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, 1998
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 11,273,165 as of April 30, 1998.
ONYX PHARMACEUTICALS, INC.
INDEX
PART I: FINANCIAL INFORMATION
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PAGE
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ITEM 1. Financial Statements
Condensed balance sheets - March 31, 1998 and
December 31, 1997 3
Condensed statements of operations - three months
ended March 31, 1998 and 1997 4
Condensed statements of cash flows - three months ended
March 31, 1998 and 1997 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
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ITEM 2. Changes in Securities and Use of Proceeds 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
2
ONYX PHARMACEUTICALS, INC.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
1998 1997
--------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $35,153 $18,828
Short-term investments 8,171 16,644
Other current assets 562 1,002
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Total current assets 43,886 36,474
Property and equipment, net 4,284 4,562
Notes receivable from related parties 774 812
Other assets 30 10
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TOTAL ASSETS $48,974 $41,858
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 820 $ 1,319
Accrued liabilities 2,179 1,731
Accrued clinical trials and related expenses 2,250 1,704
Accrued compensation 750 496
Deferred revenue 1,460 1,209
Long-term debt, current portion 2,199 2,130
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Total current liabilities 9,658 8,589
Long-term debt, noncurrent portion 4,030 4,336
Deferred rent 92 112
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; 11,264,833 and 9,850,518 shares issued and
outstanding as of March 31, 1998 and December 31,
1997, respectively 11 10
Additional paid-in capital 84,692 74,836
Deferred compensation (358) (413)
Accumulated deficit (49,151) (45,612)
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TOTAL STOCKHOLDERS' EQUITY 35,194 28,821
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $48,974 $41,858
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See accompanying notes.
3
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
----------------------
1998 1997
---- ----
Revenue:
Contract and other revenue ($2,934 and $1,845
from related parties for the three months ended
March 31, 1998 and 1997 respectively) $ 3,332 $ 2,152
Operating expenses:
Research and development 6,065 3,877
General and administrative 1,290 1,266
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Total operating expenses 7,355 5,143
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Loss from operations (4,023) (2,991)
Interest income, net 484 498
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Net loss $(3,539) $(2,493)
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Basic and diluted net loss per share $ (0.32) $ (0.26)
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Shares used in computing basic and diluted net loss per share 11,074 9,523
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See accompanying notes.
4
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
----------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,539) $ (2,493)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 516 416
Forgiveness of note receivable 30 -
Amortization of deferred compensation 55 55
Changes in assets and liabilities:
Other current assets 440 (154)
Other assets (20) 53
Accounts payable (499) 140
Accrued clinical trials and related expenses 546 -
Accrued liabilities 448 (6)
Accrued compensation 254 137
Deferred revenue 251 (1,631)
Deferred rent (20) (99)
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Net cash used in operating activities (1,538) (3,582)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (6,171) (26,829)
Sales and maturities of short-term investments 14,644 4,071
Capital expenditures (238) (286)
Notes receivable from related parties 8 (180)
Proceeds from sale of fixed assets - -
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Net cash provided by (used in) investing activities 8,243 (23,224)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (237) (99)
Net proceeds from issuance of common stock 9,857 26
Repurchase of common stock - (3)
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Net cash provided by (used in) financing activities 9,620 (76)
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Net increase (decrease) in cash and cash equivalents 16,325 (26,882)
Cash and cash equivalents at beginning of the period 18,828 36,258
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Cash and cash equivalents at end of the period $35,153 $ 9,376
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See accompanying notes.
5
ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(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, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1997
included in the Onyx Pharmaceuticals, Inc. (the "Company" or "Onyx") Annual
Report on Form 10-K.
NOTE 2. MARKETABLE SECURITIES - AVAILABLE-FOR-SALE
The following is a summary of available-for-sale securities as of March 31,
1998:
ESTIMATED
FAIR VALUE
(in thousands)
--------------
Cash equivalents:
Money market funds $35,152
Cash 1
-------
Total cash and cash equivalents $35,153
-------
-------
Short-term investments:
U.S. corporate securities $7,168
Foreign corporate securities 1,003
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Total available-for-sale securities/
short-term investments $8,171
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-------
As of March 31, 1998, the difference between the fair value and the amortized
cost of available-for-sale securities was insignificant. The average
portfolio maturity is approximately three months, and the contractual
maturity of each of the investments does not exceed one and three-quarter
years.
NOTE 3. LINE OF CREDIT
In March 1997, the Company entered into a $7 million line of credit
arrangement which bears interest at prime plus 1%. As of January 15, 1998,
the Company can no longer draw on this line of credit arrangement. As of
March 31, 1998, $6,229,000 was outstanding on the line of credit at an
interest rate of 9.5%. The Company is repaying the line in equal monthly
payments of principal plus interest in order to repay the outstanding balance
by January 15, 2001. 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.
6
ONYX PHARMACEUTICALS, INC.
NOTE 4. SALE OF EQUITY SECURITIES
On January 12, 1998, the Company issued and sold 1,403,508 shares of its
common stock at a purchase price of $7.125 per share in a private placement
to two institutional investors. The Company received aggregate proceeds of
approximately $10,000,000 from the private placement.
