and administrative expenses decreases revenue from collaboration agreement and decreases to these costs will increase revenue from collaboration agreement. Additionally, prolonged or profound economic downturn may result in adverse changes to product reimbursement and pricing and sales levels, which would harm our operating results. We expect Nexavar sales and Bayer’s and our shared cost of goods sold, distribution, selling and general administrative expense to increase as Bayer continues to expand Nexavar marketing and sales activities outside of the United States.
Research and Development Expenses
Research and development expenses, as compared to the same period of the prior year were as follows:
                                 
    For the Three Months Ending   Change
    March 31,   2010 vs 2009
    2010   2009   $   %
    (In thousands, except percentages)
Research and development
  $ 43,575     $ 28,820     $ 14,755       51 %
For the three months ended March 31, 2010, research and development expenses include costs to develop our product candidates and our share of the research and development costs incurred for Nexavar by Bayer and us under our cost sharing arrangement. The increase in research and development expenses is primarily due to planned increases to further develop carfilzomib as result of our acquisition of Proteolix in November 2009. Research and development expenses related to Nexavar remained consistent for the periods presented. Our share of the research and development costs incurred for Nexavar include 87% and 79% of the costs incurred by Bayer for Nexavar for the three months ended March 31, 2010 and 2009, respectively.

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As a result of the cost sharing arrangement between us and Bayer for research and development costs, there was a net reimbursable amount of $18.5 million and $16.2 million due to Bayer for the three months ended March 31, 2010 and 2009, respectively. Such amounts were recorded based on invoices and estimates we receive from Bayer. When such invoices have not been received, we must estimate the amounts owed to Bayer based on discussions with Bayer. If we underestimate or overestimate the amounts owed to Bayer, we may need to adjust these amounts in a future period, which could have an effect on earnings in the period of adjustment. As of March 31, 2010, our share of the Nexavar development costs incurred to date under the collaboration was $518.5 million.
The major components of research and development costs include clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead and occupancy costs. In addition, our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial sites and clinical research organizations. In the normal course of business, we contract with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation and variation from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients and the completion of portions of the clinical trial or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical trials are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract. If we underestimate activity levels associated with various studies at a given point in time, we could record significant research and development expenses in future periods.
We expect research and development expenses to increase in future periods as we and Bayer continue to expand our global development strategy for Nexavar that implements simultaneous clinical programs currently designed to expand the number of approved indications of Nexavar and evaluate the use of Nexavar in new and/or novel combinations. Our global development plan includes Phase 3 investments in liver, kidney, thyroid and non-small cell lung cancers and Phase 2 investments in breast, ovarian and colorectal cancers. investment in the development of Nexavar by conducting clinical trials to test Nexavar’s efficacy in other potential indications in future periods. As a result of our acquisition of Proteolix, we also expect our research and development expenses to increase substantially in future periods, primarily, as a result of costs incurred to develop our product candidate carfilzomib. We also expect our research and development activities to include developing ONX 0801 and our other product candidates. In addition, we expect our research and development expenses to increase if we exercise our options to license the rights to ONX 0803 and/or ONX 0805. S*BIO will retain responsibility for all development costs prior to the option exercise. After the exercise of our option to license rights to either compound, we are required to assume development costs for the U.S., Canada and Europe subject to S*BIO’s option to fund a portion of the development costs in return for enhanced royalties on any future product sales. Upon the exercise of our option of either compound, S*BIO is entitled to receive a one-time fee, milestone payments upon achievement of certain development and sales levels and royalties on any future product sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as compared to the same period of the prior year were as follows:
                                 
    For the Three Months Ending   Change
    March 31,   2010 vs 2009
    2010   2009   $   %
    (In thousands, except percentages)
Selling, general and administrative
  $ 24,721     $ 21,953     $ 2,768       13 %
The increase in selling, general and administrative expenses is primarily due to headcount-related expenses resulting from the integration of Proteolix and increased legal fees. Selling, general and administrative expenses consist primarily of salaries, employee benefits, consulting, advertising and promotion expenses, other third party costs, corporate functional expenses and allocations for overhead and occupancy costs. We expect our selling, general and administrative expenses to increase due to increases in marketing expenses related to Nexavar and increases in personnel.
Contingent Consideration Expense
Contingent consideration expense, as compared to the same period of the prior year was as follows:
                                 
    For the Three Months Ending   Change
    March 31,   2010 vs 2009
    2010   2009   $   %
    (In thousands, except percentages)
Contingent consideration
  $ 3,448     $     $ 3,448       0 %
The increase in contingent consideration expense is principally due to the change in fair value from the passage of time in the recognized amount of the non-current liability for contingent consideration that resulted from the acquisition of Proteolix in November 2009.
As a result of the acquisition of Proteolix, we made a payment of $40.0 million in April 2010 and may be required to pay up to an additional $535.0 million in four earnout payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones. We recorded a non-current liability for this contingent consideration for the four earnout payments with a fair value of $164.0 million at March 31, 2010 based upon a discounted cash flow model that uses significant estimates and assumptions. Any changes to these estimates and assumptions could significantly impact the fair values recorded for this liability resulting in significant charges to our Condensed Consolidated Statements of Operations.

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Investment Income
Investment income consists of interest income and realized gains or losses from the sale of marketable equity investments. We had investment income of $0.8 million for the three months ended March 31, 2010, a decrease of $0.3 million, or 27%, from $1.1 million in the same period in 2009. These decreases were primarily due to lower effective interest rates in the market.
Interest Expense
Interest expense of $4.7 million for the first quarter 2010 primarily relates to the 4.0% convertible senior notes due 2016 issued in August 2009, and includes non-cash imputed interest expense of $2.2 million as a result of the application of ASC Subtopic 470-20.
Liquidity and Capital Resources
With the exception of the profitability we achieved for the years ended December 31, 2009 and 2008, we have incurred significant annual net losses since our inception, and we have relied primarily on public and private financing to fund our operations.
At March 31, 2010, we had cash, cash equivalents and current and non-current marketable securities of $585.2 million, compared to $587.3 million at December 31, 2009. The decrease of $2.1 million was primarily attributable to net cash used in operations.
Our investment portfolio includes $39.0 million of AAA rated securities with an auction reset feature (“auction rate securities”) that are collateralized by student loans. In April 2010, $0.1 million in securities were redeemed at par and, accordingly, we classified them as current marketable securities in the accompanying unaudited condensed consolidated balance sheet at March 31, 2010. Therefore, the remaining balance of auction rate securities is currently outstanding in our investment portfolio. Since February 2008, these types of securities have experienced failures in the auction process. However, a limited number of these securities have been redeemed at par by the issuing agencies. As a result of the auction failures, interest rates on these securities reset at penalty rates linked to LIBOR or Treasury bill rates. The penalty rates are generally higher than interest rates set at auction. Based on the overall failure rate of these auctions, the frequency of the failures, the underlying maturities of the securities, a portion of which are greater than 30 years, and our belief that the market for these student loan collateralized instruments may take in excess of twelve months to fully recover, we have classified the remaining balance of auction rate securities as non-current marketable securities in the accompanying unaudited Condensed Consolidated Balance Sheet. We have determined the fair value to be $37.4 million for these securities, based on a discounted cash flow model, and have reduced the carrying value of these marketable securities by $1.6 million through accumulated other comprehensive income (loss) instead of earnings because we have deemed the impairment of these securities to be temporary. Further adverse developments in the credit market could result in an impairment charge through earnings in the future. The discounted cash flow model used to value these securities is based on a specific term and liquidity assumptions. An increase in either of these assumptions could result in a $1.6 million decrease in value. Alternatively, a decrease in either of the assumptions could result in a $1.6 million increase in value.
Currently, we believe these investments are not other-than-temporarily impaired as all of them are substantially backed by the federal government, but it is not clear in what period of time they will be settled. We believe that, even after reclassifying these securities to non-current assets and the possible requirement to hold all such securities for an indefinite period of time, our remaining cash and cash equivalents and current investments will be sufficient to meet our anticipated cash needs.
We believe that our existing capital resources and interest thereon will be sufficient to fund our current and planned operations beyond 2010. However, if we change our development plans, including acquiring or developing additional product candidates or complementary businesses, we may need additional funds sooner than we expect. We anticipate that our co-development costs for the Nexavar program may increase over the next several years as we continue to fund our share of the clinical development program and prepare for the potential product launches throughout the world. In addition, we anticipate that we will incur expenses for the development of ONX 0801 and, if we exercise one or both of our options, ONX 0803 and ONX 0805, we will be required to pay significant license fees and will incur development expenses.
With the acquisition of Proteolix in November 2009, we anticipate significant cash outlays, including a contingent earn-out payment of $40.0 million paid in April 2010. We also anticipate that we will incur cash outlays to conduct and support additional clinical trials both currently underway and planned for the development of carfilzomib and Proteolix’s other development candidates, as well as to support increased headcount. Further, we may be obligated to make up to an additional $535.0 million of contingent earn-out

