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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K



|  |                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED
    DECEMBER 31, 2004.                                                                          
| 
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
    FROM                                     TO                                     .

Commission File No. 0-28298



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Onyx Pharmaceuticals, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 94-3154463                              
|(State or other jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)

2100 Powell Street

Emeryville, California 94608


(510) 597-6500


(Address, including zip code, and telephone
number,


including area code, of registrants
principal executive offices)


Securities Registered Pursuant to
Section 12(b) of the Act: None

Securities Registered Pursuant to
Section 12(g) of the Act:

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of Each Class           |  | Name of Each Exchange on Which Registered
|                              |  |                                          
|Common Stock $0.001 par value |  | Nasdaq National Market                   



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Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ     No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes þ     No o

The aggregate market value of the voting stock
held by nonaffiliates of the Registrant based upon the last
trade price of the common stock reported on the Nasdaq National
Market on June 30, 2004 was approximately $1,024,551,154.*

The number of shares of common stock outstanding
as of March 8, 2005 was 35,275,388.



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DOCUMENTS INCORPORATED BY REFERENCE

Portions of Onyxs Definitive Proxy
Statement filed with the Commission pursuant to
Regulation 14A in connection with the 2005 Annual Meeting
are incorporated herein by reference into Part III of this
report.



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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excludes 10,690,616 shares of Common Stock
    held by directors, officers and stockholders whose beneficial
    ownership exceeds 5% of the Registrants Common Stock
    outstanding. The number of shares owned by such persons was
    determined based upon information supplied by such persons and
    upon Schedules 13D and 13G, if any, filed with the SEC.
    Exclusion of shares held by any person should not be construed
    to indicate that such person possesses the power, direct or
    indirect, to direct or cause the direction of the management or
    policies of the Registrant, that such person is controlled by or
    under common control with the Registrant, or that such persons
    are affiliates for any other purpose.



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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.      
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Securities Holders                                
|PART II.     
|              | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                 
|              | Item 6. Selected Financial Data                                                              
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|              | Item 8. Financial Statements and Supplementary Data                                          
|              | Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 
|              | Item 9A. Controls and Procedures                                                             
|PART III.    
|              | Item 10. Directors and Executive Officers of the Registrant                                  
|              | Item 11. Executive Compensation                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|              | Item 13. Certain Relationships and Related Transactions                                      
|              | Item 14. Principal Accountant Fees and Services                                              
|PART IV.     
|              | Item 15. Exhibits, Financial Statement Schedules                                             
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 32.1 



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PART I.

This Annual Report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934. These statements
involve known and unknown risks, uncertainties and other factors
that may cause our or our industrys results, levels of
activity, or achievements to differ significantly and materially
from that expressed or implied by such forward-looking
statements. These factors include, among others, those listed
under Additional Business Risks and elsewhere in
this Annual Report.

In some cases, you can identify
forward-looking statements by terminology such as
may, will, should,
intend, expect, plan,
anticipate, believe,
estimate, predict,
potential, or continue, or the negative
of such terms or other comparable terminology.

Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, events, levels of activity,
performance or achievements. We do not assume responsibility for
the accuracy and completeness of the forward-looking statements.
We do not intend to update any of the forward-looking statements
after the date of this Annual Report to conform these statements
to actual results, unless required by law.






|        |         
|------- | --------
|Item 1. | Business

Overview

We are a biopharmaceutical company dedicated to
developing innovative therapies that target the molecular
mechanisms that cause cancer. With our collaborators, we are
developing small molecule, orally available drugs with the goal
of changing the way cancer is treated.TM A
common feature of cancer cells is the excessive activation of
signaling pathways that cause abnormal cell proliferation. In
addition, tumors require oxygen and nutrients from newly formed
blood vessels to support their growth. The formation of these
new blood vessels is a process called angiogenesis. We are
applying our expertise to develop oral anticancer therapies
designed to prevent cancer cell proliferation and angiogenesis
by inhibiting proteins that signal or support tumor growth. By
exploiting the genetic differences between cancer cells and
normal cells, we aim to create novel anticancer agents that
minimize damage to healthy tissue.

Our lead drug candidate, sorafenib (formerly
known as BAY 43-9006), is currently in Phase III clinical
development with our collaborator, Bayer Pharmaceuticals
Corporation. Sorafenib is a novel, orally available signal
transduction inhibitor and is one of a new class of anticancer
treatments that target growth signaling in cancer. Signal
transduction inhibitors are designed to block the transmission
of certain chemical signals implicated in cell division and
other cellular processes. Sorafenib operates through dual
mechanisms of action by inhibiting proliferation of cancer cells
and inhibiting angiogenesis. Several drugs developed and owned
by others, and approved by the U.S. Food and Drug
Administration, or FDA, validate this treatment approach.
However, sorafenib is the first small molecule agent to enter
clinical trials directed against the enzyme RAF kinase to
inhibit tumor cell proliferation. In addition, sorafenib
inhibits VEGFR-2 and PDGFR-ß, two key proteins involved in
angiogenesis, as well as other proteins that may be implicated
in cancer.

We and Bayer are developing and will market
sorafenib under our collaboration agreement. Together with
Bayer, we are conducting multiple clinical trials of sorafenib.
To date, we have treated approximately 2,000 patients. In
October 2003, we announced the initiation of a pivotal
Phase III clinical trial after reaching written agreement
via a Special Protocol Assessment, or SPA, with the FDA, in
patients with advanced renal cell carcinoma, also known as
kidney cancer. In October 2004, we and Bayer announced that we
intend to pursue registration of sorafenib based on pending
results from this Phase III trial and that the data from
our Phase II randomized discontinuation trial, completed in
October 2004, will be used to support the Phase III trial
results. At the same time, we also announced that, subject to
positive trial results and FDA approval, we anticipate a
U.S. product launch for sorafenib in 2006 if the
Phase III analysis of disease progression is positive, and
we are able to file for FDA approval based on these results. We
and Bayer have also announced that we plan to initiate
Phase III clinical trials in two additional tumor
types  malignant melanoma and





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hepatocellular, or liver, cancer in 2005.
Subsequently, in March 2005, the two companies began the liver
cancer study.


We and Bayer are sponsoring multiple
Phase II clinical trials of sorafenib for the treatment of
breast, non-small cell lung and other cancers, as well as ten
Phase Ib trials evaluating its use in combination with
other anticancer agents. Two single-agent Phase II trials
of sorafenib in patients with kidney cancer and in patients with
liver cancer were completed in 2004. To date, we and Bayer have
also reported results from eight studies combining sorafenib
with a range of chemotherapeutic agents. There are also multiple
studies underway being conducted by the Cancer Therapy
Evaluation Program, or CTEP, of the National Cancer Institute,
or NCI.

In a previous collaboration with Warner-Lambert
Company, now a subsidiary of Pfizer Inc, we identified a number
of lead compounds that modulate the activity of key enzymes that
regulate the process whereby a single cell replicates itself and
divides into two identical new cells, a process known as the
cell cycle. Mutations in genes that regulate the cell cycle are
present in a majority of human cancers. Warner-Lambert is
currently advancing a lead candidate from that collaboration, PD
332991, a small molecule cell cycle inhibitor targeting a
cyclin-dependent kinase, or CDK. In September 2004, we announced
that Pfizer initiated Phase I clinical testing of this CDK4
inhibitor.

Our Product Candidates

The trials of our product candidates, sponsored
by either Onyx or our collaborators, are listed below. In
addition as mentioned above, we have a number of studies
underway under the sponsorship of the CTEP of the NCI.

|                |  |                                                           |  |                                      |  |          
|--------------- |  | --------------------------------------------------------- |  | ------------------------------------ |  | ---------
|                |  |                                                           |  |                                      |  | Current  
|Product/Program |  | Technology                                                |  | Indication                           |  | Status   
|                |  |                                                           |  |                                      |  |          
|Sorafenib       |  | Small Molecule Inhibitor of                               |  | Single-agent trial for Kidney cancer |  | Phase III
|                |  | tumor cell proliferation and                              |  |                                      |  |          
|                |  | angiogenesis, targeting RAF                               |  |                                      |  |          
|                |  | kinase, VEGFR-2 and PDGFR-ß                               |  |                                      |  |          
|                |  |                                                           |  | Single-agent trial for Liver cancer  |  | Phase III
|                |  |                                                           |  | Single-agent trials for Kidney and   |  | Phase II 
|                |  |                                                           |  | Liver cancer.                        |  | complete 
|                |  |                                                           |  | Single-agent trials for              |  | Phase II 
|                |  |                                                           |  | Breast, Non-small Cell Lung and      |  |          
|                |  |                                                           |  | other cancers                        |  |          
|                |  |                                                           |  | Combination trials with              |  | Phase Ib 
|                |  |                                                           |  | standard chemotherapies for          |  | Extension
|                |  |                                                           |  | Melanoma, Colorectal, Non-small      |  |          
|                |  |                                                           |  | Cell Lung, and other cancers         |  |          
|                |  |                                                           |  | Additional combination               |  | Phase Ib 
|                |  |                                                           |  | trials with other anticancer agents  |  |          
|PD 332991       |  | Small Molecule Inhibitor of Cyclin-Dependent
    Kinase 4 |  | Multiple cancer types                |  | Phase I  



| |          
| | ---------
| | Sorafenib

Sorafenib operates through dual mechanisms of
action by inhibiting proliferation of cancer cells and
inhibiting angiogenesis.

The RASgene and its related biochemical
pathway, the RAS signaling pathway, play a key role in cell
proliferation. In normal cell proliferation, when the RAS
signaling pathway is activated, or turned on, it
sends a signal telling the cell to grow and divide. When a gene
in the RAS signaling pathway is mutated, the

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signal may not turn off as it should,
causing the cell to continuously reproduce itself. The RAS
signaling pathway plays an integral role in the growth of some
tumor types, and we believe that inhibiting this pathway could
have an effect on tumor growth.


RAF kinase is an enzyme in the pathway that
RASactivates to signal cell growth. Other kinases in
this part of the growth signaling pathway include MEK and ERK.
The RAS pathway is believed to be abnormally activated in many
human cancers by various mechanisms. In approximately
20 percent of human cancers, a RASgene is activated
by mutation. One form of the enzyme RAF, BRAF, is activated by
mutations in two thirds of melanomas and is also involved in
several other cancers. Sorafenib is an orally active agent
designed to block inappropriate growth signaling in cancer by
inhibiting RAF kinase.

Sorafenib also inhibits angiogenesis. VEGFR-2 and
PDGFR-ß are key receptors of Vascular Endothelial Growth
Factor, or VEGF, and Platelet-Derived Growth Factor, or PDGF,
both of which play a role in angiogenesis. Sorafenib inhibits
the signaling activities of these receptors. In addition, the
inhibition of RAF kinase has also been shown to have
antiangiogenic effects. Sorafenib also inhibits other kinases
involved in cancer, such as c-KIT + FLT-3.



| |                
| | ---------------
| | Clinical Trials

Under our collaboration agreement with Bayer, we
are conducting multiple clinical trials of sorafenib. In
addition, we and Bayer are jointly developing and intend to
commercialize sorafenib outside of Japan. In Japan, Bayer is
responsible for funding and conducting all product development
activities and will pay us a royalty on any sales.

Phase III in Kidney
Cancer.In October 2003, we and Bayer
announced the initiation of an international,
placebo-controlled, multicenter Phase III clinical trial to
further evaluate the safety and efficacy of sorafenib in the
treatment of advanced renal cell carcinoma, also referred to as
RCC, or kidney cancer. The objective of the randomized study is
to establish the activity of sorafenib in kidney cancer in a
large Phase III clinical trial with difference in overall
survival as the primary endpoint. The study also will assess
disease progression, overall response rate, safety, quality of
life, and the pharmacokinetics of sorafenib, or how
concentrations of sorafenib in the body change over time. Before
the trial is complete, an analysis of disease progression will
be conducted by an independent data monitoring committee to see
if an accelerated filing on this surrogate endpoint is feasible.
More than 800 people will participate in the Phase III
study at sites worldwide. To be eligible for the study,
individuals with unresectable and/or metastatic disease must
have failed a previous systemic therapy. We and Bayer also
reported in October 2003 that the FDA had completed and agreed
upon an SPA for the pivotal Phase III trial. An SPA is a
written agreement with the FDA on the design and size of
clinical trials intended to form the basis of a New Drug
Application, or NDA. We initiated our Phase III clinical
trial based on interim investigator-reported data from our
Phase II randomized discontinuation trial, which was
completed in October 2004. In March 2005, enrollment in the
Phase III renal trial was concluded.

In April 2004, we and Bayer announced that
sorafenib had been granted Fast Track status for advanced kidney
cancer by the FDA. The Fast Track program is designed to
expedite the review of drug compounds for the treatment of
patients with serious or life-threatening diseases where there
is an unmet medical need for new therapeutic approaches. Having
a Fast Track designation allows a company to file an NDA on a
rolling basis as data becomes available. This permits the FDA to
review the filing as it is received, rather than waiting for the
entire document prior to commencing the review process.

Subsequently, we and Bayer announced that
sorafenib had been granted orphan drug status for the treatment
of renal cell carcinoma, by the Committee for Orphan Medicinal
Products, or COMP, of the European Medicines Agency, or EMEA, in
August 2004, and in October 2004, by the FDA. Orphan Drug
designation provides incentives to companies that develop drugs
for diseases affecting small numbers of patients.

Phase II in Multiple Tumor
Types.We and Bayer initiated two
single-agent Phase II clinical trials of sorafenib in the
third quarter of 2002. Since our preclinical data demonstrated
that sorafenib works primarily

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by preventing tumor growth rather than tumor
shrinkage, a randomized discontinuation study was performed to
test whether sorafenib could cause disease stabilization in
human cancer. The study included patients with advanced solid
tumors of multiple types, including kidney, melanoma, colorectal
and other cancers, such as pancreatic, ovarian, sarcoma and
thyroid. Final summary trial results for participants with
advanced kidney cancer were announced in October 2004.
Additional data from this study will be reported at future
scientific meetings.


Analysis of the Phase II randomized
discontinuation trial of sorafenib administered as a single
agent showed activity in patients with advanced kidney cancer.
Of the 502 patients enrolled in the study, 202 had kidney
cancer. As assessed by investigators, approximately
70 percent or 144 of the 202 study participants with kidney
cancer had either tumor shrinkage of at least 25 percent
(79 patients) or disease stabilization (65 patients)
after 12 weeks of treatment with sorafenib. After this
initial 12-week period, those 79 patients who had at least
25 percent tumor shrinkage remained on sorafenib, while
those 65 participants determined to have stable disease were
randomized to receive, in a blinded fashion, either placebo or
sorafenib. After a second 12-week treatment period, the blind
was broken on the randomized group of 65 patients. The
study achieved its primary endpoint, as there was a
statistically significantly higher percentage of participants
whose disease did not progress in the sorafenib group as
compared to those who were randomly assigned to receive placebo.
This finding suggests that tumor stabilization was due to
sorafenib treatment. In addition, all 202 kidney cancer patients
were assessed for time-to-tumor progression, which was shown to
be approximately five months for the entire group, including the
placebo patients. Time-to-disease progression of approximately
two to three months has been reported for control groups in
other studies with similar patient populations. As noted
previously, a delay in disease progression for those advanced
renal cancer patients receiving sorafenib will be the basis for
one of the formal analyses in our ongoing Phase III study.

Almost all the patients with kidney cancer in the
Phase II trial had failed at least one prior systemic
treatment and had progressive disease on study entry. The most
commonly reported drug-related adverse events in the kidney
cancer population included skin reactions such as hand-foot
syndrome and rash, diarrhea, fatigue, weight loss and
hypertension, which were shown to be manageable and reversible.

A second Phase II clinical trial included
only patients with liver cancer. This trial is now completed
and, in September 2004, the data were presented at the 16th
American Association for Cancer Research-National Cancer
Institute-European Organization for Research and Treatment of
Cancer, or AACR-NCI-EORTC, meeting in Geneva, Switzerland. Of
137 patients enrolled in the study, investigators reported
seven patients with partial responses (tumor shrinkage of
50 percent or greater), five with minor responses (tumor
shrinkage of 25 to 50 percent) and 59 with stable disease
for at least four months as their best response. Median overall
survival for all patients was 9.2 months and median
time-to-tumor progression was 4.2 months. In the study,
safety data generated showed that sorafenib was well tolerated,
and side effects were predictable and manageable. The most
common grade 3/4 drug-related toxicities, all less than ten
percent, were fatigue, diarrhea and hand-foot skin reaction.

Bayer and Onyx began a single-agent
Phase III study in patients with advanced liver cancer in
March 2005. In addition, the two companies plan to conduct a
Phase II trial evaluating sorafenib in this disease in
combination with doxorubicin, a chemotherapy agent sometimes
used to treat liver cancer.

Phase Ib in Combination with
Chemotherapies in Multiple Tumor
Types.Together with Bayer, we are
conducting multiple Phase Ib clinical trials evaluating
sorafenib in combination with a range of standard
chemotherapies. To date, we have reported results from eight of
these trials, specifically for the use of sorafenib in
combination with paclitaxel/carboplatin, gemcitabine,
oxaliplatin, doxorubicin, irinotecan, 5- FU/leucovorin,
capecitabine and taxotere. Additional combination trials are
planned and decisions about future randomized Phase II
trials are pending.

Data from one of these Phase Ib combination
trials, evaluating sorafenib administered in combination with
paclitaxel and carboplatin to melanoma patients, were updated in
September 2004. At that time, the investigator reported on the
first 54 melanoma patients enrolled in the trial. Of these
patients, 31 had received prior treatment and 37 had advanced
metastatic disease, meaning that their cancer had spread to
their internal organs, such as the liver, bladder or intestines.
Partial responses were observed in 20 patients and disease

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stabilization was reported in 26 patients.
Partial responses in this trial were measured by the
investigator using Response Evaluation Criteria in Solid Tumors,
or RECIST criteria, and are defined as tumor shrinkages of
30 percent or greater as measured as the sum of the longest
tumor diameters. At the time of the report, ten of the partial
responses were ongoing, with responding patients time on
drug ranging from six to 22 months. Sorafenib was well
tolerated when combined with full dose paclitaxel and
carboplatin. In addition to side effects normally expected with
paclitaxel and carboplatin, toxicities believed to be
attributable to sorafenib, including skin rash and hand-foot
syndrome, resolved themselves when treatment was halted or
sorafenib dosages were reduced. Additional melanoma patients
have been enrolled in the study. As this investigator-initiated
analysis was not reviewed by the sponsors, the results are
subject to change until the database is finalized. Since only a
limited number of studies have been conducted using paclitaxel
and/or carboplatin in melanoma patients, and at doses and
administration regimes different from ours, a randomized study
is needed to assess the efficacy of the combination with
sorafenib. Based on the Phase Ib results reported to date,
Bayer and Onyx intend to begin a Phase III program in 2005
evaluating this combination in patients with metastatic melanoma.


Phase I.We
have reported on 182 patients with advanced cancers treated
in Phase I clinical trials conducted in Germany, Belgium,
Canada and the United States. We presented the data from these
trials at several scientific meetings, including final data at
the 2003 annual meeting of the American Society of Clinical
Oncology, or ASCO.

The objective of the Phase I studies was to
test sorafenib for safety, pharmacokinetics and
pharmacodynamics, which is how the compound acts on the body
over a period of time when administered orally at various doses
and schedules.

Treated patients had advanced cancers including
colorectal, liver, kidney, breast, lung, ovarian and other
cancers. At the recommended Phase II dose of 400 mg
twice daily, toxicities were generally mild to moderate, and
included skin reactions, anorexia, fatigue and diarrhea.
Patients enrolled in these trials achieved serum levels of
sorafenib equivalent to the levels at which antitumor activity
was seen in preclinical studies.

In June 2003, we reported that in an analysis of
118 patients with advanced malignancies who received
sorafenib in initial doses of 200 mg or more twice daily,
29 patients, or 25 percent, remained on sorafenib for
more than six months, and nine of these patients remained in
treatment for more than one year. In addition, we reported early
signs of antitumor activity, including partial responses in one
liver cancer patient and one kidney cancer patient. Most of the
dose-limiting toxicities were seen at dose levels of 600 mg
twice daily or greater and included diarrhea and skin toxicity,
including hand-foot syndrome. Based on these results, we
selected a dose of 400 mg twice daily to use in our
Phase II clinical trials. After additional experience
treating several hundred patients at this dose in the
Phase II program, the same dose is now being used in the
Phase III clinical trial.



| |                   
| | ------------------
| | Cell Cycle Program

In collaboration with Warner-Lambert, we
identified a number of lead compounds that modulate the activity
of key enzymes that regulate the process whereby a single cell
replicates itself and divides into two identical new cells, a
process known as the cell cycle. Mutations in genes that
regulate the cell cycle are present in a majority of human
cancers. Our small molecule discovery collaboration with
Warner-Lambert ended in August 2001. However, Warner-Lambert,
now a subsidiary of Pfizer, is currently advancing a lead
candidate from that collaboration, PD 332991, a small molecule
cell cycle inhibitor targeting cyclin-dependent kinase 4. Pfizer
entered Phase I clinical testing with this candidate in
2004.



| |               
| | --------------
| | Virus Platform

Prior to June 2003, in addition to our small
molecule program, we were developing therapeutic viruses that
selectively replicate in cells with cancer-causing genetic
mutations. In June 2003, we announced that we were discontinuing
this program as part of a business realignment that placed an
increased priority on the development of sorafenib. Effective
January 2005, Onyx licensed exclusive rights to our
p53-selective virus, ONYX-015, to Shanghai Sunway Biotech Co.
Ltd. headquartered in Shanghai, Peoples Republic of China.

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Under this agreement, Shanghai Sunway is
responsible for the research, development, manufacture and
commercialization of ONYX-015 worldwide. Onyx received an
upfront payment of $1 million and will receive additional
milestone payments on achievement of clinical, regulatory and
commercial events. The company will also receive royalties on
net sales of ONYX-015.


Collaborations



| |      
| | -----
| | Bayer

Effective February 1994, we established a
research and development collaboration agreement with Bayer to
discover, develop and market compounds that inhibit the
function, or modulate the activity, of the RAS signaling pathway
to treat cancer and other diseases. Together with Bayer, we
concluded collaborative research under this agreement in 1999,
and based on this research, a product development candidate,
sorafenib, was identified.

Bayer paid all the costs of research and
preclinical development of sorafenib until the Investigational
New Drug application, or IND, was filed in May 2000. Under our
agreement with Bayer, we are currently funding 50 percent
of mutually agreed development costs worldwide, excluding Japan.
Bayer is funding 100 percent of development costs in Japan
and will pay us a royalty on any sales in Japan. We currently
intend to copromote in the United States and, if we continue to
cofund development and copromote in the United States, we will
share equally in profits or losses, if any, in the United
States. If we continue to cofund but do not copromote in the
United States, Bayer would first receive a portion of the
product revenues to repay Bayer for its commercialization
infrastructure, before determining our share of profits and
losses. As we do not have the right to copromote sorafenib
outside the United States, Bayer would also receive this
preferential distribution in all other parts of the world,
except Japan where we would receive a royalty on any sales.

Our agreement with Bayer calls for creditable
milestone-based payments. These amounts are interest-free and
will be repayable to Bayer from a portion of any of our future
profits and royalties. We received $5.0 million in the
third quarter of 2002 upon initiation of Phase II clinical
studies and $15.0 million in the fourth quarter of 2003
based upon the initiation of a Phase III study. In
addition, Bayer will advance Onyx $10.0 million when an NDA
is filed and a further $10.0 million following the approval
of sorafenib in any one of the following countries: the United
States, France, Germany, Italy, Spain or the United Kingdom. At
any time during product development, either company may
terminate its participation in development costs, in which case
the terminating party would retain rights to the product on a
royalty-bearing basis. If we do not continue to bear
50 percent of product development costs, Bayer would retain
exclusive, worldwide rights to this product candidate and would
pay royalties to us based on net sales.



| |                           
| | --------------------------
| | Warner-Lambert: Cell Cycle

In May 1995, we entered into a research and
development collaboration agreement with Warner-Lambert, now a
subsidiary of Pfizer, to discover and commercialize small
molecule drugs that restore control of, or otherwise intervene
in, the misregulated cell cycle in tumor cells. Under this
agreement, we developed screening tests, or assays, for jointly
selected targets, and transferred these assays to Warner-Lambert
for screening of their compound library to identify active
compounds. The discovery research term under the agreement ended
in August 2001. Warner-Lambert is responsible for subsequent
medicinal chemistry and preclinical investigations on the active
compounds. In addition, Warner-Lambert is obligated to conduct
and fund all clinical development, make regulatory filings and
manufacture for sale any approved collaboration compounds. We
will receive milestone payments on clinical development and
registration of any resulting products and would receive
royalties on worldwide sales of the products. Warner-Lambert has
identified a small molecule lead compound, PD 332991, an
inhibitor of cyclin-dependent kinase 4, and began clinical
testing with this drug candidate in 2004.

