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 June 30, 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
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.
(XX) Yes ( ) No
The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 11,520,887 as of July 30, 1999.
ONYX PHARMACEUTICALS, INC.
INDEX
PART I: FINANCIAL INFORMATION
PAGE
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ITEM 1. Financial Statements
Condensed Balance Sheets - June 30, 1999 and
December 31, 1998 3
Condensed Statements of Operations - Three and Six Months
Ended June 30, 1999 and 1998 4
Condensed Statements of Cash Flows - Six Months ended
June 30, 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 10
PART II: OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 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)
June 30, December 31,
1999 1998
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(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 13,398 $ 21,368
Short-term investments 6,564 10,792
Other current assets 739 609
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Total current assets 20,701 32,769
Property and equipment, net 3,355 3,730
Notes receivable from related parties 467 649
Other assets 18 59
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$ 24,541 $ 37,207
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,315 $ 2,371
Accrued liabilities 1,677 2,456
Accrued clinical trials and related expenses 1,740 2,176
Accrued compensation 635 658
Deferred revenue 2,086 3,318
Long-term debt, current portion 2,199 2,199
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Total current liabilities 9,652 13,178
Long-term debt, noncurrent portion 1,282 2,382
Deferred rent - 28
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, $0.001 par value; 25,000,000 shares
authorized; 11,520,931 and 11,452,457 shares issued and
outstanding as of June 30, 1999 and December 31, 1998, 12 11
respectively
Additional paid-in capital 85,307 85,073
Deferred compensation (84) (194)
Accumulated deficit (71,628) (63,271)
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Total stockholders' equity 13,607 21,619
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$ 24,541 $ 37,207
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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 Six Months Ended
June 30, June 30,
---------------------------- ------------------------------
1999 1998 1999 1998
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Revenue:
Contract and other revenue $ 401 $ 397 $ 1,002 $ 795
Contract revenue from related parties 1,407 2,184 4,025 5,118
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Total revenue 1,808 2,581 5,027 5,913
Operating expenses:
Research and development 5,835 6,619 11,126 12,684
General and administrative 1,440 1,320 2,761 2,610
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Total operating expenses 7,275 7,939 13,887 15,294
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Loss from operations (5,467) (5,358) (8,860) (9,381)
Interest income, net 218 450 503 934
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Net loss $ (5,249) $ (4,908) $ (8,357) $ (8,447)
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Basic and diluted net loss per share $ (0.46) $ (0.44) $ (0.73) $ (0.76)
---------- ---------- ---------- -----------
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Shares used in computing basic and diluted net loss
per share 11,490 11,283 11,475 11,178
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See accompanying notes.
4
ONYX PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Six Months Ended
June 30,
-------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,357) $ (8,447)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,056 1,019
Forgiveness of notes receivable 48 60
Amortization of deferred compensation 110 110
Changes in assets and liabilities:
Other current assets (130) 264
Other assets 41 (14)
Accounts payable (1,056) (694)
Accrued clinical trials and related expenses (436) 1,201
Accrued liabilities (779) 422
Accrued compensation (23) 88
Deferred revenue (1,232) 291
Deferred rent (28) (41)
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Net cash used in operating activities (10,786) (5,741)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (2,003) (10,289)
Sales and maturities of short-term investments 6,231 14,644
Capital expenditures (726) (451)
Notes receivable from related parties 134 (58)
Proceeds from sale of fixed assets 45 -
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Net cash provided by investing activities 3,681 3,846
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,100) (786)
Net proceeds from issuances of common stock, net of repurchases 235 9,988
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Net cash provided by (used in) financing activities (865) 9,202
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Net increase (decrease) in cash and cash equivalents (7,970) 7,307
Cash and cash equivalents at beginning of period 21,368 18,828
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Cash and cash equivalents at end of period $ 13,398 $ 26,135
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See accompanying notes.
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ONYX PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 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-month and six-month periods ended June 30, 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
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 is engaged in an ongoing collaboration agreement with Bayer
Corporation ("Bayer") in the area of ras oncogenes, in which a lead development
compound has been named. The focus of the collaboration is now on co-development
of a clinical candidate. 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. Effective in June of this year, the three-year BRCA1
research program between the Company and Eli Lilly and Company ("Eli Lilly")
expired, pursuant to the terms of the collaboration agreement.
