U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999
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
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ONYX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3154463
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(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.
(X) Yes ( ) No
The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 11,468,927 as of April 30, 1999.
ONYX PHARMACEUTICALS, INC.
INDEX
PART I: FINANCIAL INFORMATION
PAGE
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ITEM 1. Financial Statements
Condensed Balance Sheets - March 31, 1999 and
December 31, 1998 3
Condensed Statements of Operations - Three months
ended March 31, 1999 and 1998 4
Condensed Statements of Cash Flows - Three months ended
March 31, 1999 and 1998 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
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ONYX PHARMACEUTICALS, INC.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
1999 1998
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ASSETS (Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 16,146 $ 21,368
Short-term investments 10,510 10,792
Other current assets 586 609
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Total current assets 27,242 32,769
Property and equipment, net 3,494 3,730
Notes receivable from related parties 531 649
Other assets 39 59
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$ 31,306 $ 37,207
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,056 $ 2,371
Accrued liabilities 2,659 2,456
Accrued clinical trials and related expenses 2,067 2,176
Accrued compensation 820 658
Deferred revenue 2,087 3,318
Long-term debt, current portion 2,199 2,199
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Total current liabilities 10,888 13,178
Long-term debt, noncurrent portion 1,832 2,382
Deferred rent 7 28
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none
issued and outstanding - -
Common stock, $0.001 par value; 25,000,000 shares authorized, 11,464,751
and 11,452,457 shares issued and outstanding as of March 31, 1999 and
December 31, 1998, respectively 11 11
Additional paid-in capital 85,086 85,073
Deferred compensation (139) (194)
Accumulated deficit (66,379) (63,271)
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Total stockholders' equity 18,579 21,619
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$ 31,306 $ 37,207
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See accompanying notes.
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ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------
1999 1998
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Revenue:
Contract and other revenue ($2,618 and $2,934 from
related parties for the three months ended March 31, 1999
and 1998, respectively) $ 3,219 $ 3,332
Operating expenses:
Research and development 5,291 6,065
General and administrative 1,321 1,290
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Total operating expenses 6,612 7,355
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Loss from operations (3,393) (4,023)
Interest income, net 285 484
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Net loss $(3,108) $(3,539)
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Basic and diluted net loss per share $ (0.27) $ (0.32)
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Shares used in computing basic and diluted net loss per share 11,460 11,074
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See accompanying notes.
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ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
--------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,108) $ (3,539)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 518 516
Forgiveness of notes receivable 24 30
Amortization of deferred compensation 55 55
Changes in assets and liabilities:
Other current assets 68 440
Other assets 20 (20)
Accounts payable (1,315) (499)
Accrued clinical trials and related expenses (109) 546
Accrued liabilities 203 448
Accrued compensation 162 254
Deferred revenue (1,231) 251
Deferred rent (21) (20)
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Net cash used in operating activities (4,734) (1,538)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (2,721) (6,171)
Sales and maturities of short-term investments 3,003 14,644
Capital expenditures (327) (238)
Notes receivable from related parties 94 8
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Net cash provided by investing activities 49 8,243
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (550) (237)
Net proceeds from issuances of common stock, net of repurchases 13 9,857
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Net cash provided by (used in) financing activities (537) 9,620
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Net increase (decrease) in cash and cash equivalents (5,222) 16,325
Cash and cash equivalents at beginning of period 21,368 18,828
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Cash and cash equivalents at end of period $ 16,146 $ 35,153
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See accompanying notes.
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ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1999, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999, or for any other
future operating periods.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the financial statements and footnotes thereto
included in the Onyx Pharmaceuticals, Inc. (the "Company" or "Onyx") Annual
Report on Form 10-K for the year ended December 31, 1998.
NOTE 2. NET LOSS PER SHARE
In accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards (SFAS) No. 128, basic and diluted net loss per
share have been computed using the weighted-average number of shares of
common stock outstanding during the period, less shares subject to
repurchase. Common stock equivalents have been excluded, because they would
be antidilutive for the periods presented.