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Research and Development

The majority of our operating expenses to date
have been related to research and development, or R&D. In
2004, R&D expenses consisted of costs associated with
collaborative R&D as Onyx does not have internal research
capabilities and has only a limited development staff. We
anticipate that a majority of our operating expenses will
continue to be related to R&D in 2005, specifically the
clinical development of sorafenib.

Marketing and Sales

We currently have no significant marketing,
sales, or distribution capabilities, but we plan to build these
capabilities in the United States. Since our first product
candidate, sorafenib, is currently in the latter stages of
product development, and because we have retained
U.S. copromotion rights, Onyx has started creating a
U.S.-based sales and marketing organization in preparation for
the potential approval and launch of this compound.

Manufacturing

At this time, we do not have any internal
manufacturing capability for any of our product candidates, and
we rely on others to provide manufacturing services. To
manufacture our product candidates for clinical trials or on a
commercial scale, if we are required to or choose to do so, we
would have to build or gain access to a manufacturing facility,
which will require significant funds.

Under our collaboration agreement with Bayer,
Bayer has the manufacturing responsibility to supply sorafenib
for clinical trials and to support any commercial requirements.
To date, Bayer has manufactured sufficient drug supply to
support the current needs of clinical trials in progress. We
believe that Bayer has the capability to meet all future drug
supply needs and meet the FDA and other regulatory agency
requirements for commercialization. However, Bayer may, for
reasons beyond our control, become unable or unwilling to
provide sufficient future drug supply or to meet these
regulatory requirements. If this were to happen, we would be
forced to incur additional expenses to pay for the manufacture
of sorafenib or to develop our own manufacturing capabilities.
Under our collaboration agreement with Warner-Lambert,
Warner-Lambert is obligated to manufacture all small molecule
drugs for clinical development and commercialization.

Patents and Proprietary Rights

We believe that patent and trade secret
protection is crucial to our business and that our future will
depend in part on our ability to obtain patents, maintain trade
secret protection and operate without infringing the proprietary
rights of others, both in the United States and other countries.
The patent applications covering sorafenib are owned by Bayer,
but licensed to us in conjunction with our collaboration
agreement with Bayer. At present, it is anticipated that, if
issued, the United States patent related to sorafenib will
expire in 2022, subject to possible patent-term extension, the
entitlement to which and the term of which cannot be presently
calculated. Patent applications for sorafenib are also pending
throughout the world. As of December 31, 2004, we owned or
had licensed rights to 51 United States patents and 34 United
States patent applications, and generally, foreign counterparts
of these filings. Most of these patents or patent applications
cover protein targets used to identify product candidates during
the research phase of our collaborative agreements with
Warner-Lambert or Bayer, or aspects of our now discontinued
therapeutic virus program.

Generally, patent applications in the United
States are maintained in secrecy for a period of 18 months
or more. Since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, we are
not certain that we were the first to make the inventions
covered by each of our pending patent applications or that we
were the first to file those patent applications. The patent
positions of biotechnology and pharmaceutical companies are
highly uncertain and involve complex legal and factual
questions. Therefore, we cannot predict the breadth of claims
allowed in biotechnology and pharmaceutical patents, or their
enforceability. To date, there has been no consistent policy
regarding the breadth of claims allowed in biotechnology
patents. Third parties or competitors may challenge or
circumvent our patents or patent applications, if issued.
Because of the extensive time required for development, testing
and regulatory review of a potential product, it is possible
that before we commercialize any of our products, any related
patent may

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expire, or remain in existence for only a short
period following commercialization, thus reducing any advantage
of the patent.


If patents are issued to others containing
preclusive or conflicting claims and these claims are ultimately
determined to be valid, we may be required to obtain licenses to
these patents or to develop or obtain alternative technology.
Our breach of an existing license or failure to obtain a license
to technology required to commercialize our products may
seriously harm our business. We also may need to commence
litigation to enforce any patents issued to us or to determine
the scope and validity of third-party proprietary rights.
Litigation would create substantial costs. If our competitors
prepare and file patent applications in the United States that
claim technology also claimed by us, we may have to participate
in interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which
could result in substantial cost, even if the eventual outcome
is favorable to us. An adverse outcome in litigation could
subject us to significant liabilities to third parties and
require us to seek licenses of the disputed rights from third
parties or to cease using the technology if such licenses are
unavailable.

Together with our licensors, we also rely on
trade secrets to protect our combined technology especially
where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are difficult to protect. We
protect our proprietary technology and processes, in part, by
confidentiality agreements with our employees, consultants and
collaborators. These parties may breach these agreements, and we
may not have adequate remedies for any breach. Our trade secrets
may otherwise become known or be independently discovered by
competitors. To the extent that we or our consultants or
collaborators use intellectual property owned by others in their
work for us, we may have disputes with them or other third
parties as to the rights in related or resulting know-how and
inventions.

Government Regulation

Regulation by government authorities in the
United States and other countries will be a significant factor
in the manufacturing and marketing of any products that may be
discovered or developed by us, or that may arise out of our
research. We must obtain the requisite regulatory approvals by
government agencies prior to commercialization of any product.
We anticipate that any product candidate will be subject to
rigorous preclinical and clinical testing and premarket approval
procedures by the FDA and similar health authorities in foreign
countries. Various federal statutes and regulations also govern
or influence the manufacturing, testing, labeling, storage,
record-keeping, marketing and promotion of products and product
candidates.

The steps ordinarily required before a drug or
biological product may be marketed in the United States include:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | preclinical studies;                                                                                                     
|
| |  | the submission to the FDA of an IND that must
    become effective before human clinical trials may commence;            
|
| |  | adequate and well-controlled human clinical
    trials to establish the safety and efficacy of the product
    candidate;
|
| |  | the submission of an NDA, to the FDA; and                                                                                
|
| |  | FDA approval of the NDA, including inspection and
    approval of the product manufacturing facility.                    

Preclinical trials involve laboratory evaluation
of product candidate chemistry, formulation and stability, as
well as animal studies to assess the potential safety and
efficacy of each product candidate. Preclinical safety trials
must be conducted by laboratories that comply with FDA
regulations regarding Good Laboratory Practice. The results of
the preclinical trials are submitted to the FDA as part of an
IND and are reviewed by the FDA before the commencement of
clinical trials. Unless the FDA objects to an IND, the IND will
become effective 30 days following its receipt by the FDA.
Submission of an IND may not result in FDA clearance to commence
clinical trials, and the FDAs failure to object to an IND
does not guarantee FDA approval of a marketing application.

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Clinical trials involve the administration of the
product candidate to humans under the supervision of a qualified
principal investigator. In the United States, clinical trials
must be conducted in accordance with Good Clinical Practices
under protocols submitted to the FDA as part of the IND. In
addition, each clinical trial must be approved and conducted
under the auspices of an Institutional Review Board, or IRB, and
with the patients informed consent. The IRB will consider,
among other things, ethical factors, the safety of human
subjects and the possible liability of the institution
conducting the clinical trial. The United Kingdom and many other
European and Asian countries have similar regulations.

The goal of Phase I clinical trials is to
establish initial data about safety and tolerability of the
product candidate in humans. The goal of Phase II clinical
trials is to provide evidence about the desired therapeutic
efficacy of the product candidate in limited studies with small
numbers of carefully selected subjects. The investigators seek
to evaluate the effects of various dosages and to establish an
optimal dosage level and dosage schedule. Investigators also
gather additional safety data from these studies. Phase III
clinical trials consist of expanded, large-scale, multicenter
studies in the target patient population. This phase further
tests the products effectiveness, monitors side effects,
and, in some cases, compares the products effects to a
standard treatment, if one is already available.

We would need to submit all data obtained from
this comprehensive development program as an NDA to the FDA, and
to the corresponding agencies in other countries for review and
approval, before marketing product candidates. These regulations
define not only the form and content of the development of
safety and efficacy data regarding the proposed product, but
also impose specific requirements regarding:



| |   |                            
| | - | ---------------------------
| |  | manufacture of the product;
|
| |  | testing;                   
|
| |  | quality assurance;         
|
| |  | packaging;                 
|
| |  | storage;                   
|
| |  | documentation;             
|
| |  | record-keeping;            
|
| |  | labeling;                  
|
| |  | advertising; and           
|
| |  | marketing procedures.      

The process of obtaining FDA approval can be
costly, time consuming and subject to unanticipated delays. The
FDA may refuse to approve an application if it believes that
applicable regulatory criteria are not satisfied. The FDA may
also require additional testing for safety and efficacy of the
product candidate. In some instances, regulatory approval may be
granted with the condition that confirmatory Phase IV
clinical trials are carried out. If these Phase IV clinical
trials do not confirm the results of previous studies,
regulatory approval for marketing may be withdrawn. Moreover, if
regulatory approval of a product is granted, the approval will
be limited to specific indications. Approvals of our proposed
products, processes, or facilities may not be granted on a
timely basis, if at all. Any failure to obtain, or delay in
obtaining, such approvals would seriously harm our business,
financial condition and results of operations. Facilities used
to manufacture drugs are subject to periodic inspection by the
FDA and other authorities where applicable, and must comply with
the FDAs current Good Manufacturing Practice, or cGMP,
regulations. Failure to comply with the statutory and regulatory
requirements subjects the manufacturer to possible legal action,
such as suspension of manufacturing, seizure of product or
voluntary recall of a product. Adverse experiences with the
product must be reported to the FDA and could result in the
imposition of market restrictions through labeling changes or in
product removal. Product approvals may be withdrawn if
compliance with regulatory requirements is not

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maintained or if problems concerning safety or
efficacy of the product occur following approval. Failure to
comply with FDA and other applicable regulatory requirements may
result in, among other things:




| |   |                                                    
| | - | ---------------------------------------------------
| |  | warning letters;                                   
|
| |  | civil penalties;                                   
|
| |  | criminal prosecution;                              
|
| |  | injunctions;                                       
|
| |  | seizure or recall of products;                     
|
| |  | total or partial suspension of production;         
|
| |  | refusal of the government to grant
    approval; or
|
| |  | withdrawal of approval of products.                

Whether or not we obtain FDA approval, approval
of a product candidate by comparable regulatory authorities will
be necessary in foreign countries prior to the commencement of
marketing of the product candidate in these countries. The
approval procedure varies among countries and can involve
additional testing. The time required to obtain approval may
differ from that required for FDA approval. Although there is
now a centralized European Union approval mechanism in place,
each European country may nonetheless impose its own procedures
and requirements, many of which are time consuming and
expensive. Thus, there can be substantial delays in obtaining
required approvals from both the FDA and foreign regulatory
authorities after the relevant applications are filed. We expect
to rely on our collaborators and licensees, along with our own
expertise, to obtain governmental approval in foreign countries
of product candidates discovered by us or arising from our
programs.

Competition

We are engaged in a rapidly changing and highly
competitive field. We are seeking to develop and market product
candidates that will compete with other products and therapies
that currently exist or are being developed. Many other
companies are actively seeking to develop products that have
disease targets similar to those we are pursuing. Some of these
competitive product candidates are in clinical trials, and
others are approved. Competitors that target the same tumor
types as our sorafenib program and that have commercial products
or product candidates in clinical development, include Pfizer,
Novartis, AstraZeneca PLC, OSI Pharmaceuticals, Inc., Genentech,
Inc. and Abgenix, Inc., among others. Pfizer, Novartis and
others have small molecule compounds targeting VEGF receptor
tyrosine kinases and other enzymes in clinical development for
advanced kidney cancer. In February 2005, Pfizer reported that
its Phase III trial of the investigational agent SU11248 in
patients with gastrointestinal stromal tumors, or GIST, who had
grown resistant to the drug Gleevec, was stopped ahead of
schedule because an independent monitoring committee found
SU11248 to be safe and effective. At the same time, Pfizer
announced that it will seek formal approval for the drug from
federal regulators sometime this year. SU11248 is also being
tested in other tumor types, including kidney cancer. In
addition, potential competition may come from agents that target
Epidermal Growth Factor, or EGF, receptors and Vascular
Endothelial Growth Factor, or VEGF, receptors. These agents
include antibodies and small molecules. We believe that several
companies also have small molecule compounds in clinical and
preclinical development that target MEK, an enzyme that is also
involved in the RAS signaling pathway. In addition, many other
pharmaceutical companies are developing novel cancer therapies
that, if successful, would also provide competition for or be
used in combination with sorafenib. We believe that other
companies also have kinase inhibitors in preclinical and
clinical development that could be potential competitors.

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Partial List of Potentially Competing
Agents

|         |  |         |             |        |  |        |                  |  |  |  |                  | 
|-------- |  | ------- | ----------- | ------ |  | ------ | ---------------- |  |  |  | ---------------- | 
|Product  |  | Company |             | Target |  | Status
|         |  |         |             |        |  |       
|SU11248  |  |         | Pfizer      |        |  |        | Multiple kinases |  |  |  | Clinical testing | 
|PTK787   |  |         | Novartis    |        |  |        | Multiple kinases |  |  |  | Clinical testing | 
|CCI 779  |  |         | Wyeth       |        |  |        | mTOR inhibitor   |  |  |  | Clinical testing | 
|AG-13736 |  |         | Pfizer      |        |  |        | Multiple kinases |  |  |  | Clinical testing | 
|ABX-EGF  |  |         | Abgenix     |        |  |        | EGF              |  |  |  | Clinical testing | 
|Avastin  |  |         | Genentech   |        |  |        | VEGF             |  |  |  | Marketed         | 
|Erbitux  |  |         | Imclone     |        |  |        | EGF              |  |  |  | Marketed         | 
|Iressa   |  |         | AstraZeneca |        |  |        | EGF              |  |  |  | Marketed         | 
|Tarceva  |  |         | OSI         |        |  |        | EGF              |  |  |  | Marketed         | 

We compete with alternative therapies based on a
variety of factors, including:



| |   |                                              
| | - | ---------------------------------------------
| |  | product efficacy and safety;                 
|
| |  | availability of patients for clinical trials;
|
| |  | the timing and scope of regulatory approvals;
|
| |  | availability of supply;                      
|
| |  | marketing and sales capability;              
|
| |  | reimbursement coverage;                      
|
| |  | price; and                                   
|
| |  | patent position.                             

Employees

As of December 31, 2004, we had
30 full-time employees of whom five hold Ph.D. or M.D.
degrees. Of our employees, seven are in research and
development, four are in sales and marketing and 19 are in
corporate development, finance and administration. No employee
of ours is represented by a labor union.

Available Information

We were incorporated in California in February
1992 and reincorporated in Delaware in May 1996.

We file electronically with the Securities and
Exchange Commission, or SEC, our annual reports on
Form 10-K, quarterly interim reports on Form 10-Q,
current reports on Form 8-K, and amendments to those
reports pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934. We maintain a site on the
worldwide web at www.onyx-pharm.com; however, information found
on our website is not incorporated by reference into this
report. We make available free of charge on or through our
website our SEC filings, including our annual report on
Form 10-K, quarterly interim reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC. Further, a copy of this Annual Report on Form 10-K is
located at the Securities and Exchange Commissions Public
Reference Room at 450 Fifth Street, N.W., Washington, D. C.
20549. Information on the operation of the Public Reference Room
can be obtained by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange
Commission maintains a website that contains reports, proxy and
information statements and other information regarding our
filings at http://www.sec.gov.

In 2003, we adopted a code of ethics that applies
to our principal officers, directors and employees. We have
posted the text of our code of ethics on our website at
www.onyx-pharm.com in connection with Investors
materials. In addition, we intend to promptly disclose
(1) the nature of any amendment to our

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code of ethics that applies to our principal
executive officer, principal financial officer, principal
accounting officer, or persons performing similar functions and
(2) the nature of any waiver, including an implicit waiver,
from a provision of our code of ethics that is granted to one of
these specified officers, the name of such person who is granted
the waiver and the date of the waiver on our website in the
future.







|        |           
|------- | ----------
|Item 2. | Properties

We occupy 23,000 square feet of office space
in our primary facility in Emeryville, California, which we
began occupying in December 2004. The lease expires in February
2010 with an option to extend the lease for an additional three
years. Previously we occupied approximately 50,000 square
feet of office and laboratory space in Richmond, California. The
lease for that facility expires in April 2005.

We also lease an additional 9,000 square
feet of space in a secondary facility in Richmond, California.
The lease for this facility expires in September 2010 with
renewal options at the end of the lease for two subsequent
five-year terms. We are currently subleasing this facility.
Please refer to Note 6 of the accompanying financial
statements for further information regarding our lease
obligations.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are not a party to any material legal
proceedings.






|        |                                                          
|------- | ---------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of
    Securities Holders

No matters were submitted to a vote of the
Companys stockholders during the quarter ended
December 31, 2004.

ADDITIONAL BUSINESS RISKS

In addition to the risks discussed in
Business and Managements Discussion and
Analysis of Financial Condition and Results of Operations,
our business is subject to the risks set forth below.



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sorafenib (formerly known as BAY 43-9006)
    is our only product candidate currently in Phase II and
    Phase III clinical development, and our ability to discover
    and promote additional candidates to clinical development is
    constrained. If sorafenib is not successfully commercialized, we
    may be unable to identify and promote alternative product
    candidates and our business would fail.

Sorafenib is our only product candidate in
Phase II and Phase III clinical development. In June
2003, following an unsuccessful search for new collaboration
partners for our therapeutic virus product candidates, including
ONYX-015 and ONYX-411, we announced that we were discontinuing
the development of all therapeutic virus product candidates,
eliminating all employee positions related to these candidates
and terminating all related research and manufacturing
capabilities. As a result, we do not have internal research and
preclinical development capabilities. Our remaining scientific
and administrative employees are dedicated to managing our
relationship with Bayer, and the development of sorafenib, but
are not actively discovering or developing new product
candidates. As a result of the termination of our therapeutic
virus program and drug discovery programs, we do not have a
clinical development pipeline beyond sorafenib. If sorafenib is
not successful in clinical trials, does not receive marketing
approval or is not successfully commercialized, we may be unable
to identify and promote alternative product candidates to
clinical development, which would cause our business to fail.



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our clinical trials fail to demonstrate
    the safety and effectiveness of sorafenib, we will be unable to
    commercialize sorafenib, and our business may
    fail.

In collaboration with Bayer, we are conducting
multiple clinical trials of sorafenib. We have completed
Phase I single-agent clinical trials of sorafenib. We are
currently conducting a number of Phase Ib clinical trials
of sorafenib in combination with standard chemotherapeutic
agents. Phase I trials are not designed to test the
efficacy of a drug candidate but rather to test safety; to study
pharmacokinetics, or how drug

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concentrations in the body change over time; to
study pharmacodynamics, or how the drug candidate acts on the
body over a period of time; and to understand the drug
candidates side effects at various doses and schedules.


With Bayer, we have completed Phase II
clinical trials of sorafenib in kidney and liver cancer and are
currently conducting Phase II clinical trials in breast,
non-small cell lung and other cancers. Phase II trials are
designed to explore the efficacy of a product candidate in
several different types of cancers and are normally randomized
and double-blinded to ensure that the results are due to the
effects of the drug. We and Bayer have initiated a
Phase III clinical trial to treat patients with advanced
kidney cancer without conventional randomized Phase II
clinical trial data. In October 2004, we and Bayer announced
that we will pursue registration utilizing results from this
Phase III trial if the Phase III analysis of disease
progression is positive and suitable for accelerated filing and
FDA approval. If this happens, we would anticipate a United
States launch as early as 2006. However, we may not be able to
make an accelerated filing, or if we do make an accelerated
filing, but do not receive FDA approval, we will not be able to
forecast the timing of a commercial launch.

We believe that any clinical trial designed to
test the efficacy of sorafenib, whether Phase II or
Phase III, will involve a large number of patients to
achieve statistical significance and will be expensive. We may
conduct a lengthy and expensive clinical trial of sorafenib only
to learn that this drug candidate is not an effective treatment.
Historically, many companies have failed to demonstrate the
effectiveness of pharmaceutical product candidates in
Phase III clinical trials notwithstanding favorable results
in Phase I or Phase II clinical trials. In addition,
we may observe previously unforeseen adverse side effects.

If efficacy of sorafenib is not demonstrated, or
if previously unforeseen and unacceptable side effects are
observed, we may not proceed with further clinical trials of
sorafenib. If we do not proceed with additional clinical trials
of sorafenib, we cannot seek regulatory approval of sorafenib
with the FDA, which may cause our business to fail.

In our clinical trials, we treat patients who
have failed conventional treatments and who are in advanced
stages of cancer. During the course of treatment, these patients
may die or suffer adverse medical effects for reasons unrelated
to sorafenib. These adverse effects may impact the
interpretation of clinical trial results, which could lead to an
erroneous conclusion regarding the toxicity or efficacy of
sorafenib.



| |                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent upon our collaborative
    relationship with Bayer to develop, manufacture and
    commercialize sorafenib and to obtain regulatory approval. There
    may be circumstances that delay or prevent the development and
    commercialization of sorafenib.

Our strategy for developing, manufacturing and
commercializing sorafenib and obtaining regulatory approval
depends in large part upon our relationship with Bayer. If we
are unable to maintain our collaborative relationship with
Bayer, we would need to undertake development, manufacturing and
marketing activities at our own expense, which would
significantly increase our capital requirements and limit the
indications we are able to pursue and could prevent us from
commercializing sorafenib.

Under the terms of the collaboration agreement,
we and Bayer are conducting multiple clinical trials of
sorafenib. We and Bayer must agree on the development plan for
sorafenib. If we and Bayer cannot agree, clinical trial progress
could be significantly delayed or halted.

Under our agreement with Bayer, we have the
opportunity to fund 50 percent of clinical development
costs worldwide except in Japan, where Bayer will fund
100 percent of development costs and pay us a royalty on
net sales. We are currently funding 50 percent of
development costs for sorafenib, and depend on Bayer to fund the
balance of these costs. Our collaboration agreement with Bayer
does not, however, create an obligation for either us or Bayer
to fund the development of sorafenib, or any other product
candidate. If a party declines to fund development or ceases to
fund development of a product candidate under the collaboration
agreement, then that party will be entitled to receive a royalty
on any product that is ultimately commercialized, but not to
share in profits. Bayer could, upon 60 days notice, elect
at any time to terminate its

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cofunding of the development of sorafenib. If
Bayer terminates its cofunding of sorafenib development, we may
be unable to fund the development costs on our own and may be
unable to find a new collaborator.


Bayer has been the sponsor for all regulatory
filings with the FDA. As a result, we have been dependent on
Bayers experience in filing and pursuing applications
necessary to gain regulatory approvals. Bayer has limited
experience in developing drugs for the treatment of cancer.

Our collaboration agreement with Bayer calls for
Bayer to advance us creditable milestone-based payments. To
date, Bayer has advanced us $20 million for achievement of
specific milestones. Any funds advanced under the agreement are
repayable out of a portion of our future profits and royalties,
if any, from any of our products.

Our collaboration agreement with Bayer terminates
when patents expire that were issued in connection with product
candidates discovered under that agreement, or upon the time
when neither we nor Bayer are entitled to profit sharing under
that agreement, whichever is later. Bayer holds the global
patent applications related to sorafenib. At present, it is
anticipated that, if issued, the United States patent related to
sorafenib will expire in 2022, subject to possible patent-term
extension, the entitlement to which and the term of which cannot
presently be calculated.

We are subject to a number of additional risks
associated with our dependence on our collaborative relationship
with Bayer, including:



| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | the amount and timing of expenditure of resources
    can vary because of decisions by Bayer;                                     
|
| |  | possible disagreements as to development plans,
    including clinical trials or regulatory approval strategy;                    
|
| |  | the right of Bayer to terminate its collaboration
    agreement with us on limited notice and for reasons outside our
    control;
|
| |  | loss of significant rights if we fail to meet our
    obligations under the collaboration agreement;                              
|
| |  | withdrawal of support by Bayer following the
    development or acquisition by it of competing products; and                      
|
| |  | possible disagreements with Bayer regarding the
    collaboration agreement or ownership of proprietary rights.                   