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payments upon the achievement of regulatory approvals for carfilzomib in the U.S. and Europe, and payable in either cash or common stock, at our discretion.
While most of our anticipated development costs are unknown at the current time, we may need to raise additional capital to continue the funding of our product development programs and our development plans in future periods beyond 2010. We intend to seek any required additional funding through collaborations, public and private equity or debt financings, capital lease transactions or other available financing sources. Additional financing may not be available on acceptable terms, if at all. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our development programs or to obtain funds through collaborations with others that are on unfavorable terms or that may require us to relinquish rights to certain of our technologies, product candidates or products that we would otherwise seek to develop on our own.
Recent Accounting Pronouncements
In October 2009, the FASB issued new standards for revenue recognition for agreements with multiple deliverables. These new standards impact the determination of when the individual deliverables included in a multiple element arrangement may be treated as separate units of accounting. Additionally, these new standards modify the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. These new standards will be effective for us beginning in the first quarter of 2011 with early adoption permitted, and we are still assessing the potential impact of adoption, if any.
In April 2010, the FASB issued Accounting Standard Update No. 2010-17 Milestone Method of Revenue Recognition, or ASU 2010-17, to (1) limit the scope of this ASU to research or development arrangements and (2) require that guidance in this ASU be met for an entity to apply the milestone method (record the milestone payment in its entirety in the period received). However, the FASB clarified that, even if the requirements in this ASU are met, entities would not be precluded from making an accounting policy election to apply another appropriate accounting policy that results in the deferral of some portion of the arrangement consideration. The ASU will be effective for periods beginning on or after June 15, 2010. Early application is permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. We are still assessing the potential impact of adoption, if any.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The primary objective of our investment activities is to preserve principal while at the same time maximize the income we receive from our investments without significantly increasing risk. Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. This means that a change in prevailing interest rates may cause the principal amount of the investments to fluctuate. Under our policy, we minimize risk by placing our investments with high quality debt security issuers, limit the amount of credit exposure to any one issuer, limit duration by restricting the term, and hold investments to maturity except under rare circumstances. We maintain our portfolio of cash equivalents and marketable securities in a variety of securities, including commercial paper, money market funds and investment grade government and non-government debt securities. Through our money managers, we maintain risk management control systems to monitor interest rate risk. The risk management control systems use analytical techniques, including sensitivity analysis. If market interest rates were to increase or decrease by 100 basis points, or 1%, as of March 31, 2010, the fair value of our portfolio would decline or increase, respectively, by approximately $1.9 million. Additionally, a hypothetical increase or decrease of 1% in market interest rates during the three months ended March 31, 2010 would have resulted in a change of $1.4 million.
The table below presents the amounts and related weighted interest rates of our cash equivalents and marketable securities at:
                                                 
    March 31, 2010   December 31, 2009
            Fair Value   Average           Fair Value   Average
    Maturity   (In millions)   Interest Rate   Maturity   (In millions)   Interest Rate
Cash equivalents, fixed rate
  0 - 3 months   $ 71.7       0.09 %   0 - 3 months   $ 103.2       0.11 %
Marketable securities, fixed rate
  0 - 12 months   $ 459.4       0.35 %   0 - 12 months   $ 479.6       0.53 %
Liquidity Risk
Our investment portfolio includes $39.0 million of AAA rated auction rate securities collateralized by student loans. In April 2009, $0.1 million in securities were redeemed at par and, accordingly, we classified them as current marketable securities in the accompanying unaudited condensed consolidated balance sheet at March 31, 2010. Therefore, the remaining balance of auction rate securities is currently outstanding in our investment portfolio. Since February 2008, securities of this type have experienced failures in the auction process. However, a limited number of these securities have been redeemed at par by the issuing agencies. As a result of the auction failures, interest rates on these securities reset at penalty rates linked to LIBOR or Treasury bill rates. The penalty rates are generally higher than interest rates set at auction. Based on the overall failure rate of these auctions, the frequency of the failures, the

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underlying maturities of the securities, a portion of which are greater than 30 years, and our belief that the market for these student loan collateralized instruments may take in excess of twelve months to fully recover, we have classified the remaining balance of auction rate securities as non-current marketable securities on the accompanying unaudited Condensed Consolidated Balance Sheet. We have determined the fair value to be $37.4 million for these securities, based on a discounted cash flow model, and have reduced the carrying value of these marketable securities by $1.6 million through accumulated other comprehensive loss instead of earnings because we have deemed the impairment of these securities to be temporary.
Foreign Currency Exchange Rate Risk
A majority of Nexavar sales are generated outside of the United States, and a significant percentage of Nexavar commercial and development expenses are incurred outside of the United States. Fluctuations in foreign currency exchange rates affect our operating results. Changes in exchange rates between these foreign currencies and the U.S. Dollar will affect the recorded levels of our assets and liabilities as foreign assets and liabilities are translated into U.S. dollars for presentation in our financial statements, as well as our net sales, cost of goods sold and operating margins. The primary foreign currency in which we have exchange rate fluctuation exposure is the Euro. A hypothetical increase or decrease of 1% in exchange rates between the Euro and U.S. Dollar during the three months ended March 31, 2010 and 2009 would have resulted in a change in our net loss of $0.2 million and in our net income of $0.2 million, respectively, based on our expected exposure to the Euro. We utilize a Euro to U.S. Dollar exchange rate based on average exchange rates for the reporting period.
As we expand, we could be exposed to exchange rate fluctuation in other currencies. Exchange rates between foreign currencies and U.S. dollars have fluctuated significantly in recent years and may do so in the future. We did not hold any derivative instruments as of March 31, 2010, and we have not held derivative instruments in the past. However, our investment policy does allow us to use derivative financial instruments for the purposes of hedging foreign currency denominated obligations. Our cash flows are denominated in U.S. dollars.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures: The Company’s chief executive officer and chief financial officer reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2010 to ensure the information required to be disclosed by the Company in this Quarterly Report on Form 10-Q is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting: In November 2009, the Company acquired Proteolix, Inc., or Proteolix. The Company does not expect the acquisition to materially affect its internal controls over financial reporting. The Company is expanding the scope of a number of its internal processes to include the former operations of Proteolix that were not yet fully integrated into our existing internal control processes at March 31, 2010. There were no other changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls: Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and principal financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

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PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
In May 2009, we filed a complaint against Bayer Corporation and Bayer A.G. in the United States District Court for the Northern District of California under the caption Onyx Pharmaceuticals, Inc. v. Bayer Corporation and Bayer AG, Case No. CV09-2145 MHP (N.D. Cal.). In the complaint, we have asserted our rights under the Collaboration Agreement to fluoro-sorafenib, a Phase 2 anti-cancer compound that Bayer is developing and to which Bayer refers as regorafenib, its International Nonproprietary Name. Fluoro-sorafenib has the same chemical structure as sorafenib (Nexavar), except that a single fluorine atom has been substituted for a hydrogen atom. Bayer is currently conducting trials of fluoro-sorafenib in kidney, colorectal and liver cancer and is expected to initiate Phase 3 clinical trials of fluoro-sorafenib in kidney cancer in 2010. In the lawsuit, we allege that fluoro-sorafenib was discovered during joint research between us and Bayer and we are seeking monetary damages and a court ruling that we have certain rights to fluoro-sorafenib under the collaboration agreement. Bayer has asserted that we have no such rights. The litigation is currently in the discovery phase.
Item 1A. Risk Factors.
You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below contain forward-looking statements, and our actual results may differ materially from those discussed here. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. Each of these risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock.
We have marked with an asterisk (*) those risk factors below that reflect material changes from the risk factors included in our 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2010.
Nexavar® is our only approved product. If Nexavar fails and we are unable to develop and commercialize alternative product candidates our business would fail.
Nexavar generated all of our commercial revenues for the quarter ended March 31, 2010, which we rely on to fund our operations. Unless we can successfully commercialize one of our other product candidates, we will continue to rely on Nexavar to generate substantially all of our revenues and fund our operations. All of our other product candidates are still development stage and we may never obtain approval of or earn revenues from any of our product candidates. If for any reason we became unable to continue selling or further developing Nexavar, our business would be seriously harmed and could fail.
Nexavar faces significant competition. If Nexavar is unable to successfully compete against existing and future therapies, our business would be harmed.
There are many existing approaches used in the treatment of unresectable liver cancer including alcohol injection, radiofrequency ablation, chemoembolization, cryoablation and radiation therapy. While Nexavar is the first systemic therapy to demonstrate a survival benefit for patients with unresectable liver cancer, several other therapies are in development, including Bristol-Myers Squibb’s brivanib, a Vascular Endothelial Growth Factor Receptor 2 (VEGFR 2) inhibitor. If Nexavar is unable to compete or be combined successfully with existing approaches or if new therapies are developed for unresectable liver cancer, our business would be harmed.
There are several competing therapies approved for the treatment of advanced kidney cancer, including Sutent, a multiple kinase inhibitor marketed in the United States, the European Union and other countries by Pfizer; Torisel, an mTOR inhibitor marketed in the United States, the European Union and other countries by Wyeth; Avastin, an angiogenesis inhibitor approved for the treatment of advanced kidney cancer in the United States and the European Union and marketed by Genentech, a member of the Roche Group; Afinitor, an mTOR inhibitor marketed in the United States and the European Union by Novartis; and GlaxoSmithKline’s Votrient, a multiple kinase inhibitor recently approved by the FDA. Nexavar’s U.S. market share in advanced kidney cancer has declined following the introduction of these products into the market. We expect competition to increase as additional products are approved to treat advanced kidney cancer. The successful introduction of other new therapies to treat advanced kidney cancer could significantly reduce the potential market for Nexavar in this indication.
Competitors that target the same tumor types as our Nexavar program and that have commercial products or product candidates at various stages of clinical development include Pfizer, Roche, Wyeth, Novartis International AG, Amgen, AstraZeneca PLC, OSI