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ONYX PHARMACEUTICALS, INC.
ITEM 2. 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, 1998.
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 inflammatory and autoimmune diseases.
On February 1, 1999, Bayer and the Company signed an amendment to their
collaboration agreement. Based on the amendment, a lead development compound
was named, and the focus of the collaboration moved from research to
co-development. The Company has the opportunity to co-develop collaboration
compounds worldwide excluding Japan, in return for up to a 50 percent share
of profits if the Company co-promotes the product in the United States. To
assist in funding part of its share of development costs, the Company could
receive up to $40,000,000 in advances on the achievement of clinical
milestones.
The amendment also states that upon the completion by the Company of certain
deliverables, Bayer will pay to the Company the final payment of approximately
$376,000 due in support of the research under the research portion of the
agreement. It is anticipated this will occur in 1999.
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 to develop ONYX-015, the lead product in the
Company's p53 therapeutic virus program. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations may be substantial.
As of March 31, 1999, the Company's accumulated deficit was approximately
$66,400,000.
In order to refocus the Company's resources on more near-term product
opportunities, in February 1999, the Company reduced its workforce by 14 regular
full-time employees as part of a corporate downsizing and incurred an expense of
approximately $250,000.
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.
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ONYX PHARMACEUTICALS, INC.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
REVENUE
The Company's revenues decreased 3% to $3,219,000 for the three months ended
March 31, 1999 as compared to $3,332,000 for the three months ended March 31,
1998. Revenues for both periods were primarily attributable to amounts earned
for research performed under the Company's collaborations with Warner-Lambert
and Eli Lilly. Total revenue also included a $1,000,000 license payment from
Warner-Lambert for the inflammation collaboration. The decrease in revenues for
the three months ended March 31, 1999 as compared to the same period in 1998 is
due primarily to the transition of the ras program with Bayer from research
funding to co-development of a clinical candidate, effective February 1, 1999.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 13% to $5,291,000 for the three
months ended March 31, 1999 as compared to $6,065,000 for the three months ended
March 31, 1998. The decrease was primarily due to a reduced level of research
activities associated with the transition of the ras program. In addition, the
decrease was also due to the Company currently conducting two Phase I/II
clinical trials of ONYX-015, the lead product in the p53 program, compared to
four clinical trials which were being conducted in the first quarter of 1998.
The Company may expand the scope of its research and development programs in
future periods, which could result in increased research and development
expenses, including costs associated with clinical development of ONYX-015.
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, 1999
and 1998 were $1,321,000 and $1,290,000, respectively. General and
administrative expenses in the first quarter of 1999 showed a modest increase
over the same period in 1998.
NET INTEREST INCOME
The Company had net interest income of $285,000 and $484,000 for the three
months ended March 31, 1999 and 1998, respectively. The decrease in net
interest income was principally due to lower cash and investment balances
resulting in less interest income for the current period.
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, revenue from collaborative research and development
agreements and bank loans to fund its operations.
The Company's cash, cash equivalents and short-term investments were $26,656,000
at March 31, 1999, compared with $32,160,000 at December 31, 1998. The decrease
in cash and investments of $5,504,000 at March 31, 1999, compared with December
31, 1998, is principally due to cash used in operations of $4,734,000 as well as
the repayment of debt of $550,000. The Company expects that cash used in
operations
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ONYX PHARMACEUTICALS, INC.
will continue at approximately the current rate as research activities and
clinical development for ONYX-015 progresses.
Total capital expenditures for equipment and leasehold improvements for the
three-month period ended March 31, 1999, were $327,000. The Company expects to
make expenditures of approximately $1,100,000 for the remainder of 1999 for
capital equipment.
The Company believes that its existing capital resources, interest thereon, and
anticipated revenues from existing collaborations will be sufficient to fund its
current and planned operations into the year 2000. 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.