Due to these factors and other possible
disagreements with Bayer, we may be delayed or prevented from
developing or commercializing sorafenib, or we may become
involved in litigation or arbitration, which would be time
consuming and expensive.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | If Bayers business strategy changes,
    it may adversely affect our collaborative
    relationship.

Bayer may change its business strategy. A change
in Bayers business strategy may adversely affect
activities under its collaboration agreement with us, which
could cause significant delays and funding shortfalls impacting
the activities under the collaboration and seriously harming our
business.



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Provisions in our collaboration agreement
    with Bayer may prevent or delay a change in
    control.

Our collaboration agreement with Bayer provides
that, if Onyx is acquired by another entity by reason of merger,
consolidation or sale of all or substantially all of our assets,
and Bayer does not consent to the transaction, then for
60 days following the transaction, Bayer may elect to
terminate Onyxs codevelopment and copromotion rights under
the collaboration agreement. If Bayer were to exercise this
right, Bayer would gain exclusive development and marketing
rights to the product candidates being developed under the
collaboration agreement, including sorafenib. If this happened,
Onyx, or the successor to Onyx, would receive a royalty based on
any sales of sorafenib and other collaboration products, rather
than a share of any profits. In this case, Onyx or its successor
would be permitted to continue cofunding development, and the
royalty rate would be adjusted to reflect this continued
risk-sharing by Onyx or its successor. These provisions of our

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collaboration agreement with Bayer may have the
effect of delaying or preventing a change in control, or a sale
of all or substantially all of our assets, or may reduce the
number of companies interested in acquiring Onyx.




| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Our clinical trials could take longer to
    complete than we project or may not be completed at
    all.

Although for planning purposes we project the
commencement, continuation and completion of clinical trials for
sorafenib, the actual timing of these events may be subject to
significant delays relating to various causes, including actions
by Bayer, scheduling conflicts with participating clinicians and
clinical institutions, difficulties in identifying and enrolling
patients who meet trial eligibility criteria, and shortages of
available drug supply. We may not complete clinical trials
involving sorafenib as projected or at all.

We rely on Bayer, academic institutions or
clinical research organizations to conduct, supervise or monitor
clinical trials involving sorafenib. We will have less control
over the timing and other aspects of these clinical trials than
if we conducted them entirely on our own.

In addition, we expect to directly supervise and
monitor certain planned Phase II and Phase III
clinical trials of sorafenib for the treatment of malignant
melanoma. Onyx has not conducted a clinical trial that has led
to an NDA filing. Consequently, we may not have the necessary
capabilities to successfully execute and complete these planned
clinical trials in a way that leads to approval of sorafenib for
the target indication. Failure to commence or complete, or
delays in, any of our planned clinical trials would prevent us
from commercializing sorafenib, and thus seriously harm our
business.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | We will need substantial additional funds,
    and our future access to capital is uncertain.

We will require substantial additional funds to
conduct the costly and time-consuming clinical trials necessary
to develop sorafenib, pursue regulatory approval and
commercialize this product candidate. Our future capital
requirements will depend upon a number of factors, including:



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the size and complexity of our sorafenib program;                                                                                                      
|
| |  | decisions made by Bayer and Onyx to alter the
    size, scope and schedule of clinical development;                                                    
|
| |  | our receipt of milestone-based payments;                                                                                                               
|
| |  | the ability to manufacture sufficient drug supply
    to complete clinical trials;                                                                     
|
| |  | progress with clinical trials;                                                                                                                         
|
| |  | the time and costs involved in obtaining
    regulatory approvals;                                                                                     
|
| |  | the cost involved in enforcing patent claims
    against third parties and defending claims by third parties
    (both of which are shared with Bayer);
|
| |  | the costs associated with acquisitions or
    licenses or additional products;                                                                         
|
| |  | competing technological and market
    developments; and                                                                                               
|
| |  | product commercialization activities.                                                                                                                  

We may not be able to raise additional financing
on favorable terms, or at all. If we are unable to obtain
additional funds, we may not be able to fund our share of
clinical trials. We may also have to curtail operations or
obtain funds through collaborative and licensing arrangements
that may require us to relinquish commercial rights or potential
markets or grant licenses that are unfavorable to us.

We believe that our existing capital resources
and interest thereon will be sufficient to fund our current
development plans through mid-2007. However, if we change our
development plans, we may need additional funds sooner than we
expect. In addition, we anticipate that our codevelopment costs
for the sorafenib program will increase over the next several
years as the Phase III clinical trial program advances, and
new trials are initiated. While these costs are unknown at the
current time, we expect that we will need to raise substantial
additional capital to continue the cofunding of the sorafenib
program in future periods. We may have to curtail our funding of
sorafenib if we cannot raise sufficient capital. If we do not
cofund development

15



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of sorafenib, we will receive a royalty on future
sales of any product that is ultimately commercialized, instead
of a share of profits.




| |                                                                            
| | ---------------------------------------------------------------------------
| | We have a history of losses, and we expect
    to continue to incur losses.

Our net loss for the year ended December 31,
2002 was $45.8 million, for the year ended
December 31, 2003 was $45.0 million, and for the year
ended December 31, 2004 was $46.8 million. As of
December 31, 2004, we had an accumulated deficit of
approximately $250.6 million. We have incurred these losses
principally from costs incurred in our research and development
programs and from our general and administrative costs. We
derived no revenues from product sales or royalties. We expect
to incur significant and increasing operating losses over the
next several years as we expand our clinical trial activities.
We expect our operating losses to increase with our cofunding of
ongoing sorafenib clinical trial costs under our collaboration
agreement with Bayer.

We do not expect to generate revenues from the
sale of products for the foreseeable future, and we must repay
the milestone-based advances we receive from Bayer from our
future profits and royalties, if any. Our ability to achieve
profitability depends upon success by us and Bayer in completing
development of sorafenib, obtaining required regulatory
approvals and manufacturing and marketing the approved product.



| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We do not have manufacturing expertise or
    capabilities and are dependent on third parties to fulfill our
    manufacturing needs, which could result in the delay of clinical
    trials or regulatory approval.

Under our collaboration agreement with Bayer,
Bayer has the manufacturing responsibility to supply sorafenib
for clinical trials and to support any commercial requirements.
However, should Bayer give up its right to codevelop sorafenib,
we would have to manufacture sorafenib. We lack the resources,
experience and capabilities to manufacture sorafenib or any
future product candidates on our own. We would require
substantial funds to establish these capabilities. Consequently,
we are dependent on third parties to manufacture our product
candidates and products, if any. These parties may encounter
difficulties in production scale-up, including problems
involving production yields, quality control and quality
assurance and shortage of qualified personnel. These third
parties may not perform as agreed or may not continue to
manufacture our products for the time required by us to
successfully market our products. These third parties may fail
to deliver the required quantities of our products, if any, or
product candidates on a timely basis and at commercially
reasonable prices. Failure by these third parties could delay
our clinical trials and our applications for regulatory
approval. If these third parties do not adequately perform, we
may be forced to incur additional expenses to pay for the
manufacture of products or to develop our own manufacturing
capabilities.



| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | We have the right to copromote sorafenib in
    the United States, but we do not have significant marketing or
    sales experience or capabilities.

We have the right under our collaboration
agreement with Bayer to copromote sorafenib in the United States
in conjunction with Bayer. In order to copromote sorafenib, we
will need to further develop marketing and sales capabilities.
We may not successfully establish marketing and sales
capabilities or have sufficient resources to do so. If we do not
develop marketing and sales capabilities, we may not meet our
copromotion obligations under our collaboration agreement, which
could result in our losing these copromotion rights. If we do
develop such capabilities, we will compete with other companies
that have experienced and well-funded marketing and sales
operations, and we will incur additional expenses.



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | If we lose our key employees and
    consultants or are unable to attract or retain qualified
    personnel, our business could suffer.

Our future success will depend in large part on
the continued services of our management personnel, including
Hollings C. Renton, our Chairman, President and Chief Executive
Officer, and each of our other executive officers. The loss of
the services of one or more of our key employees could have an
adverse impact on our business. We do not maintain key person
life insurance on any of our officers, employees or consultants,

16



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##### Table of Contents



other than for our chief executive officer. Any
of our key personnel could terminate their employment with us at
any time and without notice. We depend on our continued ability
to attract, retain and motivate highly qualified personnel. We
face competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and
other research institutions.


In 2003, we restructured our operations to
reflect an increased priority on the development of sorafenib
and discontinued our therapeutic virus program. As a result of
the restructuring, we eliminated approximately 75 positions,
including our entire scientific team associated with the
therapeutic virus program. Our remaining scientific and
administrative employees are engaged in managing our
collaboration with Bayer to develop sorafenib, but are not
actively involved in new product candidate discovery. If we
resume our research and development of other product candidates,
we will need to hire individuals with the appropriate scientific
skills. If we cannot hire these individuals in a timely fashion,
we will be unable to engage in new product candidate discovery
activities.



| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Even if our product candidates are
    approved, the market may not accept these
    products.

Even if our product development efforts are
successful and even if the requisite regulatory approvals are
obtained, sorafenib or any future product candidates that we may
develop may not gain market acceptance among physicians,
patients, healthcare payers and the medical community. One
factor that may affect market acceptance of our product
candidates is the availability of third-party reimbursement. Our
commercial success may depend, in part, on the availability of
adequate reimbursement for patients from third party health care
payors, such as government and private health insurers and
managed care organizations. Third-party payors are increasingly
challenging the pricing of medical products and services and
their reimbursement practices may affect the price levels for
our product candidates. In addition, the market for our product
candidates may be limited by third-party payors who establish
lists of approved products and do not provide reimbursement for
products not listed. If our product candidates are not on the
approved lists, the sales of our product candidates may suffer.

A number of additional factors may limit the
market acceptance of products including the following:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | rate of adoption by healthcare practitioners;                                                   
|
| |  | types of cancer for which the product is approved;                                              
|
| |  | rate of a products acceptance by the target
    population;                                    
|
| |  | timing of market entry relative to competitive
    products;                                    
|
| |  | availability of alternative therapies;                                                          
|
| |  | price of our product relative to alternative
    therapies;                                     
|
| |  | extent of marketing efforts by us and third-party
    distributors or agents retained by us; and
|
| |  | side effects or unfavorable publicity concerning
    our products or similar products.          

If sorafenib or any future product candidates
that we may develop do not achieve market acceptance, we may
lose our investment in that product candidate, which may cause
our stock price to decline.



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We face intense competition and rapid
    technological change, and many of our competitors have
    substantially greater managerial resources than we
    have.

We are engaged in a rapidly changing and highly
competitive field. We are seeking to develop and market product
candidates that will compete with other products and therapies
that currently exist or are being developed. Many other
companies are actively seeking to develop products that have
disease targets similar to those we are pursuing. Some of these
competitive product candidates are in clinical trials, and
others are approved. Competitors that target the same tumor
types as our sorafenib program and that have commercial products
or product candidates in clinical development include Pfizer,
Novartis, AstraZeneca PLC, OSI Pharmaceuticals, Inc., Genentech,
Inc., and Abgenix, Inc., among others. Novartis, Pfizer and
others have in

17



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##### Table of Contents



clinical development for advanced kidney cancer
small molecules targeting VEGF receptor tyrosine kinases and
other enzymes. In addition, potential competition may come from
agents that target Epidermal Growth Factor, or EGF, receptors
and Vascular Endothelial Growth Factor, or VEGF, receptors.
These agents include antibodies and small molecules. In
particular, OSI Pharmaceuticals with TarcevaTM and
AstraZeneca with IRESSATM are developing small
molecule inhibitors of the EGF receptor tyrosine kinase.
IRESSATM has been approved in the United States.
Companies working on developing antibody approaches include
ImClone Systems, Inc. with Erbitux and Abgenix with antibodies
targeting EGF receptors. Erbitux has been approved in the United
States. Genentech has AvastinTM, an antibody
targeting VEGF, which has received approvals in the United
States and the European Union. We believe several companies have
small molecule compounds in clinical development that target
MEK, an enzyme that is also involved in the RAS signaling
pathway. Pfizer has recently announced that its anti-angiogenic
kinase inhibitor, SU11248, has proven effective in treating
Gleevec resistant gastrointestinal stromal tumors, or GIST, and
it is expected to file for FDA approval. SU11248 is also being
tested in clinical trials to treat other tumor types, including
kidney cancer. It is possible that SU11248 will receive FDA
marketing approval for treatment of GIST before sorafenib
receives FDA marketing approval in any indication. After its
approval for treatment of GIST, medical practitioners may use
SU11248 off-label to treat other tumor types, including kidney
cancer, even if the compound has not yet received marketing
approval for use in these other indications. This potential
off-label use of SU11248 may affect the sales of sorafenib if
and when sorafenib receives marketing approval. In addition,
many other pharmaceutical companies are developing novel cancer
therapies that, if successful, would also provide competition
for or be used in combination with sorafenib. We believe that
other companies have inhibitors of kinases in preclinical or
clinical development that could be potential competitors.


Certain of these product candidates have recently
been approved by the FDA. These and product candidates of other
competitors now in clinical trials will compete directly with
sorafenib. Many of our competitors, either alone or together
with collaborators, have substantially greater financial
resources and research and development staffs. In addition, many
of these competitors, either alone or together with their
collaborators, have significantly greater experience than we do
in:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | developing products;                                             
|
| |  | undertaking preclinical testing and human
    clinical trials;   
|
| |  | obtaining FDA and other regulatory approvals of
    products; and
|
| |  | manufacturing and marketing products.                            

Accordingly, our competitors may succeed in
obtaining patent protection, receiving FDA approval or
commercializing product candidates before we do. If we commence
commercial product sales, we will compete against companies with
greater marketing and manufacturing capabilities, areas in which
we have limited or no experience.

We also face, and will continue to face,
competition from academic institutions, government agencies and
research institutions. Further, we face numerous competitors
working on product candidates to treat each of the diseases for
which we are seeking to develop therapeutic products. In
addition, our product candidates, if approved, will compete with
existing therapies that have long histories of safe and
effective use. We may also face competition from other drug
development technologies and methods of preventing or reducing
the incidence of disease and other classes of therapeutic agents.

Developments by competitors may render our
product candidates obsolete or noncompetitive. We face and will
continue to face intense competition from other companies for
collaborations with pharmaceutical and biotechnology companies
for establishing relationships with academic and research
institutions, and for licenses to proprietary technology. These
competitors, either alone or with collaborative parties, may
succeed with technologies or products that are more effective
than ours.

We anticipate that we will face increased
competition in the future as new companies enter our markets and
as scientific developments surrounding other cancer therapies
continue to accelerate. If sorafenib receives regulatory
approval but cannot compete effectively in the marketplace, our
business will suffer.

18



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##### Table of Contents





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to extensive government
    regulation, which can be costly, time consuming and subject us
    to unanticipated delays.

Drug candidates under development are subject to
extensive and rigorous domestic and foreign regulation. We have
not received regulatory approval in the United States or any
foreign market for sorafenib or any other product candidate.

We expect to rely on Bayer to manage
communications with regulatory agencies, including filing new
drug applications and generally directing the regulatory
approval process for sorafenib. We and Bayer may not obtain
necessary approvals from the FDA or other regulatory
authorities. If we fail to obtain required governmental
approvals, we will experience delays in or be precluded from
marketing sorafenib. Even if sorafenib is approved, the FDA or
other regulatory authorities may approve only limited label
information for the product. The label information describes the
indications and methods of use for which the product is
authorized, and if overly restrictive may limit our and
Bayers ability to successfully market any approved
product. If we have disagreements as to ownership of clinical
trial results or regulatory approvals, and the FDA refuses to
recognize us as holding, or having access to, the regulatory
approvals necessary to commercialize our product candidates, we
may experience delays in or be precluded from marketing products.

The regulatory review and approval process takes
many years, requires the expenditure of substantial resources,
involves post-marketing surveillance, and may involve ongoing
requirements for post-marketing studies. Additional or more
rigorous governmental regulations may be promulgated that could
delay regulatory approval of sorafenib. Delays in obtaining
regulatory approvals may:



| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | adversely affect the successful commercialization
    of sorafenib;
|
| |  | impose costly procedures on us;                                    
|
| |  | diminish any competitive advantages that we may
    attain; and    
|
| |  | adversely affect our receipt of revenues or
    royalties.         

In addition, problems or failures with the
products of others, before or after regulatory approval,
including our competitors, could have an adverse effect on our
ability to obtain or maintain regulatory approval for sorafenib.



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to protect our
    intellectual property or operate our business without infringing
    upon the intellectual property rights of others.

We can protect our technology from unauthorized
use by others only to the extent that our technology is covered
by valid and enforceable patents or effectively maintained as
trade secrets. As a result, we depend in part on our ability to:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | obtain patents;                                                          
|
| |  | license technology rights from others;                                   
|
| |  | protect trade secrets;                                                   
|
| |  | operate without infringing upon the proprietary
    rights of others; and
|
| |  | prevent others from infringing on our proprietary
    rights.            

In the case of sorafenib, the global patent
applications related to this product candidate are held by
Bayer, but licensed to us in conjunction with our collaboration
agreement with Bayer. At present, it is anticipated that, if
issued, the United States patent related to sorafenib will
expire in 2022, subject to possible patent-term extension, the
entitlement to which and the term of which cannot presently be
calculated. Patent applications for sorafenib are also pending
throughout the world. As of December 31, 2004, we owned or
had licensed rights to 51 United States patents and 34 United
States patent applications and, generally, foreign counterparts
of these filings. Most of these patents or patent applications
cover protein targets used to identify product candidates during
the research phase of our collaborative agreements with
Warner-Lambert or Bayer,

19



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or aspects of our now discontinued virus program.
Additionally, we have corresponding patents or patent
applications pending or granted in certain foreign jurisdictions.


Our existing patent rights may not have a
deterrent effect on competitors who are conducting or desire to
commence competitive research programs with respect to the
biological targets or fields of inquiry that we are pursuing.
Although third parties may challenge our rights to, or the scope
or validity of our patents, to date, we have not received any
communications from third parties challenging our patents or
patent applications covering our product candidates.

The patent positions of biotechnology and
pharmaceutical companies are highly uncertain and involve
complex legal and factual questions. Our patents, or patents
that we license from others, may not provide us with proprietary
protection or competitive advantages against competitors with
similar technologies. Competitors may challenge or circumvent
our patents or patent applications. Courts may find our patents
invalid. Due to the extensive time required for development,
testing and regulatory review of our potential products, our
patents may expire or remain in existence for only a short
period following commercialization, which would reduce or
eliminate any advantage the patents may give us.

We may not have been the first to make the
inventions covered by each of our issued or pending patent
applications, or we may not have been the first to file patent
applications for these inventions. Competitors may have
independently developed technologies similar to ours. We may
need to license the right to use third-party patents and
intellectual property to develop and market our product
candidates. We may not acquire required licenses on acceptable
terms, if at all. If we do not obtain these required licenses,
we may need to design around other parties patents, or we
may not be able to proceed with the development, manufacture or,
if approved, sale of our product candidates. We may face
litigation to defend against claims of infringement, assert
claims of infringement, enforce our patents, protect our trade
secrets or know-how, or determine the scope and validity of
others proprietary rights. In addition, we may require
interference proceedings declared by the United States Patent
and Trademark Office to determine the priority of inventions
relating to our patent applications. These activities, and
especially patent litigation, are costly.

Bayer may have rights to publish data and
information in which we have rights. In addition, we sometimes
engage individuals, entities or consultants to conduct research
that may be relevant to our business. The ability of these
individuals, entities or consultants to publish or otherwise
publicly disclose data and other information generated during
the course of their research is subject to certain contractual
limitations. The nature of the limitations depends on various
factors, including the type of research being conducted, the
ownership of the data and information and the nature of the
individual, entity or consultant. In most cases, these
individuals, entities or consultants are, at the least,
precluded from publicly disclosing our confidential information
and are only allowed to disclose other data or information
generated during the course of the research after we have been
afforded an opportunity to consider whether patent and/or other
proprietary protection should be sought. If we do not apply for
patent protection prior to publication or if we cannot otherwise
maintain the confidentiality of our technology and other
confidential information, then our ability to receive patent
protection or protect our proprietary information will be harmed.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | We face product liability risks and may not
    be able to obtain adequate insurance.

The use of sorafenib in clinical trials, and the
sale of any approved products, exposes us to liability claims.
Although we are not aware of any historical or anticipated
product liability claims against us, if we cannot successfully
defend ourselves against product liability claims, we may incur
substantial liabilities or be required to limit
commercialization of sorafenib.

We believe that we have obtained reasonably
adequate product liability insurance coverage for our clinical
trials. We intend to expand our insurance coverage to include
the commercial sale of sorafenib if marketing approval is
obtained. However, the cost of insurance coverage is rising. We
may not be able to maintain insurance coverage at a reasonable
cost. We may not be able to obtain additional insurance coverage

20



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##### Table of Contents



that will be adequate to cover product liability
risks that may arise should one of our product candidates
receive marketing approval. Regardless of merit or eventual
outcome, product liability claims may result in:




| |   |                                             
| | - | --------------------------------------------
| |  | decreased demand for a product;             
|
| |  | injury to our reputation;                   
|
| |  | withdrawal of clinical trial volunteers; and
|
| |  | loss of revenues.                           

Thus, whether or not we are insured, a product
liability claim or product recall may result in losses that
could be material.



| |                             
| | ----------------------------
| | Our stock price is volatile.

The market price of our common stock has been
volatile and is likely to continue to be volatile. For example,
during the period beginning January 1, 2002 and ending
December 31, 2004, the closing sales price for one share of
our common stock reached a high of $58.75 and a low of $3.59.
Factors affecting our stock price include:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | interim or final results of, or speculation
    about, clinical trials from sorafenib;                         
|
| |  | changes in the regulatory approval requirements;                                                               
|
| |  | ability to accrue patients into clinical trials;                                                               
|
| |  | success or failure in, or speculation about,
    obtaining regulatory approval by us or our competitors;       
|
| |  | public concern as to the safety and efficacy of
    our product candidates;                                    
|
| |  | developments in our relationship with Bayer;                                                                   
|
| |  | developments in patent or other proprietary
    rights;                                                        
|
| |  | additions or departures of key personnel;                                                                      
|
| |  | announcements by us or our competitors of
    technological innovations or new commercial therapeutic products;
|
| |  | published reports by securities analysts;                                                                      
|
| |  | statements of governmental officials; and                                                                      
|
| |  | changes in healthcare reimbursement policies.                                                                  



| |                                                              
| | -------------------------------------------------------------
| | Existing stockholders have significant
    influence over us.

Our executive officers, directors and
five-percent stockholders own, in the aggregate, approximately
34 percent of our outstanding common stock. As a result,
these stockholders will be able to exercise substantial
influence over all matters requiring stockholder approval,
including the election of directors and approval of significant
corporate transactions. This could have the effect of delaying
or preventing a change in control of our company and will make
some transactions difficult or impossible to accomplish without
the support of these stockholders.

Bayer, a collaborative party, has the right to
have its nominee elected to our board of directors as long as we
continue to collaborate on the development of a compound.
Because of these rights and ownership and voting arrangements,
our officers, directors and principal stockholders may be able
to effectively control the election of all members of the board
of directors and to determine all corporate actions.

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| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | We are at risk of securities class action
    litigation due to our expected stock price
    volatility.

In the past, stockholders have often brought
securities class action litigation against a company following a
decline in the market price of its securities. This risk is
especially acute for us, because biotechnology companies have
experienced greater than average stock price volatility in
recent years and, as a result, have been subject to, on average,
a greater number of securities class action claims than
companies in other industries. Following our recent announcement
in October 2004 of Phase II clinical trial data in patients
with advanced kidney cancer, our stock price declined
significantly. Our closing stock price on the last trading day
before the announcement was $40.81, and our closing stock price
on the day of the announcement was $27.34. We may in the future
be the target of securities class action litigation. Securities
litigation could result in substantial costs, could divert
managements attention and resources, and could seriously
harm our business, financial condition and results of operations.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions in Delaware law, our charter and
    executive change of control agreements we have entered into may
    prevent or delay a change of control.