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Pharmaceuticals, Inc., GlaxoSmithKline, Eli Lilly and several others. A number of companies have agents such as small molecules or antibodies targeting VEGF, VEGF receptors, Epidermal Growth Factor, or EGF, EGF receptors, and other enzymes. In addition, many other pharmaceutical companies are developing novel cancer therapies that, if successful, would also provide competition for Nexavar.
A demonstrated survival benefit is often an important element in determining standard of care in oncology. We did not demonstrate a statistically significant overall survival benefit for patients treated with Nexavar in our Phase 3 kidney cancer trial, which we believe was due in part to the crossover of patients from placebo to Nexavar during the conduct of our pivotal clinical trial. Competitors with statistically significant overall survival data could be preferred in the marketplace. The FDA approval of Nexavar permits Nexavar to be marketed as an initial, or first-line, therapy and subsequent lines of therapy for the treatment of advanced kidney cancer, but some other approvals do not. For example, the European Union approval indicates Nexavar only for advanced kidney cancer patients that have failed prior cytokine therapy or whose physicians deem alternate therapies inappropriate. We may be unable to compete effectively against competitive products with broader or different marketing authorizations in one or more countries.
Adoption of Nexavar in certain territories for the treatment of patients with unresectable liver cancer may be slow or limited for a variety of reasons including the geographic distribution of the patient population, the current treatment paradigm for unresectable liver cancer patients, the underlying liver disease present in most liver cancer patients and limited reimbursement. If Nexavar is not broadly adopted for the treatment of unresectable liver cancer, our business would be harmed.
The rate of adoption of Nexavar for unresectable liver cancer and the ultimate market size will be dependent on several factors including educating treating physicians on the appropriate use of Nexavar and the management of patients who are receiving Nexavar. This may be difficult as liver cancer patients typically have underlying liver disease and other comorbidities and can be treated by a variety of medical specialists. In addition, screening, diagnostic and treatment practices can vary significantly by region. Further, liver cancer is common in many regions in the developing world where the healthcare systems are limited and reimbursement for Nexavar is limited or unavailable, which will likely limit or slow adoption. If we are unable to change the treatment paradigms for this disease, we may be unable to successfully achieve the market potential of Nexavar in this indication, which could harm our business.
Outside the United States and European Union, some regulatory authorities have not completed their review of our submissions for the use of Nexavar for unresectable liver cancer, including regulatory authorities in Taiwan. These submissions may not result in marketing approval by these authorities in this indication. In addition, certain countries require pricing to be established before reimbursement for this indication may be obtained. We may not receive or maintain pricing approvals at favorable levels or at all, which could harm our ability to broadly market Nexavar.
If our ongoing and planned clinical trials fail to demonstrate that Nexavar is safe and effective or we are unable to obtain necessary regulatory approvals, we will be unable to expand the commercial market for Nexavar and our business may fail.
Nexavar has not been approved in any indications other than unresectable liver cancer and advanced kidney cancer. We and Bayer are currently conducting a number of clinical trials of Nexavar alone or in combination with other therapies or anticancer agents in liver, kidney, non-small cell lung, thyroid, breast, colorectal, ovarian and other cancers including a number of Phase 3 clinical trials. Many companies have failed to demonstrate the effectiveness of pharmaceutical product candidates in Phase 3 clinical trials notwithstanding favorable results in Phase 1 or Phase 2 clinical trials. We may experience similar failure. Our clinical trials may fail to demonstrate that Nexavar is safe and effective, and Nexavar may not gain additional regulatory approval, which would limit the potential market for the product causing our business to fail.
Success in one or even several cancer types does not indicate that Nexavar would be approved or have successful clinical trials in other cancer types. Bayer and Onyx have conducted Phase 3 trials in melanoma and non-small cell lung cancer, or NSCLC, that were not successful. In addition, in the NSCLC Phase 3 trial, higher mortality was observed in the subset of patients with squamous cell carcinoma of the lung treated with Nexavar and carboplatin and paclitaxel than in the subset of patients treated with carboplatin and paclitaxel alone. Based on this observation, further enrollment of squamous cell carcinoma of the lung was suspended from other NSCLC trials sponsored by us. Other cancer types with a histology similar to squamous cell carcinoma of the lung may yield a similar adverse treatment outcome. If so, patients having this histology may be excluded from ongoing and future clinical trials, which could potentially delay clinical trial enrollment and would reduce the number of patients that could potentially receive Nexavar.
If serious adverse side effects are associated with Nexavar, approval for Nexavar could be revoked, sales of Nexavar could decline, and we may be unable to develop Nexavar as a treatment for other types of cancer.
The FDA-approved package insert for Nexavar includes several warnings relating to observed adverse reactions. With continued commercial use of Nexavar and additional clinical trials of Nexavar, we and Bayer have updated and expect to continue to update

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adverse reactions listed in the package insert to reflect current information. If additional adverse reactions emerge, or a pattern of severe or persistent previously observed side effects is observed in the Nexavar patient population, the FDA or other international regulatory agencies could modify or revoke approval of Nexavar or we may choose to withdraw it from the market. If this were to occur, we may be unable to obtain approval of Nexavar in additional indications and foreign regulatory agencies may decline to approve Nexavar for use in any indication. In addition, if patients receiving Nexavar were to suffer harm as a result of their use of Nexavar, these patients or their representatives may bring claims against us. These claims, or the mere threat of these claims, could have a material adverse effect on our business and results of operations.
If previously unforeseen and unacceptable side effects are observed, we may not proceed with further clinical trials of Nexavar in that cancer type, stage of disease or combination. In our clinical trials, we may treat patients with Nexavar as a single agent or in combination with other therapies, who have failed conventional treatments and who are in advanced stages of cancer. During the course of treatment, these patients may die or suffer adverse medical effects for reasons unrelated to Nexavar. These adverse effects may impact the interpretation of clinical trial results, which could lead to adverse conclusions regarding the toxicity or efficacy of Nexavar.
Specialty pharmacies and distributors that we and Bayer rely upon to sell Nexavar may fail to perform.
Our success depends on the continued customer support efforts of our network of specialty pharmacies and distributors. A specialty pharmacy is a pharmacy that specializes in the dispensing of medications for complex or chronic conditions, which often require a high level of patient education and ongoing management. The use of specialty pharmacies and distributors involves certain risks, including, but not limited to, risks that these specialty pharmacies and distributors will:
    not provide us accurate or timely information regarding their inventories, the number of patients who are using Nexavar or complaints about Nexavar;
 
    reduce their efforts or discontinue to sell or support or otherwise not effectively sell or support Nexavar;
 
    not devote the resources necessary to sell Nexavar in the volumes and within the time frames that we expect;
 
    be unable to satisfy financial obligations to us or others; and/or
 
    cease operations.
We are dependent upon our collaborative relationship with Bayer to further develop, manufacture and commercialize Nexavar. There may be circumstances that delay or prevent Bayer’s ability to develop, manufacture and commercialize Nexavar.*
Our strategy for developing, manufacturing and commercializing Nexavar depends in large part upon our relationship with Bayer. If we are unable to maintain our collaborative relationship with Bayer, we would need to undertake development, manufacturing and marketing activities at our own expense. This would significantly increase our capital and infrastructure requirements, may limit the indications we are able to pursue and could prevent us from effectively developing and commercializing Nexavar. Disputes with Bayer may delay or prevent us from further developing, manufacturing or commercializing Nexavar, and could lead to additional litigation or arbitration against Bayer, which could be time consuming and expensive.
We are subject to a number of risks associated with our dependence on our collaborative relationship with Bayer, including:
    decisions by Bayer regarding the amount and timing of resource expenditures for the development and commercialization of Nexavar;
 
    possible disagreements as to development plans, clinical trials, regulatory marketing or sales;
 
    our inability to co-promote Nexavar in any country outside the United States, which makes us solely dependent on Bayer to promote Nexavar in foreign countries;
 
    Bayer’s right to terminate the collaboration agreement us on limited notice and for reasons outside our control;
 
    loss of significant rights if we fail to meet our obligations under the collaboration agreement;

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    the development or acquisition by Bayer of competing products, including fluoro-sorafenib;
 
    adverse regulatory or legal action against Bayer resulting from failure to meet healthcare industry compliance requirements in the promotion and sale of Nexavar, including federal and state reporting requirements;
 
    changes in key management personnel at Bayer, including Bayer’s representatives on the collaboration’s executive team; and
 
    disagreements with Bayer regarding interpretation or enforcement of the collaboration agreement.
We have limited ability to direct Bayer in its promotion of Nexavar in foreign countries and we may be unable to obtain any remedy against Bayer. Bayer may not have sufficient expertise to promote oncology products in foreign countries and may fail to devote appropriate resources to this task. In addition, Bayer may establish a sales and marketing infrastructure for Nexavar outside the United States that is too large and expensive in view of the magnitude of the Nexavar sales opportunity or establish this infrastructure too early in view of the ultimate timing of potential regulatory approvals. Because we share in the profits and losses arising from sales of Nexavar outside of the United States, (except in Japan), we are at risk with respect to the success or failure of Bayer’s commercial decisions related to Nexavar as well as the extent to which Bayer succeeds in the execution of its strategy.
Bayer’s development of fluoro-sorafenib may affect Bayer’s incentives to develop and commercialize Nexavar that are different from our own. Our litigation against Bayer regarding the ownership of flouro-sorafenib, which is a variant of sorafenib, may be time consuming and expensive, and may be a distraction to our management. If it is ultimately determined that Onyx has no rights to fluoro-sorafenib and if Bayer obtains approval for this product, it could compete with and cannibalize sales of Nexavar, thereby harming our business. Bayer has disclosed a clinical development plan for fluoro-sorafenib that includes a tumor type for which Nexavar has been approved (renal cell carcinoma and hepatocellular carcinoma), as well as tumor types for which Nexavar is in development (colorectal cancer).
Under the terms of the collaboration agreement, we and Bayer must agree on the development plan for Nexavar. If we and Bayer cannot agree, clinical trial progress could be significantly delayed or halted. Further, if we or Bayer cease funding development of Nexavar under the collaboration agreement, then that party will be entitled to receive a royalty, but not to share in profits. Bayer could, upon 60 days notice, elect at any time to terminate its co-funding of the development of Nexavar. If Bayer terminates its co-funding of Nexavar development, we may be unable to fund the development costs on our own and may be unable to find a new collaborator.
In addition, Bayer has the right, which it is not currently exercising, to nominate a member to our board of directors as long as we continue to collaborate on the development of a compound. Because of these rights, ownership and voting arrangements, our officers, directors, principal stockholders and collaborator may not be able to effectively control the election of all members of the board of directors and determine all corporate actions.
Our collaboration agreement with Bayer will terminate when patents expire that were issued in connection with product candidates discovered under that agreement, or at the time when neither we nor Bayer are entitled to profit sharing under that agreement, whichever is later. The worldwide patents and patent applications covering Nexavar are owned by Bayer and certain Nexavar patents are licensed to us through our collaboration agreement. We have no control over the filing, strategy, or prosecution of the Nexavar patent applications nor of enforcement or defense of the Nexavar patents outside the United States..
Nexavar may face challenges and competition from generic products.*
As of December 20, 2009, generic manufacturers were permitted to file ANDAs in the U.S. seeking FDA authorization to manufacture and market generic versions of Nexavar, together with Paragraph IV certifications that challenge the scope, validity or enforceability of the Nexavar patents. If Bayer or we fail to timely file a lawsuit against any ANDA filer, that ANDA filer may not be subject to an FDA stay, and upon approval of the ANDA, the ANDA filer may elect to launch a generic version of Nexavar, thereby harming our business. Even if a lawsuit is timely filed, Bayer and we may be unable to successfully enforce and defend the Nexavar patents and we may face generic competition prior to expiration of the Nexavar patents in 2020.
Similarly, outside the United States, generic companies or other competitors may challenge the scope, validity or enforceability of the Nexavar patents, requiring Bayer and us to engage in complex, lengthy and costly litigation or other proceedings. Generic companies may develop, seek approval for, and launch generic versions of Nexavar. For example, Cipla recently received approval to launch its version of sorafenib in India at a price that is significantly less than that charged for Nexavar in India. Bayer has ongoing litigations