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 June 30, 1999, the Company's accumulated deficit was $71,628,000.
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.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998.
REVENUES
The Company's revenues decreased 30 percent to $1,808,000 and 15 percent to
$5,027,000 for the three and six months ended June 30, 1999, respectively, as
compared to the same periods in 1998. Revenues for the 1998 periods were
$2,581,000 and $5,913,000 respectively. Revenues for the three and six months
ended June 30, 1999 were primarily attributable to amounts earned for research
performed under the Company's collaborations with Warner-Lambert and Eli Lilly.
The decrease in revenues for the three and six months ended June 30, 1999 as
compared to the same periods 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.
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ONYX PHARMACEUTICALS, INC.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 12 percent to $5,835,000 and 12
percent to $11,126,000 for the three and six months ended June 30, 1999,
respectively, as compared with $6,619,000 and $12,684,000 for the same periods
in 1998. The decrease in expenses for the three and six months ended June 30,
1999 as compared to the same periods in 1998 was primarily due to a reduced
level of research activities associated with the transition of the ras program.
The decrease was also due to the fact that, in the current year, the Company
reduced the number of patients treated in clinical trials of ONYX-015, the lead
product in the p53 program, in order to plan for a potential pivotal trial for
the product. The Company may expand the scope of its research and development
programs in future periods, which may 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 were $1,440,000 and $2,761,000 for the three
and six months ended June 30, 1999, respectively, as compared with $1,320,000
and $2,610,000 for the same periods in 1998. General and administrative expenses
may increase moderately in future periods to support the Company's research and
development efforts.
NET INTEREST INCOME
The Company had net interest income of $218,000 and $503,000 for the three and
six months ended June 30, 1999, respectively, as compared with $450,000 and
$934,000 for the same periods in 1998. 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 $19,962,000
at June 30, 1999, compared with $32,160,000 at December 31, 1998. The decrease
in cash and investments of $12,198,000 at June 30, 1999, compared with December
31, 1998, is principally due to cash used in operations of $10,786,000 as well
as the repayment of debt of $1,100,000. In the short-term, the Company expects
that cash used in operations will continue at approximately the current rate.
Total capital expenditures for equipment and leasehold improvements for the
six-month period ended June 30, 1999 was $726,000. The Company expects to make
expenditures of approximately $650,000 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 through mid-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.
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ONYX PHARMACEUTICALS, INC.
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 30, 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.
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 as well as a Phase I trial in patients with
Barrett's esophageal metaplasia. 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
9
ONYX PHARMACEUTICALS, INC.
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 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 June
30, 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 six months ended June 30, 1999. For further
discussion of the Company's market risk
10
ONYX PHARMACEUTICALS, INC.
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.
11
ONYX PHARMACEUTICALS, INC.
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 27, 1999. The
results of the matters voted upon at the meeting were:
(a) Each of the nominees to the Board of Directors was elected to
serve until the Company's annual meeting of stockholders in 2002.
The nominees were: Samuel D. Colella, 9,637,912 common shares for
and 365,903 withheld; and Hollings C. Renton, 9,640,247 common
shares for and 363,568 withheld.
(b) The stockholders approved the 1996 Equity Incentive Plan, as
amended, to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 300,000 shares:
9,004,505 common shares for, 974,509 against, and 24,801 abstain.
(c) The stockholders ratified the selection of Ernst & Young LLP as
independent auditors of Onyx for the fiscal year ending December
31, 1999: 9,963,448 common shares for, 22,583 against, and 17,784
abstain.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27.1 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
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: August 16, 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: August 16, 1999 By: /s/ Marilyn E. Wortzman
-------------------------------------
Marilyn E. Wortzman
Controller
(Principal Accounting Officer)
13
ONYX PHARMACEUTICALS, INC.
EXHIBIT INDEX
Exhibit Number Description of Exhibits
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27.1 Financial Data Schedule
14