We are subject to the Delaware anti-takeover laws
regulating corporate takeovers. These anti-takeover laws prevent
Delaware corporations from engaging in a merger or sale of more
than ten percent of its assets with any stockholder, including
all affiliates and associates of the stockholder, who owns
15 percent or more of the corporations outstanding
voting stock, for three years following the date that the
stockholder acquired 15 percent or more of the
corporations stock unless:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the board of directors approved the transaction
    where the stockholder acquired 15 percent or more of the
    corporations stock;                                                                                                                                                                                                                                                                                                                                    
|
| |  | after the transaction in which the stockholder
    acquired 15 percent or more of the corporations
    stock, the stockholder owned at least 85 percent of the
    corporations outstanding voting stock, excluding shares
    owned by directors, officers and employee stock plans in which
    employee participants do not have the right to determine
    confidentially whether shares held under the plan will be
    tendered in a tender or exchange offer; or
|
| |  | on or after this date, the merger or sale is
    approved by the board of directors and the holders of at least
    two-thirds of the outstanding voting stock that is not owned by
    the stockholder.                                                                                                                                                                                                                                                                 

As such, these laws could prohibit or delay
mergers or a change of control of us and may discourage attempts
by other companies to acquire us.

Our certificate of incorporation and bylaws
include a number of provisions that may deter or impede hostile
takeovers or changes of control or management. These provisions
include:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our board is classified into three classes of
    directors as nearly equal in size as possible with staggered
    three-year terms;                                                                                    
|
| |  | the authority of our board to issue up to
    5,000,000 shares of preferred stock and to determine the
    price, rights, preferences and privileges of these shares,
    without stockholder approval;                 
|
| |  | all stockholder actions must be effected at a
    duly called meeting of stockholders and not by written consent;                                                                                                       
|
| |  | special meetings of the stockholders may be
    called only by the chairman of the board, the chief executive
    officer, the board or ten percent or more of the stockholders
    entitled to vote at the meeting; and
|
| |  | no cumulative voting.                                                                                                                                                                                                   

These provisions may have the effect of delaying
or preventing a change of control, even at stock prices higher
than the then current stock price.

We have entered into change of control severance
agreements with each of our executive officers. These agreements
provide for the payment of severance benefits and the
acceleration of stock option vesting if the

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executive officers employment is terminated
within 13 months of a change of control of Onyx. These
change of control severance agreements may have the effect of
preventing a change of control.





PART II.






|        |                                                                         
|------- | ------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock
    and Related Stockholder Matters

Our common stock is traded on the Nasdaq National
Market (NASDAQ) under the symbol ONXX. We
commenced trading on NASDAQ on May 9, 1996. The following
table presents the high and low closing sales prices per share
of our common stock reported on NASDAQ.

|               |  |              |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ------------ | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |             
|               |  | Common Stock
|               |  |             
|               |  |              |       |     
|               |  | 2004         |       | 2003
|               |  |              |       |     
|               |  | High         |       | Low  |  | High |       | Low
|               |  |              |       |      |  |      |       |    
|First Quarter  |  | $            | 41.53 |      |  | $    | 28.75 |     |  | $ | 8.60  |  |  | $ | 4.65  | 
|Second Quarter |  |              | 58.75 |      |  |      | 37.80 |     |  |   | 14.13 |  |  |   | 7.27  | 
|Third Quarter  |  |              | 43.16 |      |  |      | 30.60 |     |  |   | 23.92 |  |  |   | 12.01 | 
|Fourth Quarter |  |              | 44.65 |      |  |      | 26.72 |     |  |   | 29.67 |  |  |   | 22.13 | 

On March 8, 2005, the last reported sales
price of our common stock on NASDAQ was $26.17 per share.

Holders

There were approximately 243 holders of record of
our common stock as of March 8, 2005.

Dividends

Onyx has not paid cash dividends on its common
stock and does not plan to pay any cash dividends in the
foreseeable future.

Securities Authorized for Issuance Under
Equity Compensation Plans as of December 31, 2004

|                                                           |  |                      |           |                      |  |                           |       |  |  |  |           |    
|---------------------------------------------------------- |  | -------------------- | --------- | -------------------- |  | ------------------------- | ----- |  |  |  | --------- | ---
|                                                           |  | Number of            |           |                      |  | Number of securities     
|                                                           |  | securities to be     |           |                      |  | remaining available for  
|                                                           |  | issued upon exercise |           | Weighted-average     |  | future issuance under    
|                                                           |  | of outstanding       |           | exercise price of    |  | equity compensation plans
|                                                           |  | options, warrants    |           | outstanding options, |  | (excluding securities    
|Plan Category (1)                                          |  | and rights           |           | warrants and rights  |  | reflected in column a)   
|                                                           |  |                      |           |                      |  |                          
|                                                           |  | Column a             |           | Column b             |  | Column c                 
|                                                           |  |                      |           |                      |  |                          
|Equity compensation plans approved by security
    holders |  |                      | 2,296,442 |                      |  | $                         | 17.99 |  |  |  | 1,333,355 | (2)



---



|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(1) | We have no equity compensation plans not approved
    by security holders.                                  
|   
|(2) | Of these securities, 51,162 shares remain
    available for purchase under our Employee Stock Purchase Plan.

Recent Sales of Unregistered
Securities

On March 25, 2004, Onyx issued an aggregate
of 37,037 shares of its common stock to Playback and Co.
pursuant to the exercise of a warrant dated May 7, 2002.
The warrant had an exercise price of $9.59 per share, and
Playback and Co. paid $355,185 for the shares of common stock.
The issuance of the shares pursuant to the warrant was exempt
from registration under the Securities Act of 1933 in reliance
on Section 4(2) promulgated thereunder as a transaction not
involving any public offering.

On May 10, 2004, Onyx issued an aggregate of
152,307 shares of its common stock to Domain Partners V
L.P. and DP V Associates, L.P. pursuant to the cashless exercise
of two warrants, each dated May 7, 2002. The warrants were
exercisable for a total of 185,184 shares of common stock,
and each warrant had an

23



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##### Table of Contents



exercise price of $9.59 per share. In
connection with the exercise, the number of shares issuable
pursuant to the warrants was reduced by 32,877 shares
pursuant to the operation of the cashless exercise provisions in
the warrants. The issuances of the shares pursuant to these
warrants were exempt from registration under the Securities Act
of 1933 in reliance on Section 4(2) promulgated thereunder
as a transaction not involving any public offering.


On July 19, 2004, Onyx issued an aggregate
of 28,129 shares of its common stock to Quogue Capital, LLC
pursuant to the cashless exercise of a warrant dated May 7,
2002. The warrant was exercisable for a total of
37,037 shares of common stock and had an exercise price of
$9.59 per share. In connection with the exercise, the number of
shares issuable pursuant to the warrant was reduced by
8,908 shares pursuant to the operation of the cashless
exercise provisions in the warrant. The issuance of the shares
pursuant to this warrant were exempt from registration under the
Securities Act of 1933 on reliance of Section 4(2)
promulgated thereunder as a transaction not involving any public
offering.

On October 26, 2004, Onyx issued an
aggregate of 197,226 shares of its common stock to
Convertarb.com L.P. pursuant to the cashless exercise of four
warrants, each dated May 7, 2002. The warrants were
exercisable for a total of 259,250 shares of common stock,
and each warrant had an exercise price of $9.59 per share.
In connection with the exercise, the number of shares issuable
pursuant to the warrants was reduced by 62,020 shares
pursuant to the operation of the cashless exercise provisions in
the warrants. The issuances of the shares pursuant to these
warrants were exempt from registration under the Securities Act
of 1933 in reliance on Section 4(2) promulgated thereunder
as a transaction not involving any public offering.

On October 27, 2004, Onyx issued an
aggregate of 139,136 shares of its common stock to
Perceptive Life Sciences Master Fund, Ltd. pursuant to the
cashless exercise of a warrant dated May 7, 2002. The
warrant was exercisable for a total of 185,185 shares of
common stock and had an exercise price of $9.59 per share.
In connection with the exercise, the number of shares issuable
pursuant to the warrant was reduced by 46,049 shares
pursuant to the operation of the cashless exercise provisions in
the warrant. The issuance of the shares pursuant to this warrant
was exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) promulgated thereunder as a
transaction not involving any public offering.

24



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Onyx Pharmaceuticals, Inc.

This section presents our selected historical
financial data. You should read carefully the financial
statements and the notes thereto included in this report and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.

The Statement of Operations data for the years
ended December 31, 2004, 2003 and 2002 and the Balance
Sheet data as of December 31, 2004 and 2003 have been
derived from our audited financial statements included elsewhere
in this report. The Statement of Operations data for the years
ended December 31, 2001 and 2000 and the Balance Sheet data
as of December 31, 2002, 2001 and 2000 have been derived
from our audited financial statements that are not included in
this report. Historical results are not necessarily indicative
of future results. See the Notes to Financial Statements for an
explanation of the method used to determine the number of shares
used in computing basic and diluted net loss per share.

|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |        | 
|----------------------------------------------------------------- | -------------------------- | ------------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                  |                            |                                      
|                                                                  |                            | Year Ended December 31,              
|                                                                  |                            |                                      
|                                                                  |                            | 2004                                  |         | 2003   |  | 2002 |         | 2001   |  | 2000
|                                                                  |                            |                                       |         |        |  |      |         |        |  |     
|                                                                  |                            |                                      
|                                                                  |                            | (In thousands, except per share data)
|Statement of Operations Data:                                     |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Total revenue                                                     |                            | $                                     | 500     |        |  | $    |        |        |  | $    | 2,715   |        |  | $ | 15,846  |        |  | $ | 24,180  |       
|Operating expenses:                                               |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                                  | Research and development   |                                       |         | 35,846 |  |      |         | 32,059 |  |      |         | 43,604 |  |   |         | 39,530 |  |   |         | 26,483 | 
|                                                                  | Marketing                  |                                       |         | 5,418  |  |      |         | 1,388  |  |      |         |       |  |   |         |       |  |   |         |       | 
|                                                                  | General and administrative |                                       |         | 8,898  |  |      |         | 6,551  |  |      |         | 6,192  |  |   |         | 7,049  |  |   |         | 7,904  | 
|                                                                  | Restructuring              |                                       |         | 258    |  |      |         | 5,530  |  |      |         |       |  |   |         | 812    |  |   |         |       | 
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Loss from operations                                              |                            |                                       | (50,420 | )      |  |      | (45,528 | )      |  |      | (47,081 | )      |  |   | (31,545 | )      |  |   | (10,207 | )     
|Interest and other income and expense, net                        |                            |                                       | 3,164   |        |  |      | 559     |        |  |      | 1,294   |        |  |   | 3,973   |        |  |   | 2,728   |       
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Net loss                                                          |                            | $                                     | (46,756 | )      |  | $    | (44,969 | )      |  | $    | (45,787 | )      |  | $ | (27,572 | )      |  | $ | (7,479  | )     
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Basic and diluted net loss per share                              |                            | $                                     | (1.36   | )      |  | $    | (1.73   | )      |  | $    | (2.23   | )      |  | $ | (1.50   | )      |  | $ | (0.50   | )     
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Shares used in computing basic and diluted net
    loss per share |                            |                                       | 34,342  |        |  |      | 25,953  |        |  |      | 20,535  |        |  |   | 18,385  |        |  |   | 14,896  |       
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       

|                                                  |  |                |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |         |  
|------------------------------------------------- |  | -------------- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | - |  | - | ------- | -
|                                                  |  |               
|                                                  |  | December 31,  
|                                                  |  |               
|                                                  |  | 2004           |          | 2003 |  | 2002 |          | 2001 |  | 2000
|                                                  |  |                |          |      |  |      |          |      |  |     
|                                                  |  |               
|                                                  |  | (In thousands)
|Balance Sheet Data:                               |  |                |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |         |  
|Cash, cash equivalents, and marketable securities |  | $              | 209,624  |      |  | $    | 105,400  |      |  | $    | 39,833   |   |  | $ | 58,466   |   |  | $ | 81,994  |  
|Total assets                                      |  |                | 215,546  |      |  |      | 109,138  |      |  |      | 46,241   |   |  |   | 65,782   |   |  |   | 88,597  |  
|Working capital                                   |  |                | 197,873  |      |  |      | 92,826   |      |  |      | 28,727   |   |  |   | 48,669   |   |  |   | 74,209  |  
|Advance from collaboration partner                |  |                | 20,000   |      |  |      | 20,000   |      |  |      | 5,000    |   |  |   |         |   |  |   |        |  
|Accumulated deficit                               |  |                | (250,636 | )    |  |      | (203,880 | )    |  |      | (158,911 | ) |  |   | (113,124 | ) |  |   | (85,552 | )
|Total stockholders equity                        |  |                | 179,988  |      |  |      | 73,519   |      |  |      | 28,784   |   |  |   | 55,085   |   |  |   | 76,896  |  

25



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following Managements Discussion and
Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and
uncertainties. We use words such as may,
will, expect, anticipate,
estimate, intend, plan,
predict, potential, believe,
should and similar expressions to identify
forward-looking statements. These statements appearing
throughout our 10-K are statements regarding our intent, belief,
or current expectations, primarily regarding our operations. You
should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Annual
Report on Form 10-K. Our actual results could differ
materially from those anticipated in these forward-looking
statements for many reasons, including those set forth under
Business and Additional Business Risks,
as well as those discussed elsewhere in this Annual Report on
Form 10-K.

Overview

During 2004, Onyx had several important
achievements, including a number of clinical developments for
sorafenib (formerly known as BAY 43-9006) that we achieved with
our collaborators at Bayer Pharmaceuticals Corporation. In the
course of the year, we activated approximately 100 sites
internationally in our pivotal Phase III kidney cancer
trial. This trial is well underway, and we completed the patient
enrollment phase of the study in March 2005. Also during
2004, we and Bayer selected two additional indications,
metastatic melanoma and advanced liver cancer, for which we
announced that we planned to begin Phase III clinical
trials in the first half of 2005. Subsequently, in March 2005,
the two companies began the liver cancer study. With Bayer, we
reported final top-line Phase II results for 202 kidney
cancer patients who participated in the randomized
discontinuation trial. We and Bayer also reported final
Phase II trial results for 137 liver cancer patients. In
periodic updates throughout the year, we also reported on the
combinability of sorafenib with eight different chemotherapies.

Also in 2004, our collaborator, Warner-Lambert
Company, now a subsidiary of Pfizer Inc, initiated a
Phase I clinical trial administering PD 332991, a small
molecule cell cycle inhibitor resulting from our collaboration
that targets a cyclin-dependent kinase, or CDK. In accordance
with our collaboration agreement, we received a
$500,000 milestone payment from Pfizer in October 2004.

In February 2004, we sold 4,637,000 shares
of our common stock at $33.75 per share in an underwritten
public offering pursuant to an effective registration statement
previously filed with the Securities and Exchange Commission.
Also in February 2004, the underwriters for the offering
exercised their over-allotment option and purchased an
additional 48,693 shares of our common stock to cover
over-allotments at a price of $33.75 per share. We received
aggregate net cash proceeds of approximately $148.3 million
from this public offering.

We have not been profitable since inception and
expect to incur substantial and increasing losses for the
foreseeable future, due to expenses associated with the
continuing development and commercialization of sorafenib. We
expect that losses will fluctuate from quarter to quarter and
that such fluctuations may be substantial. As of
December 31, 2004, our accumulated deficit was
approximately $250.6 million.

Our business is subject to significant risks,
including the risks inherent in our development efforts, the
results of the sorafenib clinical trials, our dependence on
collaborative parties, uncertainties associated with obtaining
and enforcing patents, the lengthy and expensive regulatory
approval process and competition from other products. For a
discussion of these and some of the other risks and
uncertainties affecting our business, see Additional
Business Risks. We currently have no products that have
received marketing approval, and we have generated no revenues
from the sale of products. We do not expect to generate
revenues, if any, from the sale of proposed products until at
least 2006 and expect that all of our revenues, if any, before
2006 will be generated from collaboration agreements.

Critical Accounting Policies and the Use of
Estimates

The accompanying discussion and analysis of our
financial condition and results of operations are based upon our
financial statements and the related disclosures, which have
been prepared in accordance with

26



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##### Table of Contents



accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make estimates, assumptions and judgments that
affect the reported amounts in our financial statements and
accompanying notes. These estimates form the basis for making
judgments about the carrying values of assets and liabilities.
We base our estimates and judgments on historical experience and
on various other assumptions that we believe to be reasonable
under the circumstances. Significant estimates used in 2004
included assumptions used in the determination of stock-based
compensation related to stock options granted to non-employees.
Actual results could differ materially from these estimates.


We believe the following policies to be the most
critical to an understanding of our financial condition and
results of operations, because they require us to make
estimates, assumptions and judgments about matters that are
inherently uncertain.

Stock based
compensation:The preparation of
the financial statement footnotes requires us to estimate the
fair value of stock options granted to employees. While fair
value may be readily determinable for awards of stock, market
quotes are not available for long-term, nontransferable stock
options because these instruments are not traded. We currently
use the Black-Scholes option-pricing model to estimate the fair
value of employee stock options. However, the Black-Scholes
model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully
transferable. Option valuation models require the input of
highly subjective assumptions, including but not limited to
stock price volatility. Because our stock options have
characteristics significantly different from those of traded
options and changes to the subjective input assumptions can
materially affect the fair value estimate, in managements
opinion, the existing models do not provide a reliable single
measure of the fair value of our employee stock options. We are
currently evaluating our option valuation methodologies and
assumptions in light of evolving accounting standards related to
employee stock options.

Research and Development
Expense:In accordance with
Financial Accounting Standards Board, or FASB, Statement of
Financial Accounting Standards, or SFAS, No. 2,
Accounting for Research and Development Costs,
research and development costs are charged to expense when
incurred. The major components of research and development costs
include clinical manufacturing costs, clinical trial expenses,
consulting and other third-party costs, salaries and employee
benefits, supplies and materials and allocations of various
overhead and occupancy costs. Not all research and development
costs are incurred by us. A significant portion of our research
and development expenses, approximately 93 percent in 2004,
relates to our cost sharing arrangement with Bayer and
represents our share of the research and development costs
incurred by Bayer. Such amounts are recorded based on invoices
and other information we receive from Bayer. When such invoices
have not been received, we must estimate the amounts owed to
Bayer based on discussions with Bayer. In addition, research and
development costs incurred by us and reimbursed by Bayer are
recorded as a reduction to research and development expense.

Results of Operations



| |                                                 
| | ------------------------------------------------
| | Years Ended December 31, 2004, 2003 and
    2002

Total Revenue.Total
revenue was $500,000 in 2004, zero in 2003 and $2.7 million
in 2002. Total revenue in both 2004 and 2002 included amounts
received for collaboration revenue from Warner-Lambert, now a
subsidiary of Pfizer. In 2004, we received a
$500,000 milestone payment from Warner-Lambert when they
initiated Phase I clinical testing advancing a lead
candidate from our previous cell cycle kinase discovery
collaboration. Our 2003 revenue was zero. Revenue of
$2.7 million in 2002 reflected research funding for the
therapeutic virus collaboration that concluded in 2002.
Currently, we do not expect to record any revenue in 2005.

Research and Development
Expenses.Research and development
expenses were $35.8 million in 2004, a net increase of
$3.8 million, or 12 percent, from 2003. In 2004, the
increase in research and development expense was primarily
driven by a $14.0 million increase in Onyxs share of
codevelopment costs for the sorafenib program, which expanded
into the Phase III kidney cancer trial in the fourth
quarter of 2003. In addition, sorafenib development costs
reflect multiple ongoing Phase II clinical trials in
breast, non-small cell lung and other cancers and several
Phase Ib clinical trials in combination with standard
chemotherapies. This

27



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##### Table of Contents



increase was partially offset by a decrease of
$10.2 million of expenses from the therapeutic virus
program, which was terminated in 2003. Research and development
expenses were $32.1 million in 2003, a net decrease of
$11.5 million, or 26 percent, from 2002. The decrease
in 2003 was primarily the result of the discontinuation of our
therapeutic virus program, which decreased our research and
development expenses by $19.1 million from 2002 levels.
Partially offsetting this decrease in 2003 was an increase of
$7.5 million related to Onyxs share of the
codevelopment costs with Bayer for sorafenib. It is anticipated
that research and development expenses will continue to increase
in future periods as we continue with our clinical trials of
sorafenib and as we add additional Phase III clinical
trials of sorafenib.


The major components of research and development
costs include clinical manufacturing costs, clinical trial
expenses, consulting and other third-party costs, salaries and
employee benefits, supplies and materials and allocations of
various overhead and occupancy costs. The scope and magnitude of
future research and development expenses are difficult to
predict at this time given the number of studies that will need
to be conducted for any of our potential product candidates. In
general, biopharmaceutical development involves a series of
steps beginning with identification of a potential target and
includes proof of concept in animals and Phase I, II
and III clinical studies in humans, each of which is typically
more expensive than the previous step.

The following table summarizes our principal
product development initiatives, including the related stages of
development for each product in development and the research and
development expenses recognized in connection with each product.
The information in the column labeled Phase of Development
-Estimated Completion is only our estimate of the timing
of completion of the current in-process development phases based
on current information. The actual timing of completion of those
phases could differ materially from the estimates provided in
the table. We cannot reasonably estimate the timing of
completion of each clinical phase of our development programs
due to the risks and uncertainties associated with developing
pharmaceutical product candidates. The clinical development
portion of these programs may span as many as seven to ten
years, and estimation of completion dates or costs to complete
would be highly speculative and subjective due to the numerous
risks and uncertainties associated with developing
biopharmaceutical products, including significant and changing
government regulation, the uncertainty of future preclinical and
clinical study results and uncertainties associated with process
development and manufacturing as well as marketing. For a
discussion of the risks and uncertainties associated with the
timing and cost of completing a product development phase, see
the Additional Business Risks section of this report.

|                                        |  |                                                                                                                              |      |          |  |                                                               |      |                      |      |      |      |      |      |  |  |   |      | 
|--------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- | ---- | -------- |  | ------------------------------------------------------------- | ---- | -------------------- | ---- | ---- | ---- | ---- | ---- |  |  | - | ---- | 
|                                        |  |                                                                                                                              |      |          |  |                                                               |      |                     
|                                        |  |                                                                                                                              |      |          |  |                                                               |      | Research and        
|                                        |  |                                                                                                                              |      |          |  |                                                               |      | Development Expenses
|                                        |  |                                                                                                                              |      |          |  |                                                               |      | for the year ended  
|                                        |  |                                                                                                                              |      |          |  |                                                               |      | December 31,        
|                                        |  |                                                                                                                              |      | Collabo- |  | Phase of Development                                         |      |                     
|Product                                 |  | Description                                                                                                                  |      | rator    |  | Estimated Completion                                          |      | 2004                 |      | 2003 |      | 2002
|                                        |  |                                                                                                                              |      |          |  |                                                               |      |                      |      |      |      |     
|                                        |  |                                                                                                                              |      |          |  |                                                               |      |                     
|                                        |  |                                                                                                                              |      |          |  |                                                               |      | (In millions)       
|Sorafenib (1)                           |  | Small Molecule Inhibitor of tumor cell
    proliferation and angiogenesis, targeting RAF Kinase, VEGFR-2
    and
    PDGFR-β |      | Bayer    |  | Phase I  2004
    Phase II  Unknown
    Phase III  Unknown |      | $                    | 33.4 |      |      | $    | 19.4 |  |  | $ | 11.8 | 
|Therapeutic Virus Programs (2)          |  | Programs discontinued during the second quarter
    of 2003. See Note 2 to our Financial Statements                          |      |         |  |                                                              |      |                      | 2.4  |      |      |      | 12.7 |  |  |   | 31.8 | 
|                                        |  |                                                                                                                              |      |          |  |                                                               |      |                      |      |      |      |      |      |  |  |   |      | 
|Total Research and Development Expenses |  | $                                                                                                                            | 35.8 |          |  | $                                                             | 32.1 |                      |      | $    | 43.6 |     
|                                        |  |                                                                                                                              |      |          |  |                                                               |      |                      |      |      |      |     



---



|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Aggregate research and development costs-to-date
    through December 31, 2004 incurred by Onyx since fiscal
    year 2000 for the sorafenib project is $72.7 million.

28



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|    |                                
|--- | -------------------------------
|(2) | Costs in 2004 were comprised of



| |    |                          
| | -- | -------------------------
| | a. | stock-based compensation;



| |    |                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | consulting fees for consultants retained in
    connection with the orderly wind-down of the virus programs and
    preservation of related assets for potential future divestiture
    or commercialization;



| |    |                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------
| | c. | sponsored research at the University of
    California, San Francisco related to the preservation of
    the programs assets, and



| |    |                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------
| | d. | outside services related to stability testing and
    storage of virus product related to the programs.