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with Cipla, including a patent infringement case in India, and has requested the court to issue an injunction against Cipla. Bayer may be unsuccessful in defending or enforcing the Nexavar patents in one or more countries and could face generic competition prior to expiration of the Nexavar patents, which would harm our business.
The market may not accept our products and we may be subject to pharmaceutical pricing and third-party reimbursement pressures.
Nexavar or our product candidates that may be approved may not gain market acceptance among physicians, patients, healthcare payers and/or the medical community or the market may not be as large as forecasted. A significant factor that affects market acceptance of Nexavar or future products is the availability of third-party reimbursement. Our commercial success may depend, in part, on the availability of adequate reimbursement for patients from third-party healthcare payers, such as government and private health insurers and managed care organizations. Third-party payers are increasingly challenging the pricing of medical products and services, especially in global markets, and their reimbursement practices may affect the price levels for Nexavar or future products. In addition, the market for our products may be limited by third-party payers who establish lists of approved products and do not provide reimbursement for products not listed. If our products are not on the approved lists in one or more countries, our sales may suffer. Non-government organizations can influence the use of Nexavar and reimbursement decisions for Nexavar in the United States and elsewhere. For example, the National Comprehensive Cancer Network, or NCCN, a not-for-profit alliance of cancer centers, has issued guidelines for the use of Nexavar in the treatment of advanced kidney cancer and unresectable liver cancer. These guidelines may affect treating physicians’ use of Nexavar.
Nexavar’s success in Europe and other regions will also depend largely on obtaining and maintaining government reimbursement. For example, in Europe and in many other international markets, most patients will not use prescription drugs that are not reimbursed by their governments. Negotiating prices with governmental authorities can delay commercialization by twelve months or more. Even if reimbursement is available, reimbursement policies may adversely affect sales and profitability of Nexavar. In addition, in Europe and in many international markets, governments control the prices of prescription pharmaceuticals and expect prices of prescription pharmaceuticals to decline over the life of the product or as volumes increase. In the Asia-Pacific region, excluding Japan, China leads in Nexavar sales, however, reimbursement typically requires multiple steps. Also, in December 2009, health authorities in China published a new National Reimbursement Drug List, or NRDL, which lists medicines that are expected to be sold at government-controlled prices. There were no targeted oncology drugs, including Nexavar, on the NRDL, however, we believe that the Ministry of Human Resource and Social Security, the group responsible for developing the NDRL, plans to establish a mechanism and framework for reimbursement of high-value innovative products, such as targeted oncology drugs. Reimbursement policies are subject to change due to economic, political or competitive factors. We believe that this will continue into the foreseeable future as governments struggle with escalating health care spending.
A number of additional factors may limit the market acceptance of our products, including the following:
    rate of adoption by healthcare practitioners;
 
    treatment guidelines issued by government and non-government agencies;
 
    types of cancer for which the product is approved;
 
    rate of a product’s acceptance by the target patient population;
 
    timing of market entry relative to competitive products;
 
    availability of alternative therapies;
 
    price of our product relative to alternative therapies, including generic versions of our products, or generic versions of innovative products that compete with our products;
 
    extent of marketing efforts by us and third-party distributors or agents retained by us; and
 
    side effects or unfavorable publicity concerning our products or similar products.

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If Nexavar or any of our future products do not achieve market acceptance, we may not realize sufficient revenues from product sales, which may cause our stock price to decline.
We face intense competition and rapid technological change, and many of our competitors have substantially greater resources than we have.
We are engaged in a rapidly changing and highly competitive field. We are seeking to develop and market oncology products that face significant competition from other products and therapies that currently exist or are being developed. Many other companies are actively seeking to develop products that have disease targets similar to those we are pursuing, or products designed to treat the same diseases we are seeking to treat. Some of these competitive product candidates are in clinical trials and others are approved; some have long histories of safe and effective use. In addition, following the expiration or invalidation of applicable patents, generic drug manufacturers may gain regulatory authorization to manufacture and sell generic versions of our competitors’ approved products, in which case our approved products would potentially compete with generic products.
Many of our competitors, either alone or together with collaborators, have substantially greater financial resources and research and development staffs. In addition, many of these competitors, either alone or together with their collaborators, have significantly greater experience than we do in:
    discovering and patenting products;
    undertaking preclinical testing and human clinical trials;
    obtaining FDA and other regulatory approvals;
    manufacturing products; and
    marketing and obtaining reimbursement for products.
Accordingly, our competitors may succeed in obtaining patent protection, receiving regulatory approval in the U.S. or other countries, or commercializing product candidates before, or more successfully than, we do. We will compete with companies with greater preclinical, marketing and manufacturing capabilities, areas in which we have limited or no experience. In addition, we have not developed or marketed products for any hematological cancer, including multiple myeloma, and may be at a disadvantage to our competitors. Carfilzomib, if approved for multiple myeloma, would compete directly with products marketed by Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited, Celgene Corporation and potentially against agents currently in development for treatment of this disease by Merck & Co. Inc., Bristol-Myers Squibb, Keryx Biopharmaceuticals, Inc., Nereus Pharmaceuticals and Cephalon, Inc.
Developments by competitors may render our product candidates obsolete or noncompetitive. We face and will continue to face intense competition from other companies for collaborations with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology.
We anticipate that we will face increased competition in the future as new companies enter our markets and as scientific developments surrounding other cancer therapies continue to accelerate.
If we are not successful at integrating the Proteolix organization with ours, we may not be able to realize benefits from our acquisition.
Achieving the anticipated benefits of the Proteolix acquisition will depend in part on the successful integration of Onyx’s and Proteolix’s technical and business operations and personnel in a timely and efficient manner. Integration requires coordination of personnel and the integration of systems, applications, policies, procedures, business processes and operations, all of which is a complex, costly and time-consuming process. The difficulties of integration include, among others:
    consolidating research and development operations;
    retaining key employees;

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    consolidating corporate and administrative infrastructures, including integrating and managing information technology and other support systems and processes;
    preserving relationships with third parties, such as regulatory agencies, clinical investigators, key opinion leaders, clinical research organizations, contract manufacturing organizations, licensors and suppliers;
    appropriately identifying and managing the liabilities of the combined company; and
    difficulty managing new risks associated with facilities, including environmental risks and compliance with laws regulating laboratories.
We have limited experience managing discovery research and preclinical activities or operating research laboratories, and may be unsuccessful at doing so or at motivating and retaining key individuals responsible for these activities.
We cannot assure stockholders that we will receive any benefits of this or any other merger or acquisition, or that any of the difficulties described above will not adversely affect the combined company. The integration process may be difficult and unpredictable because of possible conflicts and differing opinions on business, scientific and regulatory matters.
We expect these integration efforts to place a significant burden on our management and internal resources, which could result in delays in clinical trial and product development programs and otherwise harm our business, financial condition and operating results.
Our clinical trials could take longer to complete than we project or may not be completed at all, and; we may never obtain regulatory approval for carfilzomib or any other future product candidate.
The timing of initiation and completion of clinical trials may be subject to significant delays resulting from various causes, including actions by Bayer, scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility criteria and shortages of available drug supply. We may face difficulties transitioning carfilzomib clinical trials to our management and difficulties developing relationships with carfilzomib development partners, including clinical research organizations, contract manufacturing organizations, key opinion leaders and clinical investigators. We may not complete clinical trials involving Nexavar, carfilzomib or any of our other product candidates as projected or at all.
We may not have the necessary capabilities to successfully manage the execution and completion of ongoing or future clinical trials in a way that leads to approval of Nexavar, carfilzomib or other product candidates for their target indications. In addition, we rely on Bayer, academic institutions, cooperative oncology organizations and clinical research organizations to conduct, supervise or monitor the majority of clinical trials involving Nexavar. We have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own. Failure to commence or complete, or delays in our planned clinical trials may prevent us from commercializing Nexavar in indications other than kidney cancer and unresectable liver cancer.
Carfilzomib is in mid-stage clinical stage and ONX 0801 is in the Phase 1 clinical stage. Successful development of these compounds and our other product candidates is highly uncertain and depends on a number of factors, many of which are beyond our control. Compounds that appear promising in research or development, including Phase 2 clinical trials, may be delayed or fail to reach later stages of development or the market for a variety of reasons including:
    nonclinical tests may show the product to be toxic or lack efficacy in animal models;
    clinical trial results may show the product to be less effective than desired or to have harmful or problematic side effects;
    regulatory approvals may not be received, or may be delayed due to factors such as slow enrollment in clinical studies, extended length of time to achieve study endpoints, additional time requirements for data analysis or preparation of an IND, discussions with regulatory authorities, requests from regulatory authorities for additional preclinical or clinical data, analyses or changes to study design, or unexpected safety, efficacy or manufacturing issues;
    difficulties formulating the product, scaling the manufacturing process or in getting approval for manufacturing;
    manufacturing costs, pricing or reimbursement issues, or other factors may make the product uneconomical;

