ONYX PHARMACEUTICALS, INC.
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) 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 (IRS Employer ID Number)
incorporation or organization)
3031 Research Drive
Richmond, California 94806
(Address of principal executive offices)
(510) 222-9700
(Registrant's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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.
(XX) Yes ( ) No
The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 9,549,789 as of April 30, 1997.
ONYX PHARMACEUTICALS, INC.
INDEX
PART I: FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements
Condensed balance sheets - March 31, 1997 and
December 31, 1996 3
Condensed statements of operations - three months
ended March 31, 1997 and 1996 4
Condensed statements of cash flows - three months
ended March 31, 1997 and 1996 5
Notes to condensed financial statements 6
ITEM 2. Management's discussion and analysis of financial
condition and results of operations 8
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
2
ONYX PHARMACEUTICALS, INC.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
1997 1996
----------- ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 9,376 $ 36,258
Short-term investments 26,829 4,071
Other current assets 792 638
--------- --------
Total current assets 36,997 40,967
Property and equipment, net 4,066 4,196
Notes receivable from related parties 576 396
Other assets 167 220
--------- --------
TOTAL ASSETS $ 41,806 $ 45,779
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 833 $ 693
Accrued liabilities 1,271 1,277
Accrued compensation 576 439
Deferred revenue - 1,631
Long-term debt, current portion 444 444
--------- --------
Total current liabilities 3,124 4,484
Long-term debt, noncurrent portion - 99
Deferred rent 174 273
Stockholders' equity:
Preferred stock, $0.001 par value;
5,000,000 shares authorized, none - -
issued and outstanding
Common stock, $0.001 par value:
25,000,000 shares authorized,
9,535,784 and 9,514,285 shares issued
and outstanding as of March 31, 1997 10 10
and December 31, 1996, respectively
Additional paid-in capital 71,155 71,132
Deferred compensation (577) (632)
Accumulated deficit (32,080) (29,587)
--------- --------
TOTAL STOCKHOLDERS' EQUITY 38,508 40,923
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,806 $ 45,779
--------- --------
--------- --------
See accompanying notes.
3
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
--------------------------------
1997 1996
------------- -------------
Revenue:
Contract and other revenue ($1,845 and
$1,812 from related parties for the
three months ended March 31, 1997
and 1996 respectively) $ 2,152 $ 1,974
Operating expenses:
Research and development 3,877 3,542
General and administrative 1,266 855
----------- ----------
Total operating expenses 5,143 4,397
----------- ----------
Loss from operations (2,991) (2,423)
Interest income, net 498 130
----------- ----------
Net loss $ (2,493) $ (2,293)
----------- ----------
----------- ----------
Net loss per share $ (0.26)
-----------
-----------
Shares used in computing net loss per share 9,523
-----------
-----------
Pro forma net loss per share $ (0.35)
-----------
-----------
Shares used in computing pro forma net loss
per share 6,642
-----------
-----------
See accompanying notes.
4
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
Three months ended
March 31,
--------------------------
1997 1996
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,493) $ (2,293)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 416 358
Forgiveness of note receivable - 13
Amortization of deferred compensation 55 70
Changes in assets and liabilities:
Other current assets (154) (299)
Other assets 53 (17)
Accounts payable 140 (188)
Accrued liabilities (6) 163
Accrued compensation 137 180
Deferred revenue (1,631) (1,298)
Deferred rent (99) (20)
--------- ---------
Net cash used in operating activities (3,582) (3,331)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (26,829) (974)
Sales and maturities of short-term investments 4,071 2,689
Capital expenditures (286) (456)
Notes receivable from related parties (180) -
Proceeds from sale of fixed assets - 3
--------- ---------
Net cash provided by (used in)
investing activities (23,224) 1,262
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (99) (131)
Net proceeds from issuance of common stock 26 95
Repurchase of common stock (3) -
--------- ---------
Net cash used in financing activities (76) (36)
--------- ---------
Net decrease in cash and cash equivalents (26,882) (2,105)
Cash and cash equivalents at beginning of the
period 36,258 3,779
--------- ---------
Cash and cash equivalents at end of the period $9,376 $1,674
--------- ---------
--------- ---------
See accompanying notes.