Marketing Expenses.Marketing expenses consist primarily of salaries and employee
benefits, consulting and other third-party costs, and
allocations for overhead and occupancy costs. We reclassified
$1.4 million from research and development expenses to
marketing expenses for fiscal year 2003 to conform to the
current period presentation. Marketing expenses were
$5.4 million in 2004, a net increase of $4.0 million,
from 2003. The increase was due to third-party costs and
employee-related expenses as Onyx and Bayer establish a
commercial infrastructure and engage in precommercial marketing
activities. It is anticipated that marketing expenses will
increase in future periods as we develop our marketing
capabilities in order for us to copromote sorafenib with Bayer
in the United States should sorafenib receive U.S. Food and
Drug Administration, or FDA, approval. Marketing expenses were
$1.4 million in 2003 as compared to zero for 2002.
Marketing expenses in 2003 consisted entirely of Onyxs
50 percent share of precommercial marketing expenses
incurred by Bayer for sorafenib.

General and Administrative
Expenses.General and administrative
expenses consist primarily of salaries, employee benefits, and
corporate functional expenses. General and administrative
expenses were $8.8 million in 2004, a net increase of
$2.3 million, or 35 percent, from 2003. The increase
was primarily related to $700,000 of consulting expenses for
information systems, increased overhead and occupancy expenses
of $800,000 allocated to general and administrative expenses,
and $400,000 of costs related to satisfying the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002 regarding
internal controls over financial reporting. General and
administrative expenses were $6.6 million in 2003, an
increase of $359,000, or 6 percent, from 2002. The increase
was primarily due to an increase in corporate development
consulting expenses and stock-based compensation expense related
to consultant stock option grants. The increase to stock-based
compensation expense was caused in part by the increase in our
stock price in 2003 compared with 2002. We anticipate that
general and administrative expenses may continue to increase
moderately to support our growing infrastructure needs.

Restructuring.Prior
to June 2003, in addition to our small molecule program, we were
developing therapeutic viruses that selectively replicate in
cells with cancer-causing genetic mutations. In June 2003, we
announced that we were discontinuing this program as part of a
business realignment that placed an increased priority on the
development of sorafenib. During 2003, we recorded aggregate
charges of $5.5 million associated with the restructuring.
These charges consist of $1.6 million related to employee
severance benefits and $2.5 million related to the early
termination of a process development and manufacturing agreement
with XOMA (US) LLC. In addition, we incurred aggregate
charges of $1.4 million related to the discontinued use of
a portion of our leased facilities and the disposal of certain
property and equipment. We reclassified $350,000 from property
and equipment to other current assets for equipment
held-for-sale at December 31, 2003. Had this equipment not
been reclassified to other current assets, we would have
recorded an additional $27,000 of depreciation expense in 2003.

In 2004, we recorded an additional restructuring
charge of $258,000 due to a change in estimate related to the
discontinued use and inability to sublet a portion of our leased
facility in Richmond, California. We expect that the remaining
accrued restructuring costs of $195,000 at December 31,
2004 will be fully paid by the second quarter of 2005 when the
remaining lease obligation on the facility is due. There were no
restructuring expenses in fiscal year 2002.

Interest Income and (Expense),
Net.We had net interest income of
$3.2 million in 2004, an increase of $2.3 million from
2003, primarily due to higher average cash and investment
balances resulting

29



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from our February 2004 sale of equity securities
from which we received approximately $148.3 million in net
cash proceeds. We had net interest income of $834,000 in 2003, a
decrease of $325,000 from 2002, primarily due to lower average
interest rates. Interest expense was immaterial for the periods
presented.


Other Expense  Related
Party.In November 2001, we sold and
licensed to Syrrx, Inc. assets from our small molecules
discovery program, including drug targets, related reagents and
assays, compound libraries and certain intellectual property
rights in exchange for preferred stock valued at $750,000. The
entire amount was recorded as Other income-related
party on the date of sale. The value of the preferred
stock was initially determined based on similar sales of Syrrx
preferred stock to unrelated third parties for cash. In 2002,
due to a further round of financing completed by Syrrx, we
recorded $100,000 as Other expense-related party to
recognize a permanent impairment in the carrying value of the
investment. In 2003, based on a further round of financing
completed by Syrrx in April 2003, we recorded an additional
impairment charge of $275,000 as Other expense-related
party to reduce the carrying value of the investment. We
consider the reduction in value of the Syrrx investment to be
other than temporary. We did not record any write-downs in 2004.
At the time of the transactions mentioned above, a member of the
board of directors of Onyx was a director and officer of Syrrx.
This board member is no longer an officer of Syrrx.

Other Income.In
2002, we licensed assets from our small molecules discovery
program to a third party for $235,000. This amount was recorded
as Other income. No similar items were recorded in
fiscal years 2004 and 2003.

Income Taxes

Since our inception, we have incurred operating
losses and accordingly have not recorded a provision for income
taxes for any of the periods presented and since inception. As
of December 31, 2004, our net operating loss carryforwards
for federal income tax purposes were approximately
$173.4 million and for state income tax purposes were
approximately $59.9 million. We also had federal research
and development tax credit carryforwards of approximately
$3.1 million. Realization of these deferred tax assets is
dependent upon future earnings, if any, the timing and amount of
which are uncertain. Accordingly, the net deferred tax assets
have been fully offset by a valuation allowance. If not
utilized, the net operating loss and credit carryforwards will
expire at various dates beginning in 2005. Utilization of net
operating losses and credits may be subject to substantial
annual limitations due to ownership change limitations provided
by the Internal Revenue Code of 1986. The annual limitation may
result in the expiration of our net operating loss and credit
carryforwards before they can be used. Please read Note 11
of the Notes to the Financial Statements included in Item 8
of this Form 10-K for further information.

Related Party Transactions

We had a loan with a former employee of which
approximately $275,000 was outstanding at December 31,
2003. This loan bore interest at 5.98% per annum; however,
we had forgiven $82,000 of interest over the term of the loan
through August 2004. This loan was repaid in August 2004 in
accordance with the terms of the loan agreement.

In September 2004, we announced that
Warner-Lambert initiated Phase I clinical trials advancing
PD 332991, a lead candidate from our previous cell cycle kinase
discovery collaboration. As a result, we received a
$500,000 milestone payment in October 2004, which we
recorded as contract revenue from a related party.

In November 2001, we sold and licensed to Syrrx
assets from our small molecules discovery program in exchange
for Syrrx preferred stock valued at $750,000. We could also
receive royalties on pharmaceutical products resulting from
these assets. At the time of the transaction mentioned above, a
member of the board of directors of Onyx was a director and
officer of Syrrx. This board member is no longer an officer of
Syrrx.

In May 2002, we issued and sold
2,972,925 shares of common stock in a private placement to
a current shareholder and several new investors, at a price of
$6.75 per share, for gross proceeds of $20.0 million.
We also issued warrants to purchase 743,229 shares of
common stock at an exercise price of $9.59 per share. A

30



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##### Table of Contents



member of our board of directors is a managing
member of Domain Associates, L.L.C., one of the participants in
the private placement.


Liquidity and Capital Resources

Since our inception, our cash expenditures have
substantially exceeded our revenues, and we have relied
primarily on the proceeds from the sale of equity securities to
fund our operations.

At December 31, 2004, we had cash, cash
equivalents, and marketable securities of $209.6 million,
compared to $105.4 million at December 31, 2003 and
$39.8 million at December 31, 2002. The increase in
cash, cash equivalents, and marketable securities in 2004 of
$104.2 million was attributable to our public offering
completed in February 2004, which raised aggregate net cash
proceeds of $148.3 million, as well as $4.0 million
received from the exercise of stock options and warrants and
$595,000 received from the sale of fixed assets of laboratory
equipment associated with our restructuring in 2003. These
sources of cash were partially offset by net cash used in
operating activities of $46.9 million and capital
expenditures of $1.6 million primarily related to the move
of our office facility from Richmond to Emeryville.

The increase in cash, cash equivalents and
marketable securities of $65.6 million in 2003 was
attributable to our public offering completed in July and August
2003, which raised aggregate net cash proceeds of
$73.7 million; the private placement financing that we
completed in February 2003, which raised net cash proceeds of
$9.9 million; $4.6 million received from the exercise
of stock options and the employee stock purchase plan; and
$302,000 received from the sale of equipment. In addition, we
received a $15.0 million creditable milestone-based payment
from Bayer in December 2003 upon initiation of a Phase III
clinical trial of sorafenib. This payment will be repayable to
Bayer from a portion of any of Onyxs future profits and
royalties. If Onyx does not receive any profits or royalties on
any products, Onyx will not have to repay Bayer any creditable
milestone-based payments. These sources of cash were partially
offset by cash used in operations of $37.8 million and
capital expenditures of $157,000.

Our cash used in operations was
$46.9 million in 2004, $37.8 million in 2003 and
$42.2 million in 2002. In 2004, the cash was used primarily
for cofunding the clinical development program with Bayer for
sorafenib. In 2003, the cash was used primarily for cofunding
clinical development costs with Bayer for sorafenib and to fund
development expenses including manufacturing and clinical trial
costs for ONYX-015. Expenditures for capital equipment amounted
to $1.6 million in 2004, $157,000 in 2003 and $742,000 in
2002. Capital expenditures in 2004 were primarily for upgrades
to our information technology equipment and leasehold
improvements and furniture related to our move in December 2004
into our new corporate headquarters. We currently expect to make
expenditures for capital equipment and leasehold improvements of
up to $1.0 million in 2005.

We believe that our existing capital resources
and interest thereon, together with approximately
$148.3 million in net proceeds from our public offering
closed in February 2004, will be sufficient to fund our current
and planned operations through mid-2007. However, if we change
our development plans, we may need additional funds sooner than
we expect. In addition, we anticipate that our codevelopment
costs for the sorafenib program will increase over the next
several years as the Phase III clinical trial program
advances. While these costs are unknown at the current time, we
may need to raise additional capital to continue the cofunding
of the program in future periods beyond mid-2007. We intend to
seek this additional funding through collaborations, public and
private equity or debt financings, capital lease transactions or
other available financing sources. Additional financing may not
be available on acceptable terms, if at all. If additional funds
are raised by issuing equity securities, substantial dilution to
existing stockholders may result. If adequate funds are not
available, we may be required to delay, reduce the scope of or
eliminate one or more of our research or development programs or
to obtain funds through collaborations with others that are on
unfavorable terms or that may require us to relinquish rights to
certain of our technologies, product candidates or products that
we would otherwise seek to develop on our own.

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##### Table of Contents



Our contractual obligations for the next five
years and thereafter are as follows:

|                                         |  |                        |       |           |  |       |     |       |  |         |       |  |  |   |       |  |  |   |     | 
|---------------------------------------- |  | ---------------------- | ----- | --------- |  | ----- | --- | ----- |  | ------- | ----- |  |  | - | ----- |  |  | - | --- | 
|                                         |  |                       
|                                         |  | Payments Due by Period
|                                         |  |                       
|                                         |  |                        |       | Less than |  | 1-3   |     | 3-5   |  | After  
|Contractual Obligations(1)               |  | Total                  |       | 1 Year    |  | Years |     | Years |  | 5 Years
|                                         |  |                        |       |           |  |       |     |       |  |        
|                                         |  |                       
|                                         |  | (In thousands)        
|Operating leases, net of sublease income |  | $                      | 3,018 |           |  | $     | 639 |       |  | $       | 1,109 |  |  | $ | 1,164 |  |  | $ | 106 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This table does not include any payments under
    research and development collaborations, as the amount and
    timing of such payments are not known. This table also does not
    include the obligation to repay the $20 million creditable
    milestone-based payments that we received from Bayer, because
    the repayment of these amounts is contingent upon Onyx
    generating profits or royalties on any products. Whether Onyx
    will ever generate any profits or royalties is not known at this
    time.

In 2004, we entered into a new operating lease
for 23,000 square feet of office space in Emeryville,
California, which serves as our new corporate headquarters. The
lease expires on February 28, 2010. When we moved into this
new facility in December 2004, we vacated our 50,000 square
foot facility in Richmond, California. The lease for this
facility expires in April 2005, and we have no plans to renew
this lease. We also have a lease for 9,000 square feet of
space in a secondary facility in Richmond, California. In
December 2001, we determined that we no longer required the
secondary facility because of a reduction in force. In September
2002, the Company entered into a sublease agreement for this
space through September 2010.

Recently Issued Accounting Standard

In December 2004, the FASB issued SFAS 123(R),
Share-Based Payment, which is a revision of FASB
Statement No. 123, Accounting for Stock-Based
Compensation, or SFAS 123. SFAS 123(R)
supersedes Accounting Principals Board Opinion No. 25,
Accounting for Stock Issued to Employees, and amends
FASB Statement No. 95, Statement of Cash Flows.
Generally, the approach in SFAS 123(R) is similar to the
approach described in SFAS 123. However, SFAS 123(R)
requires all share-based payments to employees, including grants
of employee stock options and employee stock purchase plans to
be recognized in the income statement based on fair values of
such instruments. The pro forma disclosures previously permitted
under SFAS 123 no longer will be an alternative to
financial statement recognition. We would be required to
implement the standard no later than the quarter that begins
July 1, 2005. SFAS 123(R) permits public companies to
adopt its requirements using one of two methods:



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | A modified prospective method in
    which compensation cost is recognized beginning with the
    effective date (a) based on the requirements of
    SFAS 123(R) for all share-based payments granted after the
    effective date and (b) based on the requirements of
    SFAS 123 for all awards granted to employees prior to the
    effective date of SFAS 123(R) that remain unvested on the
    effective date.
|
| | 2. | A modified retrospective method which
    includes the requirements of the modified prospective method
    described above, but also permits entities to restate based on
    the amounts previously recognized under SFAS 123 for
    purposes of pro forma disclosures either (a) all prior
    periods presented or (b) prior interim periods of the year
    of adoption.                                           

Although we have not determined whether the
adoption of SFAS 123(R) will result in amounts that are
similar to the current pro forma disclosures under
SFAS 123, we are evaluating the requirements under
SFAS 123(R) and expect the adoption to have a significant
adverse impact on our consolidated statements of operations and
net loss per share.

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##### Table of Contents








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk



| |                   
| | ------------------
| | Interest Rate Risk

The primary objective of our investment
activities is to preserve principal while at the same time
maximize the income we receive from our investments without
significantly increasing risk. Our exposure to market rate risk
for changes in interest rates relates primarily to our
investment portfolio. This means that a change in prevailing
interest rates may cause the principal amount of the investments
to fluctuate. By policy, we minimize risk by placing our
investments with high quality debt security issuers, limit the
amount of credit exposure to any one issuer, limit duration by
restricting the term, and hold investments to maturity except
under rare circumstances. We maintain our portfolio of cash
equivalents and marketable securities in a variety of
securities, including commercial paper, money market funds, and
investment grade government and non-government debt securities.
Through our money manager, we maintain risk management control
systems to monitor interest rate risk. The risk management
control systems use analytical techniques, including sensitivity
analysis. If market interest rates were to increase by
100 basis points, or 1%, as of December 31, 2004, the
fair value of our portfolio would decline by approximately
$579,000.

The table below presents the amounts and related
weighted interest rates of our cash equivalents and marketable
securities at December 31:

|                                  |  |          |               |                 |  |          |       |          |  |                 |      |          |  |  |               |  |  |   |      |  |  |  |      |  
|--------------------------------- |  | -------- | ------------- | --------------- |  | -------- | ----- | -------- |  | --------------- | ---- | -------- |  |  | ------------- |  |  | - | ---- |  |  |  | ---- | -
|                                  |  |          |               |                
|                                  |  | 2004     |               | 2003           
|                                  |  |          |               |                
|                                  |  |          |               | Average         |  |          |       | Average 
|                                  |  |          |               | Fair Value      |  | Interest |       |          |  | Fair Value      |      | Interest
|                                  |  | Maturity |               | ($ in millions) |  | Rate     |       | Maturity |  | ($ in millions) |      | Rate    
|                                  |  |          |               |                 |  |          |       |          |  |                 |      |         
|Cash equivalents, fixed rate      |  |          | 0  2 months  |                 |  | $        | 74.2  |          |  |                 | 2.09 | %        |  |  | 0  3 months  |  |  | $ | 55.2 |  |  |  | 1.04 | %
|Marketable securities, fixed rate |  |          | 0  16 months |                 |  | $        | 135.4 |          |  |                 | 2.18 | %        |  |  | 0  19 months |  |  | $ | 50.1 |  |  |  | 1.49 | %

We did not hold any derivative instruments as of
December 31, 2004, and we have not held derivative
instruments in the past. However, our investment policy does
allow us to use derivative financial instruments for the
purposes of hedging foreign currency denominated obligations.
Our cash flows are denominated in U.S. dollars.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Our Financial Statements and notes thereto appear
on pages 42 to 60 of this Annual Report on Form 10-K.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With
    Accountants on Accounting and Financial Disclosure

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Inherent Limitations on Effectiveness of
Controls:Internal control over
financial reporting may not prevent or detect all errors and all
fraud. Also, projections of any evaluation of effectiveness of
internal control to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.

Evaluation of Disclosure Controls and
Procedures:The Companys chief
executive officer and principal financial officer reviewed and
evaluated the Companys disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended). Based on that
evaluation, the Companys chief executive officer and
principal financial officer concluded that the Companys
disclosure controls and procedures were effective as of
December 31, 2004 to ensure the information required to be
disclosed by the Company in this Annual Report on Form-K is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms.

Managements Report on Internal Control
over Financial Reporting:The
Companys management is responsible for establishing and
maintaining adequate internal control over financial reporting
(as defined in

33



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##### Table of Contents



Rule 13a-15(f) under the Securities Exchange Act
of 1934, as amended). Under the supervision and with the
participation of the Companys management, including the
chief executive officer and principal financial officer, the
Company conducted an evaluation of the effectiveness of internal
control over financial reporting as of December 31, 2004.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal
Control-Integrated Framework. The Companys management has
concluded that, as of December 31, 2004, the Companys
internal control over financial reporting is effective based on
these criteria.


Managements assessment of the effectiveness
of the Companys internal control over financial reporting
as of December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which is included elsewhere herein.

Changes in Internal Control over Financial
Reporting:There were no changes in
the Companys internal control over financial reporting
during the quarter ended December 31, 2004 that have
materially affected, or are reasonably likely to materially
affect the Companys internal control over financial
reporting.

34



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders

Onyx Pharmaceuticals, Inc.


We have audited managements assessment,
included in the accompanying Managements Annual Report on
Internal Control Over Financial Reporting, that Onyx
Pharmaceuticals, Inc. maintained effective internal control over
financial reporting as of December 31, 2004, based on
criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Onyx
Pharmaceuticals, Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the companys internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

A companys internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.

In our opinion, managements assessment that
Onyx Pharmaceuticals, Inc. maintained effective internal control
over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Onyx Pharmaceuticals, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO
criteria.

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the balance sheets of Onyx Pharmaceuticals,
Inc. as of December 31, 2004 and 2003, and the related
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2004 and our report dated March 14,2005 expressed an unqualified opinion thereon.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Palo Alto, California

March 14, 2005


35



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##### Table of Contents






PART III.






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this item concerning
our directors and executive officers is incorporated by
reference from our 2005 Definitive Proxy Statement filed not
later than 120 days following the close of the fiscal year.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required under this item is
hereby incorporated by reference from our 2005 Definitive Proxy
Statement.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required under this item is
hereby incorporated by reference from our 2005 Definitive Proxy
Statement.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required under this item is
hereby incorporated by reference from our 2005 Definitive Proxy
Statement.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information required under this item is
hereby incorporated by reference from our 2005 Definitive Proxy
Statement.

Consistent with Section 10A (i) (2) of the
Securities Exchange Act of 1934, as added by Section 202 of
the Sarbanes-Oxley Act of 2002, we are responsible for listing
the non-audit services approved by our Audit Committee to be
performed by Ernst & Young LLP, our external auditor.
Non-audit services are defined as services other than those
provided in connection with an audit or a review of our
financial statements. The Audit Committee has approved Ernst
& Young LLP for the following non-audit services: (1)
preparation of federal and state income tax returns, and tax
advice in preparing for and in connection with such filings; and
(2) an audit of collaboration expenses incurred by Bayer.




PART IV.






|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits, Financial Statement
    Schedules

(a) (1) Index to Financial
Statements



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | The Financial Statements required by this item
    are submitted in a separate section beginning on page 42 of
    this Report.
|
| | Report of Independent Registered Public
    Accounting Firm                                                                    
| | Balance Sheets                                                                                                                 
| | Statements of Operations                                                                                                       
| | Statement of Stockholders Equity                                                                                              
| | Statements of Cash Flows                                                                                                       
| | Notes to Financial Statements                                                                                                  

(2) Financial Statement
Schedules



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Financial statement schedules have been omitted
    because the information required to be set forth therein is not
    applicable.