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    proprietary rights of others and their competing products and technologies may prevent our product from being developed or commercialized or may increase the cost of doing so; and
    contractual rights of our collaborators or others may prevent our product from being developed or commercialized or may increase the cost of doing so.
We do not have the manufacturing expertise or capabilities for any current and future products and are dependent on others to fulfill our manufacturing needs, which could result in lost sales and the delay of clinical trials or regulatory approval.
Under our collaboration agreement with Bayer, Bayer has the manufacturing responsibility to supply Nexavar for clinical trials and for commercialization. Should Bayer give up its right to co-develop Nexavar, we would have to manufacture Nexavar, or contract with another third party to do so for us. Under our agreement with BTG, we are responsible for all product development and commercialization activities of ONX 0801. Under our agreement with S*BIO, if we exercise our options and if S*BIO fails to supply us inventory through manufacturing, or if other specified events occur, we have co-exclusive rights (with S*BIO) to make and have made ONX 0803 and ONX 0805 for use and sale in the United States, Canada and Europe. In addition, we have manufacturing responsibility for carfilzomib, ONX 0912 and ONX 0914.
We lack the resources, experience and capabilities to manufacture Nexavar or any other product candidate on our own and would require substantial funds and time to establish these capabilities. Consequently, we are, and expect to remain, dependent on third parties for manufacturing. These parties may encounter difficulties in production scale-up, production yields, control and quality assurance, regulatory status or shortage of qualified personnel. They may not perform as agreed or may not continue to manufacture our products for the time required to test or market our products. They may fail to deliver the required quantities of our products or product candidates on a timely basis and at commercially reasonable prices. In addition, marketed drugs and their contract manufacturing organizations are subject to continual review, including review and approval of their manufacturing facilities. Discovery of previously unknown problems with a medicine may result in restrictions on its permissible uses, or on the manufacturer, including withdrawal of the medicine from the market. The FDA and similar foreign regulatory authorities may also implement additional new standards, or change their interpretation and enforcement of existing standards and requirements for the manufacture, packaging or testing of products at any time. If we or our third party manufacturers are unable to comply or if we fail to maintain regulatory approval, this will impair our ability to meet the market demand for our approved drugs, delay ongoing clinical trials of our product candidates or delay our drug applications for regulatory approval. If these third parties do not adequately perform, we may be forced to incur additional expenses to pay for the manufacture of products or to develop our own manufacturing capabilities. In addition, we could be subject to regulatory or civil actions or penalties that could significantly and adversely affect our business.
Healthcare policy changes, including recently enacted legislation, may have a material adverse effect on us.*
Healthcare costs have risen significantly over the past decade. On March 23, 2010, the President signed one of the most significant health care reform measures in decades. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the Healthcare Reform Act), substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The Healthcare Reform Act contains a number of provisions, including those governing enrollment in federal healthcare programs, the increased use of comparative effectiveness research on healthcare products, reimbursement and fraud and abuse changes, which will impact existing government healthcare programs and will result in the development of new programs. A significant portion of the U.S. Nexavar revenue recorded by Bayer is derived from U.S. government healthcare programs, including Medicare. An expansion in the government’s role in the U.S. healthcare industry may lower reimbursements for pharmaceutical products and adversely affect our business and results of operations. Furthermore, beginning in 2011, the Healthcare Reform Act will impose a non-deductible excise tax on pharmaceutical manufacturers or importers who sell “branded prescription drugs,” which includes innovator drugs and biologics (excluding orphan drugs or generics) to U.S. government programs.

In addition to this recently enacted legislation, there are expected to be other proposals by legislators at both the federal and state levels, regulators and third-party payors to keep healthcare costs down while expanding individual healthcare benefits. Certain of these anticipated changes could impose limitations on the prices we or our collaborators will be able to charge for our products or the amounts of reimbursement available for these products from governmental agencies or third-party payors or may increase the tax requirements for pharmaceutical companies such as ours. While it is too early to predict what affect the recently enacted Health Reform Act or any future legislation or regulation will have on us, such laws could have a material adverse effect on our business, financial position and results of operations.

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If we lose our key employees or are unable to attract or retain qualified personnel, our business could suffer.
The loss of the services of key employees may have an adverse impact on our business unless or until we hire a suitably qualified replacement. Any of our key personnel could terminate their employment with us at any time and without notice. We depend on our continued ability to attract, retain and motivate highly qualified personnel. We face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities and other research institutions. In order to succeed in our research and development efforts, we will need to continue to hire individuals with the appropriate scientific skills.
We may not be able to realize the potential financial or strategic benefits of future business acquisitions or strategic investments, which could hurt our ability to grow our business, develop new products or sell our products.
In addition to our agreements with BTG and S*BIO and our acquisition of Proteolix, we may enter into future acquisitions of, or investments in, businesses, in order to complement or expand our current business or enter into a new product area. Negotiations associated with an acquisition or strategic investment could divert management’s attention and other company resources. Any of the following risks associated with future acquisitions or investments could impair our ability to grow our business, develop new products, or sell Nexavar, and ultimately could have a negative impact on our growth or our financial results:
    difficulty in combining the products, operations or workforce, including key personnel, of any acquired business with our business;
    difficulty in operating in a new or multiple new locations;
    disruption of our ongoing businesses or the ongoing business of the company that we invest in or acquire;
    difficulty in realizing the potential financial or strategic benefits of the transaction;
    difficulty in maintaining uniform standards, controls, procedures and policies;
    disruption of or delays in ongoing research, clinical trials and development efforts;
    diversion of capital and other resources;
    assumption of liabilities;
    diversion of resources and unanticipated expenses resulting from litigation arising from potential or actual business acquisitions or investments;
    difficulties in entering into new markets in which we have limited or no experience and where competitors in such markets have stronger positions; and
    impairment of relationships with our or the acquired businesses’ employees and other third parties, such as clinical research organizations, contract manufacturing organizations, licensors, suppliers, or the loss of such relationships as a result of our acquisition or investment.
In addition, the consideration for any future acquisition could be paid in cash, shares of our common stock, the issuance of convertible debt securities or a combination of cash, convertible debt and common stock. If we make an investment in cash or use cash to pay for all or a portion of an acquisition, our cash and investment balances would be reduced which could negatively impact our liquidity, the growth of our business or our ability to develop new products. However, if we pay the consideration with shares of common stock, or convertible debentures, the holdings of our existing stockholders would be diluted. The significant decline in the trading price of our common stock would make the dilution to our stockholders more extreme and could negatively impact our ability to pay the consideration with shares of common stock or convertible debentures. We cannot forecast the number, timing or size of future strategic investments or acquisitions, or the effect that any such investments or acquisitions might have on our operations or financial results.

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We face product liability risks and may not be able to obtain adequate insurance.
The sale of Nexavar and the use of it and other products in clinical trials and commercial use expose us to product liability claims. In the United States, FDA approval of a drug may not offer protection from liability claims under state law (i.e., federal preemption defense), the tort duties for which may vary state to state. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of Nexavar and/or future products.
We believe that we have obtained reasonably adequate product liability insurance coverage that includes the commercial sale of Nexavar and clinical trials of Nexavar and our other product candidates. However, we may not be able to maintain insurance coverage at a reasonable cost. We may not be able to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise should a future product candidate receive marketing approval. Whether or not we are insured, a product liability claim or product recall may result in significant losses. Regardless of merit or eventual outcome, product liability claims may result in:
    decreased demand for a product;
    injury to our reputation;
    distraction of management;
    withdrawal of clinical trial volunteers; and
    loss of revenues.
We or Bayer may not be able to protect or enforce our or their intellectual property and we may not be able to operate our business without infringing the intellectual property rights of others.
We can protect our technology from unauthorized use by others only to the extent that our technology is covered by valid and enforceable patents, effectively maintained as trade secrets, or otherwise protected as confidential information or know-how. We depend in part on our ability to:
    obtain patents;
    license technology rights from others;
    protect trade secrets;
    operate without infringing upon the proprietary rights of others; and
    prevent others from infringing on our proprietary rights, particularly generic drug manufacturers.
Patents and patent applications covering Nexavar are owned by Bayer. Those Nexavar patents that arose out of our collaboration agreement with Bayer are licensed to us, including two United States patents covering Nexavar and pharmaceutical compositions of Nexavar. Both patents will expire January 12, 2020. These two patents are listed in the FDA’s Approved Drug Product List (Orange Book). Based on publicly available information, Bayer also has patents in several European countries covering Nexavar, which will expire in 2020. Bayer has other patents and patent applications pending worldwide that cover Nexavar alone or in combination with other drugs for treating cancer. Certain of these patents may be subject to possible patent-term extension, the entitlement to and the term of which cannot presently be calculated, in part because Bayer does not share with us information related to its Nexavar patent portfolio. We cannot be certain that these issued patents and future patents if they issue will provide adequate protection for Nexavar or will not be challenged by third parties in connection with the filing of an ANDA, or otherwise. Similarly, we cannot be certain that the patents and patent applications acquired in the Proteolix acquisition, or licensed to us by any licensor, will provide adequate protection for carfilzomib or any other product, or will not be challenged by third parties in connection with the filing of an ANDA, or otherwise.
The patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. Our patents, or patents that we license from others, may not provide us with proprietary protection or competitive advantages against competitors with similar technologies. Competitors may challenge or circumvent our patents or patent applications. Courts may find our patents invalid. Due to the extensive time required for development, testing and regulatory review of our potential