5
ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles 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, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1996
included in the ONYX Pharmaceuticals, Inc. (the "Company" or "ONYX") Annual
Report on Form 10-K.
NOTE 2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. Common equivalent shares are excluded from the
computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common
and common equivalent shares issued during the 12-month period prior to the
filing of a registration statement in connection with the Company's
initial public offering at prices below the public offering price of $12.00
have been included in the calculation as if they were outstanding for all
periods presented through March 31, 1996 (using the treasury stock method for
stock options at the estimated public offering price).
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of convertible preferred shares not included
above that automatically converted upon completion of the Company's initial
public offering (using the if converted method) from original date of
issuance.
Net loss per share is as follows for the quarter ended March 31, 1996:
Net loss per share $ (1.64)
-----------
-----------
Shares used in computing net loss per share 1,402
-----------
-----------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. The impact on earnings per share for the quarters ended March 31,
1997 and March 31, 1996 will not be material.
6
ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 3. COLLABORATIVE AGREEMENTS
In accordance with the terms of the agreement dated May 4, 1995 between ONYX
and Warner-Lambert Company, Warner-Lambert Company purchased 192,941 shares
of common stock on May 2, 1997 at an aggregate purchase price of
approximately $3.3 million.
NOTE 4. MARKETABLE SECURITIES - AVAILABLE-FOR-SALE
The following is a summary of available-for-sale securities as of March 31,
1997:
Available-
for-sale
Securities
--------------
Estimated
Fair Value
--------------
(in thousands)
Cash equivalents:
U.S. corporate securities $ 4,619
Foreign corporate securities 2,983
Money market funds 1,772
----------
9,374
Short-term investments:
U.S. corporate securities 9,408
Foreign corporate securities 9,858
U.S. government securities 2,008
----------
21,274
----------
Total available-for-sale securities $ 30,648
----------
----------
As of March 31, 1997, the difference between the fair value and the amortized
cost of available-for-sale securities was insignificant. The average
portfolio duration is approximately seven months, and the contractual
maturity of each of the investments does not exceed two years. Held at March
31, 1997 and excluded from short term investments above is $5,555,000 of
certificates of deposits.
NOTE 5. LINE OF CREDIT
In March 1997, the Company entered into a $7 million line of credit
arrangement with a bank. The line bears interest at prime plus 1% and
expires October 15, 1997. The line is secured by certain assets of the
Company and contains covenants related to maintaining debt-to-equity ratios,
tangible net worth minimums, cash and investment balances, as well as a
restriction on paying dividends or repurchasing stock. As of March 31, 1997,
no balance was outstanding on the line of credit.
7
ONYX PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS OVERVIEW AND THE
FOLLOWING DISCUSSION CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1996.
OVERVIEW
Since its inception, ONYX Pharmaceuticals, Inc. (the "Company" or "ONYX") has
been engaged in the discovery and development of novel therapeutics based
upon the genetics of human disease, with an initial focus on cancer.
Currently, the Company has five therapeutic discovery programs focused on the
following cancer mutations: p53, ras, cell cycle, BRCA1 and APC.
The Company intends to pursue its therapeutic discovery programs
independently and in collaboration with pharmaceutical companies, and to
collaborate with such companies on the development and commercialization of
any products which may result from the Company's discovery programs. The
Company has entered into collaborative agreements with Bayer Corporation
("Bayer") in the area of ras oncogenes, Warner-Lambert Company
("Warner-Lambert") in the cell cycle area and Eli Lilly and Company ("Eli
Lilly") on the function of the BRCA1 gene in breast cancer.