36



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##### Table of Contents



(3) Exhibits

|        |    |                         |  |                                                                                                                                                                                                                                                                                                                            
|------- | -- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 3  | .1(1)                   |  | Restated Certificate of Incorporation of the
    Company.                                                                                                                                                                                                                                                                  
|       
|        | 3  | .2(1)                   |  | Bylaws of the Company.                                                                                                                                                                                                                                                                                                     
|       
|        | 3  | .3(2)                   |  | Certificate of Amendment to Amended and Restated
    Certificate of Incorporation.                                                                                                                                                                                                                                         
|       
|        | 4  | .1(1)                   |  | Reference is made to Exhibits 3.1, 3.2 and
    3.3.                                                                                                                                                                                                                                                                        
|       
|        | 4  | .2(1)                   |  | Specimen Stock Certificate.                                                                                                                                                                                                                                                                                                
|       
|        | 4  | .4(1)                   |  | Amended and Restated Information and Registration
    Rights Agreement dated May 30, 1994 and as amended through
    May 16, 1995.                                                                                                                                                                                         
|       
|        | 10 | .1(1)*                  |  | Collaboration Agreement between Bayer Corporation
    (formerly Miles, Inc.) and the Company dated April 22, 1994.                                                                                                                                                                                                         
|       
|        | 10 | .1(i)(1)*               |  | Amendment to Collaboration Agreement between
    Bayer Corporation and the Company dated April 4, 1996.                                                                                                                                                                                                                    
|       
|        | 10 | .2(1)*                  |  | Research, Development and Marketing Collaboration
    Agreement between Warner-Lambert Company and the Company, dated
    May 2, 1995.                                                                                                                                                                                     
|       
|        | 10 | .2(i)(1)                |  | Waiver of Certain Rights under the Research,
    Development and Marketing Agreement by Warner-Lambert Company
    dated as of March 28, 1996.                                                                                                                                                                             
|       
|        | 10 | .5(4)*                  |  | Technology Transfer Agreement dated
    April 24, 1992 between Chiron Corporation and the Company,
    as amended in the Chiron Onyx HPV Addendum dated
    December 2, 1992, in the Amendment dated February 1,
    1994, in the Letter Agreement dated May 20, 1994 and in the
    Letter Agreement dated March 29, 1996.
|       
|        | 10 | .6(1)                   |  | Scientific Advisory Board Consulting Agreement
    between Dr. Frank McCormick and the Company, as of
    March 29, 1996.                                                                                                                                                                                                  
|       
|        | 10 | .6(i)(1)                |  | Letter Agreement for Consulting Services between
    Dr. Frank McCormick and the Company dated April 17,
    1996.                                                                                                                                                                                                         
|       
|        | 10 | .9(1)+                  |  | Letter Agreement between Dr. Gregory Giotta
    and the Company dated May 26, 1995.                                                                                                                                                                                                                                        
|       
|        | 10 | .13(1)+                 |  | 1996 Equity Incentive Plan.                                                                                                                                                                                                                                                                                                
|       
|        | 10 | .14(1)+                 |  | 1996 Non-Employee Directors Stock Option
    Plan.                                                                                                                                                                                                                                                                        
|       
|        | 10 | .15(1)+                 |  | 1996 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                         
|       
|        | 10 | .16(3)                  |  | Lease by and between Hall Properties, Inc. and
    the Company dated September 9, 1992, the First Amendment
    thereto dated April 21, 1993 and the Second Amendment
    thereto dated May 11, 1996.                                                                                                                      
|       
|        | 10 | .17(1)+                 |  | Form of Indemnity Agreement to be signed by
    executive officers and directors of the Company.                                                                                                                                                                                                                           
|       
|        | 10 | .19(5)                  |  | Letter Agreement between Dr. Allan Balmain
    and the Company dated August 26, 1996, as amended
    March 13, 1997.                                                                                                                                                                                                       
|       
|        | 10 | .20(6)*                 |  | Amended and restated Research, Development and
    Marketing Collaboration Agreement dated May 2, 1995 between
    the Company and Warner-Lambert Company.                                                                                                                                                                 
|       
|        | 10 | .21(6)*                 |  | Research, Development and Marketing Collaboration
    Agreement dated July 31, 1997 between the Company and
    Warner-Lambert Company.                                                                                                                                                                                    
|       
|        | 10 | .23(6)*                 |  | Amendment to the Amended and Restated Research,
    Development and Marketing Collaboration Agreement, dated
    December 15, 1997, between the Company and Warner-Lambert
    Company.                                                                                                                                    
|       
|        | 10 | .24(7)*                 |  | Amendment to Collaboration Agreement between
    Bayer Corporation and the Company dated February 1, 1999.                                                                                                                                                                                                                 
|       
|        | 10 | .25(8)                  |  | Scientific Advisory Board Consulting Agreement
    effective September 10, 1999 between Allan Balmain and the
    Company including the First Amendment to Deed of Trust and
    Second Amended and Restated Promissory Note.                                                                                              

37



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##### Table of Contents



|        |    |                         |  |                                                                                                                                                                          
|------- | -- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|       
|        | 10 | .26(9)*                 |  | Collaboration Agreement between the Company and
    Warner-Lambert Company dated October 13, 1999 and effective
    September 1, 1999.                                   
|       
|        | 10 | .27(9)                  |  | Stock Put and Purchase Agreement between the
    Company and Warner-Lambert Company dated October 13, 1999
    and effective September 1, 1999.                          
|       
|        | 10 | .28(9)                  |  | Stock Purchase Agreement between the Company and
    the investors dated January 18, 2000.                                                                               
|       
|        | 10 | .29(10)                 |  | Third Amendment to Lease by and between the
    Metcalf Family Living Trust Dated June 11, 1993 and the
    Company effective February 24, 2000.                         
|       
|        | 10 | .31(6)*                 |  | Second Amendment to the Amended and Restated
    Research, Development and Marketing Agreement between
    Warner-Lambert and the Company dated May 2, 1995.             
|       
|        | 10 | .32(6)*                 |  | Second Amendment to Research, Development and
    Marketing Collaboration Agreement between Warner-Lambert and the
    Company dated July 31, 1997.                      
|       
|        | 10 | .33(11)+                |  | Employment Offer Letter between Leonard E.
    Post, Ph.D. and the Company dated July 28, 2000.                                                                          
|       
|        | 10 | .34(12)*                |  | Process Development and Manufacturing Agreement
    between XOMA (US) LLC and Onyx Pharmaceuticals, Inc., dated
    January 29, 2001.                                    
|       
|        | 10 | .35(13)+                |  | Form of Executive Change in Control Severance
    Benefits Agreement.                                                                                                    
|       
|        | 10 | .36(14)*                |  | Amendment #1 to the Collaboration Agreement
    between the Company and Warner-Lambert dated August 6, 2001.                                                             
|       
|        | 10 | .37(14)*                |  | Amendment #3 to the Research, Development
    and Marketing Collaboration Agreement between the Company and
    Warner-Lambert dated August 6, 2001.                     
|       
|        | 10 | .38(14)*                |  | Amendment #3 to the Amended and Restated
    Research, Development and Marketing Collaboration Agreement
    between the Company and Warner-Lambert dated August 6, 2001.
|       
|        | 10 | .39(15)                 |  | Stock and Warrant Purchase Agreement between the
    Company and the investors dated May 6, 2002.                                                                        
|       
|        | 10 | .40(16)*                |  | Amendment No. 1 to the Process Development
    and Manufacturing Agreement between the Company and XOMA (US)
    LLC dated April 15, 2002.                               
|       
|        | 10 | .41(17)*                |  | Amendment to the Collaboration Agreement between
    the Company and Warner-Lambert Company dated September 16,
    2002.                                                
|       
|        | 10 | .42(18)                 |  | Stock Purchase Agreement between the Company and
    the investors dated February 13, 2003.                                                                              
|       
|        | 10 | .43(19)                 |  | Sublease between the Company and Siebel Systems
    dated August 5, 2004.                                                                                                
|       
|        | 23 | .1                      |  | Consent of Independent Registered Public
    Accounting Firm.                                                                                                            
|       
|        | 24 | .1                      |  | Power of Attorney. Reference is made to the
    signature page.                                                                                                          
|       
|        | 31 | .1                      |  | Certification required by Rule 13a-14(a) or Rule
    15d-14(a).                                                                                                          
|       
|        | 32 | .1                      |  | Certifications required by Rule 13a-14(b) or Rule
    15d-14(b) and Section 1350 of Chapter 63 of
    Title 18 of the United States Code (18 U.S.C. 1350).               



---



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| | * | Confidential treatment has been received for
    portions of this document.



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| | + | Indicates management contract or compensatory
    plan or arrangement.



| |     |                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------
| | (1) | Filed as an exhibit to Onyxs Registration
    Statement on Form SB-2 (No. 333-3176-LA).                     
|
| | (2) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2000.     
|
| | (3) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    1996.     
|
| | (4) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 2001.           
|
| | (5) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    1997.    
|
| | (6) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 2002.           
|
| | (7) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    1999.    
|
| | (8) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 1999.

38



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##### Table of Contents





| |     |                                                                                     
| | --- | ------------------------------------------------------------------------------------
| | (9) | Filed as an exhibit to Onyxs Current Report
    on Form 8-K filed on March 1, 2000.



|     |                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------
|(10) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 1999.                
|    
|(11) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2000.     
|    
|(12) | Filed as an exhibit to Onyxs Current Report
    on Form 8-K filed on February  23, 2001.                         
|    
|(13) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2001.         
|    
|(14) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2001.     
|    
|(15) | Filed as an exhibit to Onyxs Registration
    Statement on Form S-3 filed on June 5, 2002
    (No. 333-89850).   
|    
|(16) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2002.          
|    
|(17) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2002.     
|    
|(18) | Filed as an exhibit to Onyxs Registration
    Statement on Form S-3 filed on March 25, 2003
    (No. 333-104025).
|    
|(19) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2004.     

39



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Act of 1934, as amended, the
Registrant has duly caused this Annual Report on
Form  10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Emeryville, County of Alameda, State of California, on the 15th
day of March, 2005.



| |                           
| | --------------------------
| | ONYX PHARMACEUTICALS, INC.



| |     |                       
| | --- | ----------------------
| | BY: | /s/ HOLLINGS C. RENTON

| |                                          
| | -----------------------------------------
| | Hollings C. Renton                       
| | Chairman of the Board,                   
| | President and Chief Executive
    Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Hollings C. Renton and Marilyn E. Wortzman or either of them,
his or her attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K, and to
file the same, with exhibits thereto and other documents in
connections therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his or her substitute or substitutes,
may do or cause to be done by virtue hereof.

In accordance with the requirements of the
Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant in
the capacities and on the dates stated.

|                                             |  |                                                                                                                  |  |                |  | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                             |  |                                                                                                                  |  |               
|Signature                                    |  | Title                                                                                                            |  | Date          
|                                             |  |                                                                                                                  |  |               
|                                            
|/s/ HOLLINGS C. RENTONHollings C. Renton     |  | Chairman of the Board,
    President and Chief Executive Officer
    (Principal Executive and Financial Officer) |  | March 15, 2005
|                                            
|/s/ MARILYN E. WORTZMANMarilyn E. Wortzman   |  | Vice President, Finance and Administration
    (Principal Accounting Officer)                                    |  | March 15, 2005
|                                            
|/s/ PAUL GODDARDPaul Goddard                 |  | Director                                                                                                         |  | March 15, 2005
|                                            
|/s/ ANTONIO GRILLO-LÓPEZAntonio Grillo-López |  | Director                                                                                                         |  | March 15, 2005
|                                            
|/s/ MAGNUS LUNDBERGMagnus Lundberg           |  | Director                                                                                                         |  | March 15, 2005
|                                            
|/s/ NICOLE VITULLONicole Vitullo             |  | Director                                                                                                         |  | March 15, 2005

40



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##### Table of Contents



|                                       |  |          |  |                |  | 
|-------------------------------------- |  | -------- |  | -------------- |  | 
|                                       |  |          |  |               
|Signature                              |  | Title    |  | Date          
|                                       |  |          |  |               
|                                      
|/s/ WENDELL WIERENGAWendell Wierenga   |  | Director |  | March 15, 2005
|                                      
|/s/ THOMAS G. WIGGANSThomas G. Wiggans |  | Director |  | March 15, 2005

41



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders

Onyx Pharmaceuticals, Inc.


We have audited the accompanying balance sheets
of Onyx Pharmaceuticals, Inc. as of December 31, 2004 and
2003, and the related statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2004. These
financial statements are the responsibility of Onyx
Pharmaceuticals management. Our responsibility is to
express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Onyx Pharmaceuticals, Inc. at December 31, 2004
and 2003, and the results of its operations and its cash flows
for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally
accepted accounting principles.

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Onyx Pharmaceuticals,
Inc.s internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 14,2005 expressed an
unqualified opinion thereon.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Palo Alto, California

March 14, 2005


42



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.

BALANCE SHEETS

|                                         |                                                                                                                                                                                  |                             |         |          |         |   |         |          |         | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|                                         |                                                                                                                                                                                  |                            
|                                         |                                                                                                                                                                                  | December 31,               
|                                         |                                                                                                                                                                                  |                            
|                                         |                                                                                                                                                                                  | 2004                        |         | 2003    
|                                         |                                                                                                                                                                                  |                             |         |         
|                                         |                                                                                                                                                                                  |                            
|                                         |                                                                                                                                                                                  | (In thousands, except share
|                                         |                                                                                                                                                                                  | and per share amounts)     
|ASSETS                                  
|Current Assets:                          |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                         | Cash and cash equivalents                                                                                                                                                        |                             | $       | 74,243   |         |   | $       | 55,312   |        
|                                         | Marketable securities                                                                                                                                                            |                             |         | 135,381  |         |   |         | 50,088   |        
|                                         | Receivable from collaboration partner                                                                                                                                            |                             |         | 1,029    |         |   |         | 584      |        
|                                         | Other current assets                                                                                                                                                             |                             |         | 2,778    |         |   |         | 2,461    |        
|                                         |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                         |                                                                                                                                                                                  | Total current assets        |         |          | 213,431 |   |         |          | 108,445 | 
|Property and equipment, net              |                                                                                                                                                                                  |                             | 1,623   |          |         |   | 285     |         
|Other assets                             |                                                                                                                                                                                  |                             | 492     |          |         |   | 408     |         
|                                         |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                         |                                                                                                                                                                                  | $                           | 215,546 |          |         | $ | 109,138 |         
|                                         |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current Liabilities:                     |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                         | Accounts payable                                                                                                                                                                 |                             | $       | 1,038    |         |   | $       | 299      |        
|                                         | Payable to collaboration partner                                                                                                                                                 |                             |         | 11,520   |         |   |         | 13,632   |        
|                                         | Accrued liabilities                                                                                                                                                              |                             |         | 1,895    |         |   |         | 494      |        
|                                         | Accrued compensation                                                                                                                                                             |                             |         | 910      |         |   |         | 722      |        
|                                         | Accrued restructuring                                                                                                                                                            |                             |         | 195      |         |   |         | 325      |        
|                                         | Accrued clinical trials and related expenses                                                                                                                                     |                             |         |         |         |   |         | 147      |        
|                                         |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                         |                                                                                                                                                                                  | Total current liabilities   |         |          | 15,558  |   |         |          | 15,619  | 
|Advance from collaboration partner       |                                                                                                                                                                                  |                             | 20,000  |          |         |   | 20,000  |         
|Commitments and contingencies            |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|Stockholders Equity:                    |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                         | Preferred stock, $0.001 par value;
    5,000,000 shares authorized; none issued and outstanding                                                                                  |                             |         |         |         |   |         |         |        
|                                         | Common stock, $0.001 par value;
    50,000,000 shares authorized; 35,266,667 and
    29,586,022 shares issued and outstanding as of
    December 31, 2004 and 2003, respectively |                             |         | 35       |         |   |         | 30       |        
|                                         | Additional paid-in capital                                                                                                                                                       |                             |         | 430,966  |         |   |         | 277,577  |        
|                                         | Receivable from stock option exercises                                                                                                                                           |                             |         |         |         |   |         | (235     | )      
|                                         | Accumulated other comprehensive (loss) income                                                                                                                                    |                             |         | (377     | )       |   |         | 27       |        
|                                         | Accumulated deficit                                                                                                                                                              |                             |         | (250,636 | )       |   |         | (203,880 | )      
|                                         |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                         |                                                                                                                                                                                  | Total stockholders equity  |         |          | 179,988 |   |         |          | 73,519  | 
|                                         |                                                                                                                                                                                  |                             |         |          |         |   |         |         
|                                         |                                                                                                                                                                                  | $                           | 215,546 |          |         | $ | 109,138 |         
|                                         |                                                                                                                                                                                  |                             |         |          |         |   |         |         

See accompanying notes.

43



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

|                                                                  |                                     |                                 |         |         |        |      |         |         |        |   |         |         |        | 
|----------------------------------------------------------------- | ----------------------------------- | ------------------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                                  |                                     |                                
|                                                                  |                                     | Year Ended December 31,        
|                                                                  |                                     |                                
|                                                                  |                                     | 2004                            |         | 2003    |        | 2002
|                                                                  |                                     |                                 |         |         |        |     
|                                                                  |                                     |                                
|                                                                  |                                     | (In thousands, except per share
|                                                                  |                                     | amounts)                       
|Revenue:                                                          |                                     |                                 |         |         |        |      |         |         |        |   |         |        
|                                                                  | Contract revenue from related party |                                 | $       | 500     |        |      | $       |        |        |   | $       | 2,715   |       
|                                                                  |                                     |                                 |         |         |        |      |         |         |        |   |         |        
|                                                                  |                                     | Total revenue                   |         |         | 500    |      |         |         |       |   |         |         | 2,715  | 
|Operating expenses:                                               |                                     |                                 |         |         |        |      |         |         |        |   |         |        
|                                                                  | Research and development            |                                 |         | 35,846  |        |      |         | 32,059  |        |   |         | 43,604  |       
|                                                                  | Marketing                           |                                 |         | 5,418   |        |      |         | 1,388   |        |   |         |        |       
|                                                                  | General and administrative          |                                 |         | 8,898   |        |      |         | 6,551   |        |   |         | 6,192   |       
|                                                                  | Restructuring                       |                                 |         | 258     |        |      |         | 5,530   |        |   |         |        |       
|                                                                  |                                     |                                 |         |         |        |      |         |         |        |   |         |        
|                                                                  |                                     | Total operating expenses        |         |         | 50,420 |      |         |         | 45,528 |   |         |         | 49,796 | 
|                                                                  |                                     |                                 |         |         |        |      |         |         |        |   |         |        
|Loss from operations                                              |                                     |                                 | (49,920 | )       |        |      | (45,528 | )       |        |   | (47,081 | )      
|Interest income and (expense), net                                |                                     |                                 | 3,164   |         |        |      | 834     |         |        |   | 1,159   |        
|Other expense  related party                                     |                                     |                                 |        |         |        |      | (275    | )       |        |   | (100    | )      
|Other income                                                      |                                     |                                 |        |         |        |      |        |         |        |   | 235     |        
|                                                                  |                                     |                                 |         |         |        |      |         |         |        |   |         |        
|                                                                  | Net loss                            |                                 | $       | (46,756 | )      |      | $       | (44,969 | )      |   | $       | (45,787 | )     
|                                                                  |                                     |                                 |         |         |        |      |         |         |        |   |         |        
|Basic and diluted net loss per share                              |                                     | $                               | (1.36   | )       |        | $    | (1.73   | )       |        | $ | (2.23   | )      
|                                                                  |                                     |                                 |         |         |        |      |         |         |        |   |         |        
|Shares used in computing basic and diluted net
    loss per share |                                     |                                 | 34,342  |         |        |      | 25,953  |         |        |   | 20,535  |        
|                                                                  |                                     |                                 |         |         |        |      |         |         |        |   |         |        

See accompanying notes.

44



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.

STATEMENT OF STOCKHOLDERS
EQUITY

|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |         |         |  
|----------------------------- | ---------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ---------- | ---------- | - | ------- | -- | ------------- | - | ----------- | ------- | ------------- | - | ------ | ---- | ---- | - | - | ---- | - | ---- | - | -------- | - | ------- | - | ------- | ------- | ------- | -
|                              |                                                                                                            |                                                    |            |            |   |         |    | Receivable    |   | Accumulated |         |               |   |       
|                              |                                                                                                            |                                                    |            |            |   | From    |    | Other         |   |             |         |              
|                              |                                                                                                            | Common Stock                                       |            | Additional |   | Stock   |    | Comprehensive |   |             |         | Total        
|                              |                                                                                                            |                                                    |            | Paid-In    |   | Option  |    | Income        |   | Accumulated |         | Stockholders
|                              |                                                                                                            | Shares                                             |            | Amount     |   | Capital |    | Exercises     |   | (Loss)      |         | Deficit       |   | Equity
|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |       
|                              |                                                                                                            |                                                   
|                              |                                                                                                            | (In thousands, except share and per share amounts)
|Balances at December 31, 2001 |                                                                                                            |                                                    | 18,529,929 |            |   | $       | 19 |               |   | $           | 168,092 |               |   | $      |     |      |   | $ | 98   |   |      | $ | (113,124 | ) |         | $ | 55,085  |        
|                              | Exercise of stock options at prices ranging from
    $0.07 to $6.88 per share                              |                                                    |            | 81,044     |   |         |    |              |   |             |         | 52            |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 52      |        
|                              | Issuance of common stock in private placement,
    net of costs of $1,044 and warrants valued at $4,378    |                                                    |            | 2,972,925  |   |         |    | 3             |   |             |         | 19,020        |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 19,023  |        
|                              | Stock-based compensation, related to non-employee
    stock option grants                                  |                                                    |            |           |   |         |    |              |   |             |         | 326           |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 326     |        
|                              | Issuance of common stock pursuant to employee
    stock purchase plan                                      |                                                    |            | 30,726     |   |         |    |              |   |             |         | 143           |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 143     |        
|                              | Comprehensive loss:                                                                                        |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |         |        
|                              |                                                                                                            | Change in unrealized loss on investments           |            |            |  |         |    |               |  |             |         |               |  |        |      |      |  |   |      |   | (58  | ) |          |   |        |   |         |         | (58     | )
|                              |                                                                                                            | Net loss                                           |            |            |  |         |    |               |  |             |         |               |  |        |      |      |  |   |      |   |     |   |          |   | (45,787 | ) |         |         | (45,787 | )
|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |        
|                              | Comprehensive loss                                                                                         |                                                    |            |           |   |         |    |              |   |             |         |              |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | (45,845 | )      
|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |        
|Balances at December 31, 2002 |                                                                                                            |                                                    | 21,614,624 |            |   |         | 22 |               |   |             | 187,633 |               |   |        |     |      |   |   | 40   |   |      |   | (158,911 | ) |         |   | 28,784  |        
|                              | Exercise of stock options at prices ranging from
    $1.07 to $25.63 per share                             |                                                    |            | 656,308    |   |         |    | 1             |   |             |         | 4,679         |   |        |      | (235 | ) |   |      |  |      |   |          |  |         |   |         | 4,445   |        
|                              | Issuance of common stock in private placement,
    net of costs of $98                                     |                                                    |            | 2,105,263  |   |         |    | 2             |   |             |         | 9,900         |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 9,902   |        
|                              | Issuance of common stock in connection with
    follow-on public offering, net of issuance costs of $5,826 |                                                    |            | 5,179,000  |   |         |    | 5             |   |             |         | 73,719        |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 73,724  |        
|                              | Stock-based compensation, related to non-employee
    stock option grants                                  |                                                    |            |           |   |         |    |              |   |             |         | 1,501         |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 1,501   |        
|                              | Issuance of common stock pursuant to employee
    stock purchase plan                                      |                                                    |            | 30,827     |   |         |    |              |   |             |         | 145           |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 145     |        
|                              | Comprehensive loss:                                                                                        |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |         |        
|                              |                                                                                                            | Change in unrealized loss on investments           |            |            |  |         |    |               |  |             |         |               |  |        |      |      |  |   |      |   | (13  | ) |          |   |        |   |         |         | (13     | )
|                              |                                                                                                            | Net loss                                           |            |            |  |         |    |               |  |             |         |               |  |        |      |      |  |   |      |   |     |   |          |   | (44,969 | ) |         |         | (44,969 | )
|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |        
|                              | Comprehensive loss                                                                                         |                                                    |            |           |   |         |    |              |   |             |         |              |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | (44,982 | )      
|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |        
|Balances at December 31, 2003 |                                                                                                            |                                                    | 29,586,022 |            |   |         | 30 |               |   |             | 277,577 |               |   |        | (235 | )    |   |   | 27   |   |      |   | (203,880 | ) |         |   | 73,519  |        
|                              | Exercise of stock options at prices ranging from
    $1.07 to $38.08 per share                             |                                                    |            | 424,265    |   |         |    |              |   |             |         | 3,275         |   |        |      | 235  |   |   |      |  |      |   |          |  |         |   |         | 3,510   |        
|                              | Issuance of common stock in connection with
    follow-on public offering, net of issuance costs of $9,837 |                                                    |            | 4,685,693  |   |         |    | 5             |   |             |         | 148,301       |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 148,306 |        
|                              | Stock-based compensation, related to non-employee
    stock option grants                                  |                                                    |            |           |   |         |    |              |   |             |         | 1,353         |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 1,353   |        
|                              | Issuance of common stock pursuant to employee
    stock purchase plan                                      |                                                    |            | 16,852     |   |         |    |              |   |             |         | 105           |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 105     |        
|                              | Exercise of warrants                                                                                       |                                                    |            | 553,835    |   |         |    |              |   |             |         | 355           |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | 355     |        
|                              | Comprehensive loss:                                                                                        |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |         |        
|                              |                                                                                                            | Change in unrealized loss on investments           |            |            |  |         |    |               |  |             |         |               |  |        |      |      |  |   |      |   | (404 | ) |          |   |        |   |         |         | (404    | )
|                              |                                                                                                            | Net loss                                           |            |            |  |         |    |               |  |             |         |               |  |        |      |      |  |   |      |   |     |   |          |   | (46,756 | ) |         |         | (46,756 | )
|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |        
|                              | Comprehensive loss                                                                                         |                                                    |            |           |   |         |    |              |   |             |         |              |   |        |      |     |   |   |      |  |      |   |          |  |         |   |         | (47,160 | )      
|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |        
|Balances at December 31, 2004 |                                                                                                            |                                                    | 35,266,667 |            |   | $       | 35 |               |   | $           | 430,966 |               |   | $      |     |      |   | $ | (377 | ) |      | $ | (250,636 | ) |         | $ | 179,988 |        
|                              |                                                                                                            |                                                    |            |            |   |         |    |               |   |             |         |               |   |        |      |      |   |   |      |   |      |   |          |   |         |   |         |        

See accompanying notes.