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products, our patents may expire or remain in existence for only a short period following commercialization, which would reduce or eliminate any advantage the patents may give us.
We may not have been the first to make the inventions covered by each of our issued or pending patent applications, or we may not have been the first to file patent applications for these inventions. Third party patents may cover the materials, methods of treatment or dosage related to our product, or compounds to be used in combination with our products; those third parties may make allegations of infringement. We cannot provide assurances that our products or activities, or those of our licensors or licensees, will not infringe patents or other intellectual property owned by third parties. Competitors may have independently developed technologies similar or complementary to ours, including compounds to be used in combination with our products. We may need to license the right to use third-party patents and intellectual property to develop and market our product candidates. We may be unable to acquire required licenses on acceptable terms, if at all. If we do not obtain these required licenses, we may need to design around other parties’ patents, or we may not be able to proceed with the development, manufacture or, if approved, sale of our product candidates. We may face litigation to defend against claims of infringement, assert claims of infringement, enforce our patents, protect our trade secrets or know-how, or determine the scope and validity of others’ proprietary rights. In addition, we may require interference proceedings in the United States Patent and Trademark Office. These activities are uncertain, making any outcome difficult to predict and costly and may be a substantial distraction for our management team.
Bayer may have rights to publish data and information in which we have rights. In addition, we sometimes engage individuals, entities or consultants, including clinical investigators, to conduct research that may be relevant to our business. The ability of these third parties to publish or otherwise publicly disclose information generated during the course of their research is subject to certain contractual limitations; however, these contracts may be breached and we may not have adequate remedies for any such breach. If we do not apply for patent protection prior to publication or if we cannot otherwise maintain the confidentiality of our confidential information, then our ability to receive patent protection or protect our proprietary information will be harmed.
Limited foreign intellectual property protection and compulsory licensing could limit our revenue opportunities.*
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. The requirements for patentability may differ in certain countries, particularly developing countries. In 2009, we became aware that a third-party had filed an opposition proceeding with the Chinese patent office to invalidate the patent that covers Nexavar. Unlike other countries, China has a heightened requirement for patentability, and specifically requires a detailed description of medical uses of a claimed drug, such as Nexavar. Bayer also has a patent in India the covers Nexavar. Cipla Limited, an Indian generic drug manufacturer, applied to the Drug Controller General of India (DCGI) for market approval for Nexavar, which Bayer sought to block based on its patent. Bayer sued the DCGI and Cipla Limited in the Delhi High Court requesting an injunction to bar the DCGI from granting Cipla Limited market authorization. The Court ruled against Bayer, stating that in India, unlike the U.S., there is no link between regulatory approval of a drug and its patent status. Bayer appealed, which it recently lost. Consequently, Bayer has appealed to the Indian Supreme Court, and has filed a patent infringement suit against Cipla. Some companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries, including certain countries in Europe and developing countries, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, Bayer, the owner of the Nexavar patent estate, may have limited remedies if the Nexavar patents are infringed or if Bayer is compelled to grant a license of Nexavar to a third party, which could materially diminish the value of those patents that cover Nexavar. If compulsory licenses were extended to include Nexavar, this could limit our potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor aggressive enforcement of patent and other intellectual property protection, which may make it difficult to stop infringement. Many countries limit the enforceability of patents against government agencies or government contractors. These factors could also negatively affect our revenue opportunities in those countries.
We may incur significant liability if it is determined that we are promoting the “off-label” use of drugs or are otherwise found in violation of federal and state regulations in the United States or elsewhere.
To date, the FDA has approved Nexavar only for the treatment of advanced kidney cancer and unresectable liver cancer. Physicians are not prohibited from prescribing Nexavar for the treatment of diseases other than advanced kidney cancer or unresectable liver cancer, however, we and Bayer are prohibited from promoting Nexavar for any non-approved indication, often called “off label” promotion. The FDA and other regulatory agencies actively enforce regulations prohibiting off label promotion and the promotion of products for which marketing authorization has not been obtained. A company that is found to have improperly promoted an off label use may be subject to significant liability, including civil and administrative remedies, as well as criminal sanctions.
Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful, non-misleading and non-promotional medical and scientific communication concerning their products. We engage in the support of medical education activities and engage investigators and potential investigators interested in our clinical trials. Although we believe that all of our communications regarding Nexavar are in compliance with the relevant regulatory requirements, the FDA or another regulatory authority may disagree, and we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.

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Unstable market and economic conditions may have serious adverse consequences on our business.
Our general business may be adversely affected by the recent economic downturn and volatile business environment and continued unpredictable and unstable market conditions. We believe we are well positioned with significant capital resources to meet our current working capital and capital expenditure requirements. However, if the current equity and credit markets do not sustain improvement or begin to deteriorate again, it may make any necessary future debt or equity financing more difficult, more costly and more dilutive, and may result in adverse changes to product reimbursement and pricing and sales levels, which would harm our operating results. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans or plans to acquire additional technology. There is also a possibility that our stock price may decline, due in part to the volatility of the stock market and the general economic downturn, such that we would lose our status as a Well-Known Seasoned Issuer, which allows us to more rapidly and more cost-effectively raise funds in the public markets.
Additionally, other challenges resulting from the current economic environment include fluctuations in foreign currency exchange rates, global pricing pressures, increases in national unemployment impacting patients’ ability to access drugs, increases in uninsured or underinsured patients affecting their ability to afford pharmaceutical products and increased U.S. free goods to patients. There is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which would directly affect our ability to attain our operating goals on schedule and on budget. Further dislocations in the credit market may adversely impact the value and/or liquidity of marketable securities owned by us.
We are subject to extensive government regulation, which can be costly, time consuming and subject us to unanticipated delays. If we are unable to obtain or maintain regulatory approvals for our products, compounds or product candidates, we will not be able to market or further develop them.
If we have disagreements with Bayer regarding ownership of clinical trial results or regulatory approvals for Nexavar, and the FDA refuses to recognize Onyx as holding, or having access to, the regulatory approvals necessary to commercialize Nexavar, we may experience delays in or be precluded from marketing Nexavar.
For carfilzomib, we are responsible for managing communications with regulatory agencies, including filing investigational new drug applications, filing new drug applications, submission of promotional materials and generally directing the regulatory processes. We have limited experience directing such activities and may not be successful with our planned development strategies, on the planned timelines, or at all. Even if carfilzomib or any other product candidate is designated for “fast track” or “priority review” status or if we seek approval under accelerated approval (Subpart H) regulations, such designation or approval pathway does not necessarily mean a faster development process or regulatory review process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. If we fail to conduct any required post-approval studies or if the studies fail to verify that any of our product candidates are safe and effective, our FDA approval could be revoked.
If we or Bayer fail to comply with applicable regulatory requirements we could be subject to penalties, including fines, suspensions of regulatory approval, product recall, seizure of products and criminal prosecution.
If we use hazardous or potentially hazardous materials in a manner that causes injury or violates applicable law, we may be liable for damages.
Our research and development activities involve the controlled use of hazardous or potentially hazardous materials, including chemical, biological and radioactive materials. In addition, our operations produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We may incur significant additional costs to comply with these and other applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials and we may incur liability as a result of any such contamination or injury. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and manufacturing efforts, which could harm our business.
Our operating results are unpredictable and may fluctuate. If our operating results fail to meet the expectations of securities analysts or investors, the trading price of our stock could decline.
Our operating results will likely fluctuate from quarter to quarter and from year to year, and are difficult to predict. Due to a highly competitive environment in kidney cancer and launches throughout the world, as well as potential changes in the treatment paradigm

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in liver cancer, Nexavar sales will be difficult to predict from period to period. Our operating expenses are highly dependent on expenses incurred by Bayer and are largely independent of Nexavar sales in any particular period or region. In addition, we expect to incur significant operating expenses associated with the development activities of ONX 0801 and carfilzomib. If we exercise our option rights related to ONX 0803 and ONX 0805, we will be required to pay significant license fees and would expect to incur significant development expenses for these compounds. We believe that our quarterly and annual results of operations may be negatively affected by a variety of factors, including but not limited to, the level of demand for Nexavar, reimbursement availability for Nexavar in various countries, the timing and level of investments in sales and marketing efforts to support the sales of Nexavar, the timing and level of investments in the research and development of Nexavar, the ability of Bayer’s distribution network to process and ship Nexavar on a timely basis, fluctuations in foreign currency exchange rates and expenditures we may incur to acquire or develop ONX 0801, carfilzomib, ONX 0803 and additional products.
In addition, we must measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as an expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, the magnitude of the expense that we must recognize may vary significantly. Any such variance from one period to the next could cause a significant fluctuation in our operating results.
As a result of the acquisition of Proteolix, we made a payment of $40.0 million in April 2010 and may be required to pay up to an additional $535.0 million in four earnout payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones. We recorded a liability for this contingent consideration for the four earnout payments with a fair value of $164.0 million at March 31, 2010 based upon a discounted cash flow model that uses significant estimates and assumptions. Any changes to these estimates and assumptions could significantly impact the fair values recorded for this liability resulting in significant charges to our Condensed Consolidated Statements of Operations.
It is, therefore, difficult for us to accurately forecast profits or losses. It is possible that in some quarters our operating results could disappoint securities analysts or investors, which could cause the trading price of our common stock to decline, perhaps substantially.
Our stock price is volatile and we are at risk of securities litigation, including class action litigation, due to our expected stock price volatility.
Our stock price is volatile and is likely to continue to be volatile. In the period beginning January 1, 2007 and ending March 31, 2010, our stock price ranged from a high of $59.50 and a low of $10.74. A variety of factors may have a significant effect on our stock price, including:
    fluctuations in our results of operations;
    interim or final results of, or speculation about, clinical trials of Nexavar;
    development progress of our early stage compounds;
    decisions by regulatory agencies, or changes in regulatory requirements;
    announcements by us regarding, or speculation about, our business development activities;
    ability to accrue patients into clinical trials;
    developments in our relationship with Bayer;
    public concern as to the safety and efficacy of our product candidates;
    changes in healthcare reimbursement policies;
    announcements by us or our competitors of technological innovations or new commercial therapeutic products;
    government regulation;
    developments in patent or other proprietary rights or litigation brought against us;