IMPACT OF THE YEAR 2000
Computer programs using two rather than four digits to identify the year in a
date field may cause computer systems to malfunction in the year 2000. Any
computer programs that have time-related software may determine a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to engage in specific business activities.
The Company has appointed a task force comprised of certain members of
management to initiate and monitor a Year 2000 ("Y2K") program. The Company's
plan to resolve the Y2K issue involves the following three phases: assessment,
implementation of action plans and testing of systems to ensure compliance. The
Company has completed its assessment phase and has determined that the financial
and information technology systems of the Company are Y2K compliant. The
Company has also identified certain scientific research and development systems
applications that need to be upgraded or replaced in order to be Y2K compliant.
The Company intends to upgrade or replace the computer systems, software and
instrumentation that it deems critical to its operation by September 1, 1999.
There can be no assurance that the Company will be able to upgrade any or all of
its systems in accordance with its Y2K program or, once upgraded, that the
systems will be Y2K compliant.
The Company is gathering information about the Y2K compliance status of its
significant suppliers and other third parties with which it has
relationships. The Company is requesting that its outside suppliers and other
third parties notify the Company in writing of the status of their Y2K
compliance programs. To date, the Company is not aware of any outside
supplier or other third party with a Y2K issue that would materially impact
the Company's business operations. However, there can be no assurance that
the Company's outside suppliers and other third parties will be successful in
their Y2K compliance efforts.
The Company believes that its costs associated with the upgrade and/or
conversion of existing computer software and hardware relating to the Y2K issue
will be less than $400,000 based on modifications to date as well as the amount
of scientific research and development equipment that may have to be upgraded.
In the event that the Company does not upgrade its systems in a timely manner,
the Company may encounter problems with the completion of certain scientific
research and development experiments. The Company does not currently have a
contingency plan in the event that the Company's or its significant suppliers'
systems are not Y2K compliant.
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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 two self-funded Phase I/II clinical trials
of ONYX-015 for the treatment of pancreatic cancer and liver metastases of
colorectal cancer. The ability of the Company to obtain a corporate partner for
ONYX-015 and to continue its development as a potential product will depend
materially on the results of these and its other completed Phase I and II head
and neck 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
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ONYX PHARMACEUTICALS, INC.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company does not
use derivative financial instruments in its investment portfolio. By policy,
the Company places its investments with high quality debt security issuers,
limits the amount of credit exposure to any one issuer, limits duration by
restricting the term, and holds investments to maturity except under rare
circumstances. The Company classifies its cash equivalents or short-term
investments as fixed rate if the rate of return on an instrument remains
fixed over its term. As of March 31, 1999, all of the Company's cash
equivalents and short-term investments are classified as fixed rate. There
were no significant changes in the Company's market risk exposures during the
three months ended March 31, 1999. For further discussion of the Company's
market risk exposures, refer to Part II, Item 7A., "Quantitative and
Qualitative Disclosures About Market Risk" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
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ONYX PHARMACEUTICALS, INC.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit 10.24* Amendment to Collaboration Agreement between
Bayer Corporation and the Company dated
February 1, 1999.
Exhibit 27.1 Financial Data Schedule
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* The Company has requested confidential treatment for portions of
this exhibit.
b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1999.
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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 17, 1999 By: /s/ Hollings C. Renton
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Hollings C. Renton
President, Chief Executive Officer and Director
(Principal Executive and Financial Officer)
Date: May 17, 1999 By: /s/ Marilyn E. Wortzman
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Marilyn E. Wortzman
Controller
(Principal Accounting Officer)
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ONYX PHARMACEUTICALS, INC.
EXHIBIT INDEX
Exhibit Number Description of Exhibits
10.24* Amendment to Collaboration Agreement between Bayer
Corporation and the Company dated February 1, 1999.
27.1 Financial Data Schedule
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* The Company has requested confidential treatment for portions of this
exhibit.
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