45



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |         |        |         |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | -------- | ------ | ------- | ------ | ------- | ----- | ------- | ------- | ------- | ------ | ------- | -
|                                                             |                                                                                 |                                             
|                                                             |                                                                                 | Year Ended December 31,                     
|                                                             |                                                                                 |                                             
|                                                             |                                                                                 | 2004                                         |                                           | 2003     |        | 2002   
|                                                             |                                                                                 |                                              |                                           |          |        |        
|                                                             |                                                                                 |                                             
|                                                             |                                                                                 | (In thousands)                              
|Cash flows from operating activities                         |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|                                                             | Net loss                                                                        |                                              | $                                         | (46,756  | )      |         | $      | (44,969 | )     |         | $       | (45,787 | )     
|                                                             | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                              |                                           |          |        |         |        |         |       |         |         |         |       
|                                                             |                                                                                 | Depreciation and amortization                |                                           |          | 194    |         |        |         | 1,124 |         |         |         | 1,849  |        
|                                                             |                                                                                 | Loss on impairment of investment             |                                           |          |       |         |        |         | 275   |         |         |         | 100    |        
|                                                             |                                                                                 | Noncash restructuring charges                |                                           |          | 280    |         |        |         | 2,341 |         |         |         |       |        
|                                                             |                                                                                 | Loss on sale of property and equipment       |                                           |          | (18    | )       |        |         | (9    | )       |         |         | (79    | )      
|                                                             |                                                                                 | Forgiveness of notes receivable              |                                           |          | 11     |         |        |         | 16    |         |         |         | 16     |        
|                                                             |                                                                                 | Stock-based compensation to consultants      |                                           |          | 1,353  |         |        |         | 1,501 |         |         |         | 326    |        
|                                                             | Changes in assets and liabilities:                                              |                                              |                                           |          |        |         |        |         |       |         |         |         |       
|                                                             |                                                                                 | Receivable from collaboration partner        |                                           |          | (445   | )       |        |         | (584  | )       |         |         |       |        
|                                                             |                                                                                 | Other current assets                         |                                           |          | (1,139 | )       |        |         | (345  | )       |         |         | (468   | )      
|                                                             |                                                                                 | Other assets                                 |                                           |          | (84    | )       |        |         | 32    |         |         |         | 52     |        
|                                                             |                                                                                 | Accounts payable                             |                                           |          | 739    |         |        |         | (437  | )       |         |         | 65     |        
|                                                             |                                                                                 | Accrued liabilities                          |                                           |          | 991    |         |        |         | (305  | )       |         |         | (280   | )      
|                                                             |                                                                                 | Accrued clinical trials and related expenses |                                           |          | (2,259 | )       |        |         | 4,017 |         |         |         | 2,952  |        
|                                                             |                                                                                 | Accrued compensation                         |                                           |          | 188    |         |        |         | (438  | )       |         |         | 488    |        
|                                                             |                                                                                 | Deferred revenue                             |                                           |          |        |         |        |         |      |         |         |         | (1,465 | )      
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|                                                             |                                                                                 |                                              | Net cash used in operating activities     |          |        | (46,945 | )      |         |       | (37,781 | )       |         |        | (42,231 | )
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|Cash flows from investing activities                         |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|                                                             | Purchases of marketable securities                                              |                                              |                                           | (201,304 | )      |         |        | (61,568 | )     |         |         | (35,382 | )     
|                                                             | Maturities of marketable securities                                             |                                              |                                           | 115,607  |        |         |        | 40,286  |       |         |         | 25,403  |       
|                                                             | Capital expenditures                                                            |                                              |                                           | (1,573   | )      |         |        | (157    | )     |         |         | (742    | )     
|                                                             | Proceeds from sale of fixed assets                                              |                                              |                                           | 595      |        |         |        | 302     |       |         |         | 136     |       
|                                                             | Proceeds from repayment of note receivable                                      |                                              |                                           | 275      |        |         |        |        |       |         |         | 44      |       
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|                                                             |                                                                                 |                                              | Net cash used in investing activities     |          |        | (86,400 | )      |         |       | (21,137 | )       |         |        | (10,541 | )
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|Cash flows from financing activities                         |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|                                                             | Advance from collaboration partner                                              |                                              |                                           |         |        |         |        | 15,000  |       |         |         | 5,000   |       
|                                                             | Net proceeds from issuances of common stock                                     |                                              |                                           | 152,276  |        |         |        | 88,216  |       |         |         | 19,218  |       
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|                                                             |                                                                                 |                                              | Net cash provided by financing activities |          |        | 152,276 |        |         |       | 103,216 |         |         |        | 24,218  |  
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|Net increase (decrease) in cash and cash
    equivalents     |                                                                                 |                                              | 18,931                                    |          |        |         | 44,298 |         |       |         | (28,554 | )      
|Cash and cash equivalents at beginning of year               |                                                                                 |                                              | 55,312                                    |          |        |         | 11,014 |         |       |         | 39,568  |        
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|                                                             |                                                                                 |                                              | Cash and cash equivalents at end of year  |          | $      | 74,243  |        |         | $     | 55,312  |         |         | $      | 11,014  |  
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|Supplemental disclosure of noncash investing
    activities: |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        
|                                                             | Receivable from stock option exercises                                          |                                              | $                                         |         |        |         | $      | 235     |       |         | $       |        |       
|                                                             |                                                                                 |                                              |                                           |          |        |         |        |         |       |         |         |        

See accompanying notes.

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ONYX PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2004




|        |                                               
|------- | ----------------------------------------------
|Note 1. | Summary of Significant Accounting
    Policies



| |            
| | -----------
| | The Company

Onyx Pharmaceuticals, Inc. (Onyx or
the Company) was incorporated on February 14,
1992 and commenced operations on April 24, 1992. Onyx is
engaged in the discovery and development of novel cancer
therapies. The Company has no therapeutic products currently
available for sale and does not expect to have any therapeutic
products commercially available for sale for a period of years,
if at all. These factors indicate that the Companys
ability to continue its research and development activities is
dependent upon the ability of management to obtain additional
financing as required.



| |                    
| | -------------------
| | Revenue Recognition

Revenue is recognized when the related costs are
incurred and the four basic criteria of revenue recognition are
met: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services rendered;
(3) the fee is fixed or determinable; and
(4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on managements
judgments regarding the nature of the fee charged for products
or services delivered and the collectibility of those fees.

Contract Revenue from
Collaborations.Revenue from
nonrefundable, up-front license or technology access payments
under license and collaboration agreements that are not
dependent on any future performance by the Company under the
arrangements is recognized when such amounts are received. If
the Company has continuing obligations to perform, such up-front
fees are recognized over the period of continuing performance
obligation.

Prior to 2003, the Company recognized contract
revenue by providing research services on a best efforts basis
to certain collaborative partners. The Company was reimbursed
based on the costs associated with the number of full-time
equivalent employees working on each specific contract. The
Company recognized revenue under these arrangements as the
related research and development costs were incurred, which was
generally on a ratable basis over the contract term.

Creditable milestone-based payments that Onyx
receives from the Companys collaboration with Bayer
Pharmaceuticals Corporation (Bayer) are not recorded
as revenue. These amounts are interest-free and will be
repayable to Bayer from a portion of any of Onyxs future
profits and royalties and are shown in the caption Advance
from collaboration partner on the Companys balance
sheet.



| |                 
| | ----------------
| | Use of Estimates

The preparation of the financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.



| |                  
| | -----------------
| | Reclassifications

Certain amounts have been reclassified to conform
to the current period presentation.



| |                         
| | ------------------------
| | Research and Development

In accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 2, Accounting for
Research and Development Costs, research and development
costs are charged to expense when incurred. Research and
development consists of costs incurred for independent and
collaborative research and development activities. The major
components of research and development costs include clinical
manufacturing costs, clinical trial expenses, consulting and
other third-

47



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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

party costs, salaries and employee benefits,
supplies and materials, and allocations of various overhead and
occupancy costs. Not all research and development costs are
incurred by Onyx. A significant portion of the Companys
research and development expenses, approximately 93 percent
in 2004, relates to the cost sharing arrangement with Bayer and
represents Onyxs share of the research and development
costs incurred by Bayer. Such amounts are recorded based on
invoices and other information Onyx receives from Bayer. When
such invoices have not been received, Onyx must estimate the
amounts owed to Bayer based on discussions with Bayer. In
addition, research and development costs incurred by Onyx and
reimbursed by Bayer are recorded as a reduction to research and
development expense. Research and development expenses under
prior collaborative research and development agreements with
Warner-Lambert Company, now a subsidiary of Pfizer, Inc.
(Warner-Lambert), for ONYX-015 in 2002 approximated
the revenue recognized under the collaboration agreements,
exclusive of milestone payments and up-front license fees
received.

The Companys business is subject to
significant risks, including the risks inherent in Onyxs
research and development efforts, the results of the sorafenib
clinical trials, Onyxs dependence on collaborative
parties, 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.



| |                                     
| | ------------------------------------
| | Cash Equivalents and
    Investments

The Company considers all highly liquid
investments with a maturity from the date of purchase of three
months or less to be cash equivalents. All other liquid
investments are classified as marketable securities. These
instruments consist primarily of corporate debt securities,
corporate commercial paper, debt securities of
U.S. government agencies and money market funds.
Concentration of risk is limited by diversifying investments
among a variety of industries and issuers.

Management determines the appropriate
classification of securities at the time of purchase. At
December 31, 2004 and 2003, all securities are designated
as available-for-sale. Available-for-sale securities are carried
at fair value based on quoted market prices, with any unrealized
gains and losses reported in accumulated other comprehensive
income. The amortized cost of securities in this category is
adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in interest income
and (expense), net. The cost of securities sold or the amount
reclassified out of accumulated other comprehensive income into
earnings is based on the specific identification method. The
estimated fair values have been determined by the Company using
available market information. Realized gains and losses and
declines in value judged to be other than temporary are included
in the statements of operations. There were no realized gains or
losses in each of the years ended December 31, 2004, 2003
and 2002. Interest and dividends on securities classified as
available-for-sale are included in interest income and
(expense), net.

Onyx is also subject to risks related to changes
in the value of the Companys private equity investment in
Syrrx, Inc. (Syrrx). Fluctuations in the market
value of the Companys long-term investment may result in
other-than-temporary impairment charges. The Company reports
other-than-temporary declines in value in its
statement of operations.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated on the basis of
cost. Depreciation is calculated using the straight-line method
over the estimated useful lives of the respective assets,
generally two to five years. Leasehold improvements are
amortized over the lesser of the lease term or the estimated
useful lives of the related assets, generally approximately five
years.

48



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | Other Long-Term Assets

For each of the years ended December 31,
2004 and 2003, other long-term assets included $375,000 in a
long-term private equity investment. The Company holds a private
equity investment related to the sale and license of certain
assets to Syrrx in November 2001. This investment is accounted
for using the cost method of accounting. The Company reviews the
investment for other-than-temporary declines in fair value
primarily based on analysis of Syrrxs quarterly financial
statements and recent financing activities.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

Impairment of long-lived assets is performed when
events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future
cash flows resulting from the use of the asset and its eventual
disposition. In the event that such cash flows are not expected
to be sufficient to recover the carrying amount of the assets,
the assets are written down to their estimated fair values.
Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company has elected to continue to follow
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees,
(APB 25) to account for employee stock options
because the alternative fair value method of accounting
prescribed by SFAS No. 123, Accounting for
Stock-Based Compensation, (SFAS 123),
requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under
APB 25, no compensation expense is recognized because the
exercise price of employee stock options equals the market price
of the underlying stock on the date of grant.

All stock option awards to non-employees are
accounted for at the fair value of the consideration received or
the fair value of the equity instrument issued, as calculated
using the Black-Scholes model, in accordance with SFAS 123
and Emerging Issues Task Force Consensus No. 96-18,
Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. The option arrangements are subject to
periodic remeasurement over their vesting terms. The Company
recorded compensation expense related to option grants to
non-employees of $1.4 million for the year ended
December 31, 2004; $1.5 million for the year ended
December 31, 2003 and $326,000 for the year ended
December 31, 2002.

The pro forma information regarding net loss and
loss per share prepared in accordance with SFAS 123, as
amended, has been determined as if the Company had accounted for
its employee stock options and employee stock purchase plan
under the fair value method prescribed by SFAS 123. The
fair value of options was estimated at the date of grant using
the Black-Scholes option-valuation model with the following
weighted-average assumptions:

|                                   |  |                         |           |      |  |      |           |  |  |  |           | 
|---------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                   |  |                        
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2004                    |           | 2003 |  | 2002
|                                   |  |                         |           |      |  |     
|Risk-free interest rate            |  |                         | 2.92%     |      |  |      | 2.34%     |  |  |  | 2.90%     | 
|Expected life                      |  |                         | 3.7 years |      |  |      | 3.0 years |  |  |  | 2.9 years | 
|Expected volatility                |  |                         | 0.85      |      |  |      | 0.89      |  |  |  | 0.86      | 
|Expected dividends                 |  |                         | None      |      |  |      | None      |  |  |  | None      | 
|Weighted average option fair value |  |                         | $22.93    |      |  |      | $3.48     |  |  |  | $2.67     | 

49



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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

For purposes of pro forma disclosures pursuant to
SFAS 123 as amended, the estimated fair value of employee
stock options is amortized to expense over the options
vesting period. The following table illustrates the effect on
net loss and loss per share if the Company had applied the fair
value recognition provisions of SFAS 123 to stock-based
employee compensation:

|                                                                                                                                                |                                                        |                                 |         |       |   |      |         |       |   |   |         |       |  
|----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------------- | ------- | ----- | - | ---- | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                                                                |                                                        |                                
|                                                                                                                                                |                                                        | Year Ended December 31,        
|                                                                                                                                                |                                                        |                                
|                                                                                                                                                |                                                        | 2004                            |         | 2003  |   | 2002
|                                                                                                                                                |                                                        |                                 |         |       |   |     
|                                                                                                                                                |                                                        |                                
|                                                                                                                                                |                                                        | (In thousands, except per share
|                                                                                                                                                |                                                        | amounts)                       
|Net loss  as reported                                                                                                                          |                                                        | $                               | (46,756 | )     |   | $    | (44,969 | )     |   | $ | (45,787 | )    
|Deduct: Total stock-based employee compensation
    determined under the fair value based method for all awards, net
    of related tax effects |                                                        |                                 | (6,071  | )     |   |      | (1,277  | )     |   |   | (1,747  | )    
|                                                                                                                                                |                                                        |                                 |         |       |   |      |         |       |   |   |         |      
|Pro forma net loss                                                                                                                              |                                                        | $                               | (52,827 | )     |   | $    | (46,246 | )     |   | $ | (47,534 | )    
|                                                                                                                                                |                                                        |                                 |         |       |   |      |         |       |   |   |         |      
|Loss per share:                                                                                                                                 |                                                        |                                 |         |       |   |      |         |       |   |   |         |      
|                                                                                                                                                | Basic and diluted net loss per share 
    as reported |                                 | $       | (1.36 | ) |      | $       | (1.73 | ) |   | $       | (2.23 | )
|                                                                                                                                                |                                                        |                                 |         |       |   |      |         |       |   |   |         |      
|                                                                                                                                                | Basic and diluted net loss per share 
    pro forma   |                                 | $       | (1.54 | ) |      | $       | (1.78 | ) |   | $       | (2.31 | )
|                                                                                                                                                |                                                        |                                 |         |       |   |      |         |       |   |   |         |      

No options were granted at other than fair value
for the years ended December 31, 2004, 2003 and 2002.

The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected
stock price volatility. Because the Companys employee
stock options have characteristics significantly different from
those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate,
in managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of the employee stock options.



| |                   
| | ------------------
| | Net Loss Per Share

Basic and diluted net loss per share are
presented in conformity with SFAS No. 128,
Earnings Per Share. Basic and diluted net loss per
share have been computed using the weighted-average number of
shares of common stock outstanding during each period. The
following potentially dilutive outstanding securities were not
considered in the computation of diluted net loss per share
because such securities would be antidilutive:

|               |  |                |       |      |  |      |       |  |  |  |       | 
|-------------- |  | -------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|               |  |               
|               |  | December 31,  
|               |  |               
|               |  | 2004           |       | 2003 |  | 2002
|               |  |                |       |      |  |     
|               |  |               
|               |  | (In thousands)
|Stock options  |  |                | 2,296 |      |  |      | 1,984 |  |  |  | 2,750 | 
|Stock warrants |  |                | 40    |      |  |      | 743   |  |  |  | 743   | 
|               |  |                |       |      |  |      |       |  |  |  |       | 
|               |  |                | 2,336 |      |  |      | 2,727 |  |  |  | 3,493 | 
|               |  |                |       |      |  |      |       |  |  |  |       | 



| |                   
| | ------------------
| | Comprehensive Loss

Comprehensive loss is comprised of net loss and
other comprehensive loss. Other comprehensive loss includes
certain changes in stockholders equity that are excluded
from net loss. Other comprehensive loss for all periods
presented is comprised of unrealized holding gains and losses on
the Companys available-for-sale securities, which were
reported separately in stockholders equity.

50



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Concentration of Credit Risk and
    Significant Research and Development Collaborators

Financial instruments that potentially subject
Onyx to concentration of credit risk consist principally of cash
equivalents and marketable securities. Onyx invests cash that is
not required for immediate operating needs principally in money
market funds and corporate securities.

Onyxs research and development
collaborators are currently concentrated in the United States
and Germany. Warner-Lambert accounted for 100 percent of
revenue for the years ended December 31, 2004 and 2002.



| |             
| | ------------
| | Income Taxes

The Company uses the liability method to account
for income taxes as required by SFAS No. 109,
Accounting for Income Taxes. Under this method,
deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.



| |                  
| | -----------------
| | Segment Reporting

The Company operates in only one
segment  the discovery and development of novel
cancer therapies.



| |                                        
| | ---------------------------------------
| | Recently Issued Accounting
    Standard

In December 2004, the FASB issued
SFAS No. 123(R), (SFAS 123(R)), a
revision to SFAS No. 123 Share-Based
Payment. SFAS 123(R) supersedes APB No. 25 and
amends SFAS No. 95, Statement of Cash
Flows. Generally, the approach in SFAS 123(R) is
similar to the approach described in SFAS 123. However,
SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options and employee stock
purchase plans to be recognized in the income statement based on
their fair values. The pro forma disclosures previously
permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. The Company would be
required to implement the standard no later than the quarter
that begins July 1, 2005. SFAS 123(R) permits public
companies to adopt its requirements using one of two methods:



| |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. A modified prospective method
    in which compensation cost is recognized beginning with the
    effective date (a) based on the requirements of
    SFAS 123(R) for all share-based payments granted after the
    effective date and (b) based on the requirements of
    SFAS 123 for all awards granted to employees prior to the
    effective date of SFAS 123(R) that remain unvested on the
    effective date.
|
| | 2. A modified retrospective
    method which includes the requirements of the modified
    prospective method described above, but also permits entities to
    restate based on the amounts previously recognized under
    SFAS 123 for purposes of pro forma disclosures either
    (a) all prior periods presented or (b) prior interim
    periods of the year of adoption.                                           

Although the Company has not determined whether
the adoption of SFAS 123(R) will result in amounts that are
similar to the current pro forma disclosures under
SFAS 123, the Company is evaluating the requirements under
SFAS 123(R) and expects the adoption to have a significant
adverse impact on the Companys consolidated statements of
operations and net loss per share.

51



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note 2.     Collaboration
Agreements



| |                  
| | -----------------
| | Bayer Corporation

Effective February 1994, the Company established
a research and development collaboration agreement with Bayer,
to discover, develop, and market compounds that inhibit the
function, or modulate the activity, of the RAS signaling pathway
to treat cancer and other diseases. The Company and Bayer
concluded collaborative research under this agreement in 1999,
and based on this research, a product development candidate,
sorafenib, was identified.

Bayer has paid all the costs of research and
preclinical development of sorafenib until the Investigational
New Drug application, or IND, was filed in May 2000. Under the
agreement with Bayer, the Company is currently funding
50 percent of mutually agreed clinical development costs
worldwide, excluding Japan. Bayer is funding 100 percent of
development costs in Japan and will pay the Company a royalty on
any product sales in Japan. The Company currently intends to
copromote the product in the United States and, if the Company
continues to cofund development and copromote in the United
States, profits or losses, if any, will be shared equally in the
United States. If Onyx continues to cofund but does not
copromote in the United States, Bayer would first receive a
portion of the product revenues to repay Bayer for its
commercialization infrastructure, before determining the
Companys share of profits and losses. As Onyx does not
have the right to copromote sorafenib outside the United States,
Bayer would also receive this preferential distribution in all
other parts of the world, except Japan where Onyx would receive
a royalty on any product sales.

The Companys agreement with Bayer calls for
creditable milestone-based payments. These amounts are
interest-free and will be repayable to Bayer from a portion of
any of Onyxs future profits or royalties. The Company
received $5.0 million in the third quarter of 2002 upon
initiation of Phase II clinical studies and
$15.0 million in the fourth quarter of 2003 based upon the
initiation of a Phase III study. These payments are shown
in the caption Advance from collaboration partner on
the Companys balance sheet. In addition, Bayer will
advance Onyx $10.0 million when a New Drug Application, or
NDA, is filed and a further $10.0 million following the
approval of sorafenib in any one of the following countries:
United States, France, Germany, Italy, Spain or the United
Kingdom. At any time during product development, either company
may terminate its participation in cofunding of development
costs, in which case the terminating party would retain rights
to receive royalties based on any sales of the product. If Onyx
does not continue to bear 50 percent of product development
costs, Bayer would retain exclusive, worldwide rights to
sorafenib and would pay royalties to Onyx based on net sales.

Onyxs share for funding the clinical
development costs, which commenced in fiscal year 2000, was
$33.4 million for 2004, $19.4 million for 2003 and
$11.8 million for 2002.



| |                       
| | ----------------------
| | Warner-Lambert Company



| |                     
| | --------------------
| | Cell Cycle Agreement

In May 1995, the Company entered into a research
and development collaboration agreement with Warner-Lambert to
discover and commercialize small molecule drugs that restore
control of, or otherwise intervene in, the misregulated cell
cycle in tumor cells. Under this agreement, the Company
developed screening tests, or assays, for jointly selected
targets and transferred these assays to Warner-Lambert for
screening of their compound library to identify active
compounds. The research term under the agreement ended in August
2001. Since that time, Warner-Lambert is now responsible for all
subsequent medicinal chemistry and preclinical investigations on
the active compounds. In addition, Warner-Lambert is obligated
to conduct and fund all clinical development, make regulatory
filings and manufacture for sale any approved collaboration
compounds. The Company will receive milestone payments on
clinical development and registration of any resulting products
and will receive royalties on worldwide sales of the

52



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

products. Warner-Lambert identified PD 332991, a
small molecule lead compound, that inhibits cyclin-dependent
kinase 4 and began Phase I clinical trials with this drug
candidate in September 2004. The initiation of clinical trials
triggered a $500,000 milestone payment to the Company,
which Onyx received from Warner-Lambert and recognized as
revenue in October 2004.



| |                                                   
| | --------------------------------------------------
| | ONYX-015 and Armed Therapeutic
    VirusTMProducts

Effective September 1999, the Company entered
into an agreement with Warner-Lambert for the purpose of
developing and commercializing ONYX-015 and two armed
therapeutic viruses. In August 2001, the Company and
Warner-Lambert amended the collaboration agreement, and in
September 2002, the Company terminated this agreement with
Warner-Lambert and regained full rights to ONYX-015 and an armed
virus product. In June 2003, the Company discontinued its
therapeutic virus program, including the development of ONYX-015
(See Note 10).

The Company did not recognize any revenue under
this agreement for the years ended December 31, 2004 and
2003. The Company recognized revenue of $2.7 million for
the year ended December 31 2002. The fiscal 2002 amount
includes $2.0 million for research funding and $722,000
related to the amortization of the $5.0 million up-front
payment received in 1999. The up-front payment had been included
in deferred revenue and was being recognized over the applicable
research and development periods when the fees were earned,
ranging from 24 to 40 months. With the termination of the
agreement in September 2002, the remaining deferred balance of
$200,000 was recognized as revenue. The Company did not record
any expenses related to this program for the years ended
December 31, 2004 and 2003, however, the Company recorded
expenses of $2.4 million for the year ended
December 31, 2002.

Note 3.     Investments

Investments that are subject to concentration of
credit risk are marketable securities. To mitigate this risk,
the Company invests its excess cash balance in marketable debt
securities, primarily United States government securities and
corporate bonds and notes, with investment grade ratings. The
Company limits the amount of investment exposure as to
institution, maturity, and investment type. The weighted average
maturity of the Companys marketable securities as of
December 31, 2004 was 5 months. Proceeds from
maturities and other sales of marketable securities for the
years ended December 31, 2004, 2003 and 2002 were
approximately $115.6 million, $40.3 million and
$25.4 million, respectively. Realized gains (losses) on
these sales were immaterial for each of the years ended
December 31, 2004, 2003 and 2002.