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    sales by us of our common stock or debt securities;
    foreign currency fluctuations, which would affect our share of collaboration profits or losses; and
    general market conditions.
In the past, stockholders have often brought securities litigation against a company following a decline in the market price of its securities. This risk is especially acute for us, because biotechnology companies have experienced greater than average stock price volatility in recent years and, as a result, have been subject to, on average, a greater number of securities class action claims than companies in other industries. In December 2006, following our announcement that a Phase 3 trial administering Nexavar or placebo tablets in combination with the chemotherapeutic agents carboplatin and paclitaxel in patients with advanced melanoma did not meet its primary endpoint, our stock price declined significantly. Similarly, following our announcement in February 2008 that one of our Phase 3 trials for NSCLC had been stopped because an independent DMC analysis concluded that it did not meet its primary endpoint of improved overall survival, our stock price declined significantly.
With our acquisition of Proteolix, we may be required to pay up to $535.0 million in earn-out payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones. We may, at our discretion, make any of the earn-out payments, except the first, that become payable to former holders of Proteolix preferred stock, in the form of cash, shares of Onyx common stock or a combination thereof. If we elect to issue shares of our common stock in lieu of making an earn-out payment in cash, this would have a dilutive effect on our common stock and could cause the trading price of our common stock to decline.
We may in the future be the target of securities litigation, including class action litigation. Securities litigation could result in substantial costs, could divert management’s attention and resources, and could seriously harm our business, financial condition and results of operations.
We have a history of losses, and we may be unable to sustain profitability.
For the first quarter ended March 31, 2010, we reported a net loss of $12.0 million, following two consecutive years of achieving profitability in the amounts of $16.2 million and $1.9 million for the years ended December 31, 2009 and 2008, respectively. However, prior to these periods, we have sustained substantial losses. As of March 31, 2010, we had an accumulated deficit of approximately $466.6 million. We have incurred losses principally from costs incurred in our research and development programs, from our general and administrative costs and the development of our commercialization infrastructure. We might incur operating losses in the future as we expand our development and commercial activities for our products, compounds and product candidates.
We have made, and plan to continue to make, significant expenditures towards the development and commercialization of Nexavar. We may never realize sufficient product sales to offset these expenditures. In addition, we will require significant funds for the research and development, and if approved, commercialization of ONX 0801, carfilzomib and our other product candidates. Upon the attainment of specified milestones, we are required to make milestone payments to BTG. Similarly, with the acquisition of Proteolix, we made a payment of $276.0 million in cash upon closing, a $40 million milestone related payment in April 2010 and may be required to make up to $535.0 million in earn-out payments upon the receipt of certain regulatory approvals and the satisfaction of other milestones. Exercising any of our option rights under our agreement with S*BIO will also cause us to incur additional operating expenses. Our ability to achieve and maintain consistent profitability depends upon success by us and Bayer in marketing Nexavar in approved indications and the successful development and regulatory approvals of Nexavar in additional indications, obtaining regulatory approval for and successfully commercializing carfilzomib, and control of our operating expenses.
We incurred significant indebtedness through the sale of our 4.0% convertible senior notes due 2016, and we may incur additional indebtedness in the future. The indebtedness created by the sale of the notes and any future indebtedness we incur exposes us to risks that could adversely affect our business, financial condition and results of operations.
We incurred $230.0 million of senior indebtedness in August 2009 when we sold $230.0 million aggregate principal amount of 4.0% convertible senior notes due 2016, or the 2016 Notes. We may also incur additional long-term indebtedness or obtain additional working capital lines of credit to meet future financing needs. Our indebtedness could have significant negative consequences for our business, results of operations and financial condition, including:
    increasing our vulnerability to adverse economic and industry conditions;

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    limiting our ability to obtain additional financing;
    requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes;
    limiting our flexibility in planning for, or reacting to, changes in our business; and
    placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources.
We cannot assure stockholders that we will continue to maintain sufficient cash reserves or that our business will continue to generate cash flow from operations at levels sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness, or that our cash needs will not increase. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of the 2016 Notes, or any indebtedness which we may incur in the future, we would be in default, which would permit the holders of the 2016 Notes and such other indebtedness to accelerate the maturity of the notes and such other indebtedness and could cause defaults under the 2016 Notes and such other indebtedness. Any default under the notes or any indebtedness which we may incur in the future could have a material adverse effect on our business, results of operations and financial condition.
The conditional conversion features of the 2016 Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion features of the 2016 Notes are triggered, holders of the 2016 Notes will be entitled to convert the 2016 Notes at any time during specified periods at their option. If one or more holders elect to convert their 2016 Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock, we would be required to make cash payments to satisfy all or a portion of our conversion obligation based on the applicable conversion rate, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their 2016 Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2016 Notes as a current rather than long-term liability, which could result in a material reduction of our net working capital.
We may need additional funds, and our future access to capital is uncertain.
We may need additional funds to conduct the costly and time-consuming activities related to the development and commercialization of Nexavar, carfilzomib and ONX 0801, and if we exercise our option rights, ONX 0803 and ONX 0805, including manufacturing, clinical trials and regulatory approval. Also, we may need funds to develop our early stage product candidates ONX 0912 and ONX 0914, to acquire rights to additional product candidates, or acquire new or complementary businesses. Our future capital requirements will depend upon a number of factors, including:
    revenue from our product sales;
    global product development and commercialization activities;
    the cost involved in enforcing patents against third parties and defending claims by third parties;
    the costs associated with acquisitions or licenses of additional products;
    the cost of acquiring new or complementary businesses;
    competing technological and market developments; and
    future fee and milestone payments to BTG, S*BIO and former stockholders of Proteolix.
We may not be able to raise additional capital on favorable terms, or at all. If we are unable to obtain additional funds, we may not be able to fund our share of commercialization expenses and clinical trials. We may also have to curtail operations or obtain funds

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through collaborative and licensing arrangements that may require us to relinquish commercial rights or potential markets or grant licenses on terms that are unfavorable to us.
We believe that our existing capital resources and interest thereon will be sufficient to fund our current development plans beyond 2010. However, if we change our development plans, acquire rights to or license additional products, or seek to acquire new or complementary businesses, we may need additional funds sooner than we expect. In addition, we anticipate that our expenses related to the development of ONX 0801, carfilzomib and our share of expenses under our collaboration with Bayer will increase over the next several years. While these costs are unknown at the current time, we may need to raise additional capital and may be unable to do so.
A portion of our investment portfolio is invested in auction rate securities, and if auctions continue to fail for amounts we have invested, our investment will not be liquid. If the issuer of an auction rate security that we hold is unable to successfully close future auctions and their credit rating deteriorates, we may be required to adjust the carrying value of our investment through an impairment charge to earnings.
A portion of our investment portfolio is invested in auction rate securities. The underlying assets of these securities are student loans substantially backed by the federal government. Due to adverse developments in the credit markets, beginning in February 2008, these securities have experienced failures in the auction process. When an auction fails for amounts we have invested, the security becomes illiquid. In the event of an auction failure, we are not able to access these funds until a future auction on these securities is successful. We have reclassified these securities from current to non-current marketable securities, and if the issuer is unable to successfully close future auctions and their credit rating deteriorates, we may be required to adjust the carrying value of the marketable securities through an impairment charge to earnings.
If we do not receive timely and accurate financial information from Bayer regarding the development and sale of Nexavar, we may be unable to accurately report our results of operations.
Due to our collaboration with Bayer, we are highly dependent on Bayer for timely and accurate information regarding any revenues realized from sales of Nexavar and the costs incurred in developing and selling it, in order to accurately report our results of operations. If we do not receive timely and accurate information or incorrectly estimate activity levels associated with the co-promotion and development of Nexavar at a given point in time, we could be required to record adjustments in future periods and may be required to restate our results for prior periods. Such inaccuracies or restatements could cause a loss of investor confidence in our financial reporting or lead to claims against us, resulting in a decrease in the trading price of shares of our common stock.
Our operating results could be adversely affected by product sales occurring outside the United States and fluctuations in the value of the United States dollar against foreign currencies.
A majority of Nexavar sales are generated outside of the United States, and a significant percentage of Nexavar commercial and development expenses are incurred outside of the United States. Under our collaboration agreement, we are currently funding 50% of mutually agreed development costs worldwide, excluding Japan. In all foreign countries, except Japan, Bayer first receives a portion of product revenues to repay Bayer for its foreign commercialization infrastructure, after which we receive 50% of net profits on sales of Nexavar. Bayer is funding 100% of development costs in Japan and pays us a single-digit royalty on Nexavar sales in Japan. Therefore, when these sales and expenses are translated into U.S. dollars by Bayer in determining amounts payable to us or payable by us, we are exposed to fluctuations in foreign currency exchange rates. The primary foreign currency in which we have exchange rate fluctuation exposure is the Euro. As we expand our business geographically, we could be exposed to exchange rate fluctuation in other currencies. Exchange rates between these currencies and U.S. dollars have fluctuated significantly in recent years and may do so in the future. Hedging foreign currencies can be difficult, especially if the currency is not freely traded. We cannot predict the impact of future exchange rate fluctuations on our operating results. We currently do not hedge any transactions or account balances.
Changes in accounting may affect our financial position and results of operations.
U.S. generally accepted accounting principles and related implementation guidelines and interpretations can be highly complex and involve subjective judgments. Changes in these rules or their interpretation, the adoption of new pronouncements or the application of existing pronouncements to changes in our business could significantly affect our financial position and results of operations.
For example, in May 2008, Accounting Standards Codification, or ASC, Subtopic 470-20 was issued. Under ASC Subtopic 470-20 issuers of certain convertible debt instruments that have a net settlement feature and may be settled in cash upon conversion, including