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, 1997.
OVERVIEW
Since its inception, Onyx Pharmaceuticals Inc. (the "Company" or "Onyx") has
been engaged in the discovery and development of novel therapeutics including
both small molecule drugs and therapeutic viruses which are based upon the
genetics of human disease. The Company has initially chosen to focus its
research in the area of cancer. 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 and Eli Lilly
and Company ("Eli Lilly") on the function of the BRCA1 gene in breast cancer.
The Company has also entered into two separate collaborative agreements with
Warner-Lambert Company ("Warner-Lambert"), one in cell cycle mutations in
cancer and a second pertaining to inflammation and autoimmunity.
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, 1998, the Company's
accumulated deficit was approximately $49.2 million.
The Company's business is subject to significant risks, including the risks
inherent in its research and development efforts, the results of the ONYX-015
clinical trials, 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, 1998 AND 1997.
REVENUE
Total revenue for the quarter ended March 31, 1998 of $3,332,000 was
attributable to amounts earned for research performed under the Company's
collaborations with Bayer for the ras program, Eli Lilly for the BRCA1
program and Warner-Lambert for the cell cycle and inflammation programs.
Revenue increased this quarter by $1,180,000 over the same period last year
due primarily to revenue recorded for the inflammation program, including a
$500,000 license fee.
8
ONYX PHARMACEUTICALS, INC.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three months ended March 31, 1998
and 1997 were $6,065,000 and $3,877,000, respectively. The increase was
primarily due to additional clinical costs associated with Phase I and
Phase II clinical trials of ONYX-015, the lead product in the Company's
p53 program. The Company expects to continue to expand the scope of its
research and development programs in future periods, which may result in
substantial increases in research and development expenses, including costs
associated with clinical development of ONYX-015 in the p53 therapeutic virus
program. These research and development expenses may not be funded by
collaborative partners.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31, 1998
and 1997 were $1,290,000 and $1,266,000, respectively. The increase was
primarily due to increased administrative staffing. General and
administrative expenses are expected to increase to support the Company's
research and development efforts.
NET INTEREST INCOME
The Company had net interest income of $484,000 and $498,000 for the three
months ended March 31, 1998 and 1997, respectively. The decrease in net
interest income was due to interest expense on the Company's line of credit
arrangement.
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
$43,324,000 at March 31, 1998, compared with $35,472,000 at December 31,
1997. Increasing levels of clinical research and product development
associated with ONYX-015, the lead product in the p53 program, resulted in
approximately $1,538,000 of cash used in operations for the three months
ended March 31, 1998. The increase in cash and investments of $7,852,000 at
March 31, 1998 compared with March 31, 1997 is due to the private placement
financing completed on January 12,1998 which raised approximately $10
million. The Company expects cash used in operations will continue to
increase as clinical development for ONYX-015 progresses.
Total capital expenditures for equipment and leasehold improvements for the
three-month period ended March 31, 1998 was $238,000. The Company expects to
make expenditures of approximately $2.4 million for the remainder of 1998 for
capital equipment and improvements to its existing facility.
The Company believes that its existing capital resources and interest
thereon, and anticipated revenues from existing collaborations will be
sufficient to fund its current and planned operations through the end of
1999. 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 in any event, the Company will need to raise
substantial additional capital to fund its operations in future periods.
9
ONYX PHARMACEUTICALS, INC.
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.
The Company is currently engaged in three self-funded Phase II clinical
trials of ONYX-015 for the treatment of head and neck cancer. The ability of
the Company to obtain a corporate partner for the p53 program and to continue
to develop ONYX-015 as a potential product will depend materially on the
results of these trials. There is no assurance that such results will be
positive or, even if they are positive, that they will be sufficiently strong
to support the Company's corporate partnering or product development
objectives.
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 or terminate such agreements without cause, 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.
10
ONYX PHARMACEUTICALS, INC.
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.
11
ONYX PHARMACEUTICALS, INC.
PART II: OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 12, 1998, the Company sold and issued 1,403,508 shares of its
common stock at a purchase price of $7.125 per share in a private placement
to two institutional investors. The Company received aggregate proceeds of
approximately $10,000,000 from the private placement. The issuance was
exempt under Regulation S of the Securities Act of 1933 as amended. The
Securities and Exchange Commission has declared effective an S-3 Registration
Statement for the resale of such shares.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27.1 Financial Data Schedule
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission on January 26, 1998
in connection with the sale and issuance of 1,403,508
shares of its common stock.
12
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, 1998 By: /s/ HOLLINGS C. RENTON
----------------------
Hollings C. Renton
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: May 15, 1998 By: /s/ DOUGLAS L. BLANKENSHIP
--------------------------
Douglas L. Blankenship
Treasurer
(Principal Financial and Accounting
Officer)
13
ONYX PHARMACEUTICALS, INC.
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Number Description of Exhibits Page
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27.1 Financial Data Schedule
14