The Company has not been profitable since inception and expects to incur
substantial and increasing losses for the foreseeable future, primarily due
to the expansion of its research and development programs, including
preclinical studies and clinical trials in the p53 program. The Company
expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. As of March 31, 1997, the Company's
accumulated deficit was approximately $32.1 million.
The Company's business is subject to significant risks, including the risks
inherent in its research and development efforts, uncertainties associated
with obtaining and enforcing patents, the lengthy and expensive regulatory
approval process and competition from other products. The Company does not
expect to generate revenues from the sale of proposed products in the
foreseeable future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996.
REVENUES
The Company's revenues for the three months ended March 31, 1997 and 1996
were $2,152,000 and $1,974,000, respectively. Revenues for the three months
ended March 31, 1997 were attributable to amounts earned for research
performed under the Company's collaborations with Bayer, Warner-Lambert and
Eli Lilly.
8
ONYX PHARMACEUTICALS, INC.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three months ended March 31, 1997
and 1996 were $3,877,000 and $3,542,000, respectively. The increase was
primarily due to additional preclinical and clinical costs associated with
current and planned Phase I clinical trials of ONYX-015, the lead product in
the Company's p53 program. The Company expects that research and development
expenses will continue to grow significantly during future periods due to the
hiring of personnel and the expansion of ONYX-015 clinical studies. The
Company anticipates Phase II clinical trials for ONYX-015 will begin during
the second half of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31, 1997
and 1996 were $1,266,000 and $855,000, respectively. The increase was
primarily due to increased compensation expenses associated with the hiring
of additional staff to support the growth of the Company. General and
administrative expenses are expected to increase as the Company's
growth continues.
NET INTEREST INCOME
The Company had net interest income of $498,000 and $130,000 for the three
months ended March 31, 1997 and 1996, respectively. The increase in interest
income reflects the Company's higher average balance of cash, cash
equivalents and short-term investments resulting from its initial public
offering of common stock in May 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have substantially exceeded
its revenues and the Company has relied primarily on the proceeds from the
sale of equity securities and revenue from collaborative research and
development agreements to fund its operations.
The Company's cash, cash equivalents and short-term investments were
$36,205,000 at March 31, 1997, compared with $40,329,000 at December 31,
1996. Increasing levels of clinical research and product development
associated with ONYX-015, the lead product in the p53 program, and the higher
levels of general and administrative expenses resulted in approximately
$2,500,000 of cash used in operations. The balance of the cash decline was
attributable to the timing of the receipt of collaborative research payments.
The Company expects cash used in operations will continue to increase as
additional clinical trials for ONYX-015 commence and new programs are
initiated.
Total capital expenditures for equipment and leasehold improvements for the
three-month period ended March 31, 1997 was $286,000. The Company expects to
make expenditures of approximately $2,300,000 for the remainder of 1997 for
capital equipment and improvements to its existing facility. In addition,
subject to approval by the Board of Directors and clinical results
of ONYX-015, the Company may begin to construct a small scale manufacturing
facility capable of producing material for clinical trials and for the
commercialization of ONYX-015. The Company estimates the facility may cost
approximately $1,000,000 to $2,000,000.
The Company anticipates that its existing capital resources and interest
thereon, and anticipated revenues from its existing collaborations, together
with $3,333,000 from the sale of 192,941 shares of common stock to
Warner-Lambert which the Company received on May 2, 1997, will be sufficient
to fund its current and planned operations through 1998. As of March 31,
1997, the Company had $7,000,000 available through a line of credit which
expires on October 15, 1997, collateralized by laboratory equipment and
leasehold improvements. There can be no assurance, however, that changes in
the Company's operating expenses will not result in the expenditure of such
resources before such time, and
9
ONYX PHARMACEUTICALS, INC.
in any event, the Company will need to raise substantial additional capital
to fund its operations in future periods.