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partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of any outstanding debt instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument. ASC 470-20 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Based on the requirements of ASC 470-20, we reported imputed interest expense related to the 2016 Notes of approximately $2.2 million for the first quarter ended March 31, 2010.
In December 2007, the FASB issued ASC Topic 805. which establishes principles and requirements for recognizing and measuring assets acquired, liabilities assumed and any non-controlling interests in the acquired target in a business combination. ASC Topic 805 also provides guidance for recognizing and measuring goodwill acquired in a business combination; requires purchased in-process research and development to be capitalized at fair value as intangible assets at the time of acquisition; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination; expands the definition of what constitutes a business; and requires the acquirer to disclose information that users may need to evaluate and understand the financial effect of the business combination. ASC Topic 805 is effective on a prospective basis and will impact business combination transactions for which the acquisition date occurs after December 15, 2008. We adopted ASC Topic 805 as of January 1, 2009 and the adoption of ASC Topic 805 had a material impact on the accounting for our acquisition of Proteolix in November 2009.
Provisions in our collaboration agreement with Bayer may prevent or delay a change in control.*
Our collaboration agreement with Bayer provides that if we are acquired by another entity by reason of merger, consolidation or sale of all or substantially all of our assets, or if a single entity other than Bayer or its affiliate acquires ownership of a majority of the Company’s outstanding voting stock, and Bayer does not consent to the transaction, then for 60 days following the transaction, Bayer may elect to terminate our co-development and co-promotion rights under the collaboration agreement. If Bayer were to exercise this right, Bayer would gain exclusive development and marketing rights to the product candidates developed under the collaboration agreement, including Nexavar. If this happens, we, or our successor, would receive a royalty based on any sales of Nexavar and other collaboration products, rather than a share of any profits, which could substantially reduce the economic value derived from the sales of Nexavar to us or our successor. These provisions of our collaboration agreement with Bayer may have the effect of delaying or preventing a change in control, or a sale of all or substantially all of our assets, or may reduce the number of companies interested in acquiring us. However, we believe that a reorganization transaction in which the persons who held majority ownership of Onyx prior to the transaction continue to hold majority ownership of Onyx, directly or through a parent company, after the transaction would be outside the scope of the foregoing provision of the collaboration agreement.
Existing stockholders have significant influence over us.
Our executive officers, directors and 5% stockholders own, in the aggregate, approximately 28% of our outstanding common stock. As a result, these stockholders will be able to exercise substantial influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change in control of our company and will make some transactions difficult or impossible to accomplish without the support of these stockholders.
Provisions in the indenture for the 2016 Notes may deter or prevent a business combination.
If a fundamental change occurs prior to the maturity date of the 2016 Notes, holders of the notes will have the right, at their option, to require us to repurchase all or a portion of their notes. In addition, if a fundamental change occurs prior to the maturity date of 2016 Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its notes in connection with such fundamental change. In addition, the indenture for the notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the 2016 Notes. These and other provisions could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to our stockholders.
Provisions in Delaware law, our charter and executive change of control agreements we have entered into may prevent or delay a change of control.
We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent a Delaware corporation from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s stock unless:

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    the board of directors approved the transaction where the stockholder acquired 15% or more of the corporation’s stock;
    after the transaction in which the stockholder acquired 15% or more of the corporation’s stock, the stockholder owned at least 85% of the corporation’s outstanding voting stock, excluding shares owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or
    on or after this date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.
As such, these laws could prohibit or delay mergers or a change of control of us and may discourage attempts by other companies to acquire us.
Our certificate of incorporation and bylaws include a number of provisions that may deter or impede hostile takeovers or changes of control or management. These provisions include:
    our board is classified into three classes of directors as nearly equal in size as possible with staggered three-year terms;
    the authority of our board to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of these shares, without stockholder approval;
    all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent;
    special meetings of the stockholders may be called only by the chairman of the board, the chief executive officer, the board or 10% or more of the stockholders entitled to vote at the meeting; and
    no cumulative voting.
These provisions may have the effect of delaying or preventing a change in control, even at stock prices higher than the then current stock price.
We have entered into change in control severance agreements with each of our executive officers. These agreements provide for the payment of severance benefits and the acceleration of stock option vesting if the executive officer’s employment is terminated within 24 months of a change in control. The change in control severance agreements may have the effect of preventing a change in control.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. (Removed and Reserved)
Item 5. Other Information.
Not applicable.

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Item 6. Exhibits.
     
2.1†*(1)
  Agreement and Plan of Merger dated as of October 10, 2009 among Onyx Pharmaceuticals, Inc., Proteolix, Inc., Profiterole Acquisition Corp., and Shareholder Representative Services LLC
 
   
3.1 (2)
  Restated Certificate of Incorporation of the Company.
 
   
3.2 (3)
  Amended and Restated Bylaws of the Company.
 
   
3.3 (4)
  Certificate of Amendment to Amended and Restated Certificate of Incorporation.
 
   
3.4 (5)
  Certificate of Amendment to Amended and Restated Certificate of Incorporation.
 
   
4.1
  Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
 
   
4.2 (2)
  Specimen Stock Certificate.
 
   
4.3(6)
  Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National Association
 
   
4.4(6)
  First Supplemental Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National Association
 
   
4.5(6)
  Form of 4.00% Convertible Senior Note due 2016
 
   
10.30+
  Letter Agreement between the Company and Ted W. Love M.D., effective as of February 1, 2010.
 
   
10.31+
  Letter Agreement between the Company and Michael Kauffman, M.D., effective as of April 1, 2010.
 
   
31.1 (7)
  Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
   
31.2 (7)
  Certification of Chief Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
   
32.1 (7)
  Certifications required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

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  Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.
 
*   Certain schedules related to identified agreements and persons have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Securities and Exchange Commission.
 
+   Management contract or compensatory plan.
 
(1)   Filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 6, 2009.
 
(2)   Filed as an exhibit to the Company’s Registration Statement on Form SB-2 (No. 333-3176-LA).
 
(3)   Filed as an exhibit to Company’s Current Report on Form 8-K filed on December 5, 2008.
 
(4)   Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
 
(5)   Filed as an exhibit to the Company’s Registration Statement on Form S-3 (No. 333-134565) filed on May 30, 2006.
 
(6)   Filed as an exhibit to Company’s Current Report on Form 8-K filed on August 12, 2009.
 
(7)   This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  ONYX PHARMACEUTICALS, INC.
 
 
Date: May 4, 2010  By:   /s/ N. Anthony Coles    
    N. Anthony Coles   
    President and Chief Executive Officer
(Principal Executive Officer) 
 
 
     
Date: May 4, 2010  By:   /s/ Matthew K. Fust    
    Matthew K. Fust   
    Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)   

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EXHIBIT INDEX
     
2.1†*(1)
  Agreement and Plan of Merger dated as of October 10, 2009 among Onyx Pharmaceuticals, Inc., Proteolix, Inc., Profiterole Acquisition Corp., and Shareholder Representative Services LLC
 
   
3.1 (2)
  Restated Certificate of Incorporation of the Company.
 
   
3.2 (3)
  Amended and Restated Bylaws of the Company.
 
   
3.3 (4)
  Certificate of Amendment to Amended and Restated Certificate of Incorporation.
 
   
3.4 (5)
  Certificate of Amendment to Amended and Restated Certificate of Incorporation.
 
   
4.1
  Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
 
   
4.2 (2)
  Specimen Stock Certificate.
 
   
4.3(6)
  Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National Association
 
   
4.4(6)
  First Supplemental Indenture dated as of August 12, 2009 between Onyx Pharmaceuticals, Inc. and Wells Fargo Bank, National Association
 
   
4.5(6)
  Form of 4.00% Convertible Senior Note due 2016
 
   
10.30+
  Letter Agreement between the Company and Ted W. Love, M.D., effective as of February 1, 2010.
 
   
10.31+
  Letter Agreement between the Company and Michael Kauffman, M.D. effective as of April 1, 2010.
 
   
31.1 (7)
  Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
   
31.2 (7)
  Certification of Chief Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
   
32.1 (7)
  Certifications required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
 
  Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.
 
*   Certain schedules related to identified agreements and persons have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Securities and Exchange Commission.
 
+   Management contract or compensatory plan.
 
(1)   Filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 6, 2009.
 
(2)   Filed as an exhibit to the Company’s Registration Statement on Form SB-2 (No. 333-3176-LA).
 
(3)   Filed as an exhibit to the Company’s Current Report on Form 8-K filed on December 5, 2008.
 
(4)   Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
 
(5)   Filed as an exhibit to the Company’s Registration Statement on Form S-3 (No. 333-134565) filed on May 30, 2006.
 
(6)   Filed as an exhibit to Company’s Current Report on Form 8-K filed on August 12, 2009.
 
(7)   This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Onyx Pharmaceuticals, Inc. under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

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