BUSINESS RISKS
The Company is at an early stage of development. The development of the
Company's technology and proposed products will require a commitment of
substantial funds to conduct these costly and time-consuming activities. All
of the Company's potential products are in research or development and will
require significant additional research and development efforts prior to any
commercial use, including extensive preclinical and clinical testing as well
as lengthy regulatory approval. The development of new products is subject
to a number of significant risks. Potential products that appear to be
promising at an early stage of development may not reach the market for a
number of reasons. Such risks include the possibilities that the potential
products will be found ineffective or unduly toxic during clinical trials,
fail to receive necessary regulatory approvals, be difficult to manufacture
on a large scale, be uneconomical to market or be precluded from
commercialization by proprietary rights of third parties.
In addition, many of the Company's potential products are subject to
development and licensing arrangements with the Company's collaborators.
Therefore, the Company is dependent on the research and development efforts
of these collaborators. Moreover, the Company is entitled to only a portion
of the revenues, if any, realized from the commercial sale of any of the
potential products covered by the collaborations. Should the Company or its
collaborators fail to perform in accordance with the terms of any of their
agreements, any consequent loss of revenue under the agreements could have a
material adverse effect on the Company's results of operations.
There can be no assurance that the Company will be able to maintain existing
collaborative agreements, negotiate collaborative arrangements in the future
on acceptable terms, if at all, or that any such collaborative arrangements
will be successful. To the extent that the Company is not able to maintain
or establish such arrangements, the Company would be required to undertake
such activities at its own expense.
The proposed products under development by the Company have never been
manufactured on a commercial scale, and there can be no assurance that such
products can be manufactured at a cost or in quantities necessary to make
them commercially viable. The Company has no sales, marketing or
distribution capability. If any of its products subject to collaborative
agreements are successfully developed, the Company must rely on its
collaborators to market such products. If the Company develops any products
which are not subject to collaborative agreements, it must either rely on
other large pharmaceutical companies to market such products or must develop
a marketing and sales force with technical expertise and supporting
distribution capability in order to market such products directly.
The Company intends to seek additional funding through collaborative
arrangements, public or private equity or debt financings, capital lease
transactions or other financing sources that may be available. However,
there can be no assurance that additional financing will be available on
acceptable terms or at all. If additional funds are raised by issuing equity
securities, substantial dilution to existing stockholders may result. If
adequate funds are not available, the Company may be required to delay,
reduce the scope of, or eliminate one or more of its research or development
programs or to obtain funds through collaborative arrangements with others
that are on unfavorable terms or that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that
the Company would otherwise seek to develop itself.
The foregoing risks reflect the Company's early stage of development and the
nature of its industry and proposed product. Also inherent in the Company's
stage of development is a range of additional risks, including competition,
uncertainties regarding protection of patents and proprietary rights,
government regulation and uncertainties regarding health care reform.
10
ONYX PHARMACEUTICALS, INC.
PART II: OTHER INFORMATION
Item 6.
a) Exhibits
Exhibit 10.19 Letter Agreement between Dr. Allan Balmain
and the Registrant dated August 26, 1996, as
amended March 3, 1997.
Exhibit 11.1 Statement Regarding Computation of Net
Loss Per Share
Exhibit 27.1 Financial Data Schedule
b) Form 8-K
No reports on Form 8-K were filed during the period covered
by this report.
11
ONYX PHARMACEUTICALS, INC.
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 15, 1997 By: /s/ Hollings C. Renton
-------------------------------------
Hollings C. Renton
President, Chief Executive Officer and
Director (Principal Executive Officer)
Date: May 15, 1997 By: /s/ Douglas L. Blankenship
-------------------------------------
Douglas L. Blankenship
Treasurer
(Principal Financial and Accounting
Officer)
12
ONYX PHARMACEUTICALS, INC.
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Number Description of Exhibits Page
- -------------- ----------------------- ----
10.19 Letter Agreement between Dr. Allan Balmain
and the Registrant dated August 26, 1996, as
amended March 3, 1997.
11.1 Statement Regarding Computation of Net Loss
per Share
27.1 Financial Data Schedule
13