Available-for-sale marketable securities
consisted of the following at December 31:

|                                               |                                |                |         |            |  |            |    |            |  |   |      |      |   |   |         |        | 
|---------------------------------------------- | ------------------------------ | -------------- | ------- | ---------- |  | ---------- | -- | ---------- |  | - | ---- | ---- | - | - | ------- | ------ | 
|                                               |                                |               
|                                               |                                | 2004          
|                                               |                                |               
|                                               |                                | Adjusted       |         | Unrealized |  | Unrealized |    | Estimated 
|                                               |                                | Cost           |         | Gains      |  | (Losses)   |    | Fair Value
|                                               |                                |                |         |            |  |            |    |           
|                                               |                                |               
|                                               |                                | (In thousands)
|U.S. government investments:                   |                                |                |         |            |  |            |    |            |  |   |      |      |   |   |         |       
|                                               | Maturing within 1 year         |                | $       | 41,416     |  |            | $  | 2          |  |   | $    | (44  | ) |   | $       | 41,374 | 
|                                               | Maturing between 1 and 2 years |                |         | 10,005     |  |            |    |           |  |   |      | (113 | ) |   |         | 9,892  | 
|                                               |                                |                |         |            |  |            |    |            |  |   |      |      |   |   |         |       
|Total government investments                   |                                |                | 51,421  |            |  |            | 2  |            |  |   | (157 | )    |   |   | 51,266  |       
|Corporate debt investments:                    |                                |                |         |            |  |            |    |            |  |   |      |      |   |   |         |       
|                                               | Maturing within 1 year         |                |         | 75,594     |  |            |    | 8          |  |   |      | (154 | ) |   |         | 75,448 | 
|                                               | Maturing between 1 and 2 years |                |         | 8,742      |  |            |    |           |  |   |      | (75  | ) |   |         | 8,667  | 
|                                               |                                |                |         |            |  |            |    |            |  |   |      |      |   |   |         |       
|Total corporate investments                    |                                |                | 84,336  |            |  |            | 8  |            |  |   | (229 | )    |   |   | 84,115  |       
|                                               |                                |                |         |            |  |            |    |            |  |   |      |      |   |   |         |       
|Total available-for-sale marketable securities |                                | $              | 135,757 |            |  | $          | 10 |            |  | $ | (386 | )    |   | $ | 135,381 |       
|                                               |                                |                |         |            |  |            |    |            |  |   |      |      |   |   |         |       

53



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                               |                                |                |        |            |  |            |    |            |  |   |     |     |   |   |        |        | 
|---------------------------------------------- | ------------------------------ | -------------- | ------ | ---------- |  | ---------- | -- | ---------- |  | - | --- | --- | - | - | ------ | ------ | 
|                                               |                                |               
|                                               |                                | 2003          
|                                               |                                |               
|                                               |                                | Adjusted       |        | Unrealized |  | Unrealized |    | Estimated 
|                                               |                                | Cost           |        | Gains      |  | (Losses)   |    | Fair Value
|                                               |                                |                |        |            |  |            |    |           
|                                               |                                |               
|                                               |                                | (In thousands)
|U.S. government investments:                   |                                |                |        |            |  |            |    |            |  |   |     |     |   |   |        |       
|                                               | Maturing within 1 year         |                | $      | 5,261      |  |            | $  |           |  |   | $   | (1  | ) |   | $      | 5,260  | 
|                                               | Maturing between 1 and 2 years |                |        | 7,917      |  |            |    | 15         |  |   |     |    |   |   |        | 7,932  | 
|                                               |                                |                |        |            |  |            |    |            |  |   |     |     |   |   |        |       
|Total government investments                   |                                |                | 13,178 |            |  |            | 15 |            |  |   | (1  | )   |   |   | 13,192 |       
|Corporate debt investments:                    |                                |                |        |            |  |            |    |            |  |   |     |     |   |   |        |       
|                                               | Maturing within 1 year         |                |        | 27,993     |  |            |    | 5          |  |   |     | (11 | ) |   |        | 27,987 | 
|                                               | Maturing between 1 and 2 years |                |        | 8,890      |  |            |    | 20         |  |   |     | (1  | ) |   |        | 8,909  | 
|                                               |                                |                |        |            |  |            |    |            |  |   |     |     |   |   |        |       
|Total corporate investments                    |                                |                | 36,883 |            |  |            | 25 |            |  |   | (12 | )   |   |   | 36,896 |       
|                                               |                                |                |        |            |  |            |    |            |  |   |     |     |   |   |        |       
|Total available-for-sale marketable securities |                                | $              | 50,061 |            |  | $          | 40 |            |  | $ | (13 | )   |   | $ | 50,088 |       
|                                               |                                |                |        |            |  |            |    |            |  |   |     |     |   |   |        |       

The unrealized losses in 2004 on the
Companys investments in United States government
investments and corporate debt instruments were caused by
interest rate increases. The contractual terms of these
investments do not permit the issuer to settle the securities at
a price less than the amortized cost of the investment. Because
the Company has the ability and intent to hold these investments
until a recovery of fair value, which may be maturity, the
Company does not consider these investments to be
other-than-temporarily impaired at December 31, 2004.

Note 4.     Property
and Equipment

Property and equipment consist of the following:

|                                               |  |                |       |      |  |   |        |  
|---------------------------------------------- |  | -------------- | ----- | ---- |  | - | ------ | -
|                                               |  |               
|                                               |  | December 31,  
|                                               |  |               
|                                               |  | 2004           |       | 2003
|                                               |  |                |       |     
|                                               |  |               
|                                               |  | (In thousands)
|Computers, machinery and equipment             |  | $              | 1,174 |      |  | $ | 826    |  
|Furniture and fixtures                         |  |                | 410   |      |  |   | 463    |  
|Leasehold improvements                         |  |                | 647   |      |  |   | 2,451  |  
|                                               |  |                |       |      |  |   |        |  
|                                               |  |                | 2,231 |      |  |   | 3,740  |  
|Less accumulated depreciation and amortization |  |                | (608  | )    |  |   | (3,455 | )
|                                               |  |                |       |      |  |   |        |  
|                                               |  | $              | 1,623 |      |  | $ | 285    |  
|                                               |  |                |       |      |  |   |        |  

Depreciation expense was $194,000, $924,000 and
$1.4 million for the years ended December 31, 2004,
2003 and 2002, respectively.

In December 2004, the Company vacated its
Richmond, California headquarters and relocated to Emeryville,
California. The Company recorded an impairment charge of $40,000
related to leasehold improvements, equipment and furniture and
fixtures that were abandoned as a result of the facility move.

In June 2003, the Company announced the
discontinuation of the therapeutic virus program and the
termination of all internal research activities. In the second
half of 2003, the Company disposed of property and equipment
that it no longer used and wrote-off property and equipment that
had a net book value of $1.8 million. The Company recorded
a net loss of $982,000 from the disposal of property and
equipment, which is included in the caption
Restructuring in the statement of operations for the
year ended December 31, 2003. The Company sold property and
equipment for $445,000 of which $156,000 remained as a
receivable at December 31, 2003. In addition, at
December 31, 2003, the Company reclassified $350,000

54



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

from property and equipment to other current
assets for equipment that remained held-for-sale at
December 31, 2003. In 2004, the Company received $595,000
from the sale of these fixed assets. There were no assets held
for sale as of December 31, 2004.



|        |                      
|------- | ---------------------
|Note 5. | Long-Term Obligations

In December 2003, the Company received a
$15.0 million development payment from Bayer under its
collaboration agreement for the initiation of Phase III
clinical trials of sorafenib. In August 2002, the Company
received a $5.0 million development payment from Bayer for
the initiation of Phase II clinical trials of sorafenib.
Pursuant to its collaboration agreement, these amounts are
repayable to Bayer from a portion of any of Onyxs future
profits or royalties. These development payments contain no
provision for interest. These amounts are included in the
caption Advance from collaboration partner in the
accompanying balance sheet as of December 31, 2004.



|        |                
|------- | ---------------
|Note 6. | Facility Leases

In 2004, the Company entered into a new operating
lease for 23,000 square feet of office space in Emeryville,
California, which serves as the Companys new corporate
headquarters. The lease expires on February 28, 2010 with a
renewal option at the end of the lease for an additional three
years. When the Company moved into this new facility in December
2004, the Company vacated its 50,000 square foot facility
in Richmond, California. The lease for this facility expires in
April 2005 with an option to extend the lease for an additional
five years; however, the Company has no plans to exercise this
option.

The Company also has a lease for
9,000 square feet of space in a secondary facility in
Richmond, California. The Company determined that it no longer
required this facility due to a reduction in force in December
2001. The lease for this facility expires in September 2010 with
renewal options at the end of the lease for two subsequent
five-year terms. In September 2002, the Company entered into a
sublease agreement for this space through September 2010.

Minimum annual rental commitments, net of
sublease income, under all operating leases at December 31,
2004 are as follows (in thousands):

|                         |            |   |       |     | 
|------------------------ | ---------- | - | ----- | --- | 
|                         |            |  
|Year ending December 31: |            |   |       |    
|                         | 2005       |   | $     | 639 | 
|                         | 2006       |   |       | 548 | 
|                         | 2007       |   |       | 561 | 
|                         | 2008       |   |       | 575 | 
|                         | 2009       |   |       | 589 | 
|                         | Thereafter |   |       | 106 | 
|                         |            |   |       |    
|                         |            | $ | 3,018 |    
|                         |            |   |       |    

Rent expense, net of sublease income and
restructuring, for the years ended December 31, 2004, 2003
and 2002 was approximately $343,000, $577,000 and $661,000,
respectively.



|        |                           
|------- | --------------------------
|Note 7. | Related Party Transactions

The Company had a loan receivable from a former
employee of which approximately $275,000 was outstanding at
December 31, 2003. This loan bore interest at
5.98% per annum; however, the Company had forgiven $82,000
of interest over the term of the loan through August 31,
2004. This loan was repaid in full in August 2004 per the
terms of the loan agreement.

55



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

In September 2004, the Company announced that
Warner-Lambert initiated Phase I clinical trials advancing
PD 332991, a lead candidate from the previous cell cycle kinase
discovery collaboration. As a result, the Company received a
$500,000 milestone payment in October 2004, which was
recorded as contract revenue from a related party.

In November 2001, the Company sold and licensed
to Syrrx assets from the Companys small molecules
discovery program, including drug targets, related reagents and
assays, compound libraries and certain intellectual property
rights in exchange for Syrrx preferred stock valued at $750,000,
which was recorded as Other income at the time of
the transaction. The value of the preferred stock was determined
based on sales of Syrrx preferred stock for cash at the time of
the transaction. The Company could receive royalties on the
sales of pharmaceutical products resulting from these assets. In
December 2002, due to a further round of financing completed by
Syrrx, the Company recorded $100,000 as Other
expense to reduce the carrying value of its investment.
Based on a further round of financing completed by Syrrx in
April 2003, the Company recorded an additional charge of
$275,000 as Other expense to record another
impairment in the carrying value of the investment in Syrrx
preferred stock that the Company determined was
other-than-temporary. At the time of the
transactions mentioned above, a member of the board of directors
of Onyx was a director and officer of Syrrx. This board member
is no longer an officer of Syrrx. During 2004, the Company noted
no additional other-than-temporary impairments.



|        |            
|------- | -----------
|Note 8. | 401(k) Plan

The Company has a 401(k) Plan that covers
substantially all of its employees. Under the 401(k) Plan,
eligible employees may contribute up to 15 percent of their
eligible compensation, subject to certain Internal Revenue
Service restrictions. The Company does not match employee
contributions in the 401(k) Plan.



|        |                     
|------- | --------------------
|Note 9. | Stockholders Equity



| |                                                   
| | --------------------------------------------------
| | Stock Options and Employee Stock Purchase
    Plan

In March 1996, the Board of Directors adopted the
Employee Stock Purchase Plan (the Purchase Plan)
covering an aggregate of 100,000 shares of common stock. At
the Companys annual meetings of stockholders in subsequent
years, the stockholders approved reserving an additional
225,000 shares of common stock for issuance under the
Purchase Plan. The Purchase Plan is designed to allow eligible
employees of the Company to purchase shares of common stock
through periodic payroll deductions. The price of common stock
purchased under the Purchase Plan will be equal to
85 percent of the lower of the fair market value of the
common stock on the commencement date of each offering period or
the specified purchase date. Purchases of shares made under the
Purchase Plan were 16,852 in 2004, 30,827 in 2003 and 30,726 in
2002. Since inception, a total of 273,838 shares have been
issued under the Purchase Plan.

In March 1996, the Board amended and restated the
1992 Incentive Stock Plan, renamed it as the 1996 Equity
Incentive Plan (the Incentive Plan) and reserved
1,725,000 shares of common stock for issuance under the
Incentive Plan. At the Companys annual meetings of
stockholders in subsequent years, stockholders approved
reserving an additional 4,100,000 shares of common stock
for issuance under the Incentive Plan. The Incentive Plan
provides for grants to employees of either nonqualified or
incentive options and provides for the grant to consultants of
the Company of nonqualified options. The exercise price of
options granted under the Incentive Plan is determined by the
Board of Directors, but cannot be less than 100 percent of
the fair market value of the common stock on the date of grant.

In March 1996, the Board adopted the 1996
Non-Employee Directors Stock Option Plan (the
Directors Plan) and reserved
175,000 shares for issuance to provide for the automatic
grant of nonqualified options to purchase shares of common stock
to non-employee directors of the Company. At the Companys

56



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

annual meetings of stockholders in subsequent
years, stockholders approved reserving an additional
250,000 shares of common stock for issuance under the
Directors Plan.

The following table summarizes option activity
under all option plans:

|                              |                   |                  |           |                           |   |                |           |          |   |   |       |       | 
|----------------------------- | ----------------- | ---------------- | --------- | ------------------------- | - | -------------- | --------- | -------- | - | - | ----- | ----- | 
|                              |                   |                  |           |                          
|                              |                   |                  |           | Outstanding Stock Options
|                              |                   |                  |           |                          
|                              |                   |                  |           |                           |   | Weighted      
|                              |                   | Shares Available |           |                           |   | Average       
|                              |                   | for Grant        |           | Number of Shares          |   | Exercise Price
|                              |                   |                  |           |                           |   |               
|Balances at December 31, 2001 |                   |                  | 527,524   |                           |   |                | 2,512,728 |          |   | $ | 8.68  |      
|                              | Shares authorized |                  |           | 400,000                   |   |                |           |         |   |   |       |      | 
|                              | Options granted   |                  |           | (815,802                  | ) |                |           | 815,802  |   |   | $     | 4.95  | 
|                              | Options exercised |                  |           |                          |   |                |           | (81,044  | ) |   | $     | 0.62  | 
|                              | Options forfeited |                  |           | 497,535                   |   |                |           | (497,535 | ) |   | $     | 10.01 | 
|                              |                   |                  |           |                           |   |                |           |          |   |   |       |      
|Balances at December 31, 2002 |                   |                  | 609,257   |                           |   |                | 2,749,951 |          |   | $ | 7.57  |      
|                              | Shares authorized |                  |           | 700,000                   |   |                |           |         |   |   |       |      | 
|                              | Options granted   |                  |           | (446,973                  | ) |                |           | 446,973  |   |   | $     | 6.34  | 
|                              | Options exercised |                  |           |                          |   |                |           | (656,308 | ) |   | $     | 7.13  | 
|                              | Options forfeited |                  |           | 556,932                   |   |                |           | (556,932 | ) |   | $     | 6.83  | 
|                              |                   |                  |           |                           |   |                |           |          |   |   |       |      
|Balances at December 31, 2003 |                   |                  | 1,419,216 |                           |   |                | 1,983,684 |          |   | $ | 7.65  |      
|                              | Shares authorized |                  |           | 600,000                   |   |                |           |         |   |   |       |      | 
|                              | Options granted   |                  |           | (802,925                  | ) |                |           | 802,925  |   |   | $     | 38.27 | 
|                              | Options exercised |                  |           |                          |   |                |           | (424,265 | ) |   | $     | 7.72  | 
|                              | Options forfeited |                  |           | 65,902                    |   |                |           | (65,902  | ) |   | $     | 19.85 | 
|                              |                   |                  |           |                           |   |                |           |          |   |   |       |      
|Balances at December 31, 2004 |                   |                  | 1,282,193 |                           |   |                | 2,296,442 |          |   | $ | 17.99 |      
|                              |                   |                  |           |                           |   |                |           |          |   |   |       |      

The following table summarizes information about
options outstanding and exercisable at December 31, 2004:

|                         |       |                     |         |            |  |                |     |             |  |                |       |       |  |  |         |           |  |   |       |       | 
|------------------------ | ----- | ------------------- | ------- | ---------- |  | -------------- | --- | ----------- |  | -------------- | ----- | ----- |  |  | ------- | --------- |  | - | ----- | ----- | 
|                         |       |                    
|Options Outstanding      |       | Options Exercisable
|                         |       |                    
|                         |       | Weighted Average    |         |            |  |               
|                         |       | Contractual life    |         | Weighted   |  |                |     | Weighted   
|                         |       | Number              |         | Remaining  |  | Average        |     | Number      |  | Average       
|Range of Exercise Prices |       | Outstanding         |         | (In years) |  | Exercise Price |     | Exercisable |  | Exercise Price
|                         |       |                     |         |            |  |                |     |             |  |               
|$ 3.82 - $ 4.78          |       |                     | 244,024 |            |  |                | 7.5 |             |  | $              | 4.17  |       |  |  | 235,691 |           |  | $ | 4.17  |      
|$ 4.83 - $ 5.00          |       |                     | 253,389 |            |  |                | 7.8 |             |  | $              | 4.97  |       |  |  | 253,389 |           |  | $ | 4.97  |      
|$ 5.02 - $ 6.46          |       |                     | 271,600 |            |  |                | 6.3 |             |  | $              | 5.77  |       |  |  | 271,600 |           |  | $ | 5.77  |      
|$ 6.66 - $ 9.72          |       |                     | 268,632 |            |  |                | 5.9 |             |  | $              | 7.92  |       |  |  | 268,632 |           |  | $ | 7.92  |      
|$ 9.94 - $11.70          |       |                     | 273,426 |            |  |                | 5.8 |             |  | $              | 10.13 |       |  |  | 273,426 |           |  | $ | 10.13 |      
|$12.00 - $32.77          |       |                     | 238,974 |            |  |                | 4.8 |             |  | $              | 15.68 |       |  |  | 228,974 |           |  | $ | 14.93 |      
|$32.80 - $36.13          |       |                     | 88,500  |            |  |                | 9.8 |             |  | $              | 33.29 |       |  |  | 68,500  |           |  | $ | 33.29 |      
|$38.08                   |       |                     | 300,447 |            |  |                | 9.2 |             |  | $              | 38.08 |       |  |  | 300,447 |           |  | $ | 38.08 |      
|$38.33 - $41.69          |       |                     | 319,500 |            |  |                | 9.5 |             |  | $              | 39.45 |       |  |  | 309,500 |           |  | $ | 39.47 |      
|$43.95 - $53.37          |       |                     | 37,950  |            |  |                | 9.4 |             |  | $              | 48.45 |       |  |  | 37,950  |           |  | $ | 48.45 |      
|                         |       |                     |         |            |  |                |     |             |  |                |       |       |  |  |         |           |  |   |       |      
|                         | Total |                     |         | 2,296,442  |  |                |     | 7.3         |  |                | $     | 17.99 |  |  |         | 2,248,109 |  |   | $     | 17.75 | 
|                         |       |                     |         |            |  |                |     |             |  |                |       |       |  |  |         |           |  |   |       |      

57



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

At December 31, 2004, December 31, 2003
and December 31, 2002, there were no shares subject to
repurchase. The Company has reserved common shares for future
issuances under all stock option plans and the employee stock
purchase plan as follows:

|                                     |  |              |           | 
|------------------------------------ |  | ------------ | --------- | 
|                                     |  | December 31,
|                                     |  | 2004        
|                                     |  |             
|Stock options available for issuance |  |              | 1,282,193 | 
|Stock options outstanding            |  |              | 2,296,442 | 
|Employee stock purchase plan         |  |              | 51,162    | 
|                                     |  |              |           | 
|Total                                |  |              | 3,629,797 | 
|                                     |  |              |           | 

In December 2003, stock options were exercised
that were not settled prior to December 31, 2003. The
Company recorded a receivable of $235,000 related to these stock
options. This is included in the caption Receivable from
stock option exercises in the accompanying balance sheet
as of December 31, 2003.



| |                
| | ---------------
| | Preferred Stock

The Companys amended and restated
certificate of incorporation provides that the Companys
Board of Directors has the authority, without further action by
the stockholders, to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of
such series, without further vote or action by the stockholders.
As of December 31, 2004, the Company had
5,000,000 shares of preferred stock authorized at
$0.001 par value, and no shares were issued or outstanding.



| |         
| | --------
| | Warrants

As of December 31, 2004, there are
outstanding warrants to purchase an aggregate of
39,540 shares of the Companys common stock. A total
of 743,229 warrants were issued in connection with a private
placement financing in May 2002. The exercise price of these
warrants is $9.59 per share. The $4.4 million fair
value of the warrants was estimated on the date of grant using
the Black-Scholes option valuation model with the following
assumptions: a weighted-average risk-free interest rate of
4.29%, a contractual life of seven years, a volatility of 0.94
and no dividend yield, and accounted for as a stock issuance
cost. Any of the outstanding warrants may be exercised by
applying the value of a portion of the warrant, which is equal
to the number of shares issuable under the warrant being
exercised multiplied by the fair market value of the security
receivable upon the exercise of the warrant, less the per share
price, in lieu of payment of the exercise price per share. In
2004, the Company issued 553,835 shares of the
Companys common stock upon the exercise of 703,689
warrants, on both a cash and net exercise basis. The Company
received approximately $355,000 in net cash proceeds from the
exercise of warrants in 2004. The Company has reserved 39,540
common shares for future issuance for these warrants, which will
expire in May 2009, unless earlier exercised.



|         |              
|-------- | -------------
|Note 10. | Restructuring

In June 2003, the Company announced the
discontinuation of its therapeutic virus program as part of a
business realignment that placed an increased priority on the
development of sorafenib, Onyxs lead product candidate
that is being developed jointly with Bayer. During 2003, the
Company recorded an aggregate charge of $5.5 million
associated with the restructuring. These charges consist of
$1.6 million related to employee severance benefits and
$2.5 million related to the early termination of a process
development and manufacturing agreement with XOMA US (LLC). In
addition, the Company incurred aggregate charges of
$1.4 million related to the discontinued use of a portion
of its leased facilities and the disposal of certain property
and equipment.

58



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

In 2004, the Company recorded an additional
restructuring charge of $258,000 due to a change in estimate
related to the discontinued use and inability to sublet a
portion of the Companys leased facility in Richmond,
California. For the year ended December 31, 2004, the
accrual for restructuring, consisting of charges related to the
discontinued use of the Companys leased facilities in
Richmond and employee severance benefits, was $195,000. The
remaining accrued restructuring costs are expected to be fully
amortized by the second quarter of 2005.

For the year ended December 31, 2003, the
accrual for restructuring, consisting of charges related to the
discontinued use of a portion of the Companys leased
facilities and employee severance benefits, was $325,000.



|         |             
|-------- | ------------
|Note 11. | Income Taxes

There is no provision for income taxes, because
the Company has incurred operating losses since inception.

Significant components of the Companys
deferred tax assets are as follows:

|                                     |  |                |          |      |  |   |         |  
|------------------------------------ |  | -------------- | -------- | ---- |  | - | ------- | -
|                                     |  |               
|                                     |  | December 31,  
|                                     |  |               
|                                     |  | 2004           |          | 2003
|                                     |  |                |          |     
|                                     |  |               
|                                     |  | (In thousands)
|Net operating loss carryforwards     |  | $              | 86,400   |      |  | $ | 62,400  |  
|Tax credit carryforwards             |  |                | 8,200    |      |  |   | 4,900   |  
|Capitalized research and development |  |                | 6,900    |      |  |   | 6,100   |  
|Deferred revenue                     |  |                | 8,000    |      |  |   | 8,000   |  
|Other                                |  |                | 400      |      |  |   | 300     |  
|                                     |  |                |          |      |  |   |         |  
|Total deferred tax assets            |  |                | 109,900  |      |  |   | 81,700  |  
|Valuation allowance                  |  |                | (109,900 | )    |  |   | (81,700 | )
|                                     |  |                |          |      |  |   |         |  
|Net deferred tax assets              |  | $              |         |      |  | $ |        |  
|                                     |  |                |          |      |  |   |         |  

Realization of deferred tax assets is dependent
upon future earnings, if any, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance
increased by $28.2 million, $17.9 million and
$14.7 million in 2004, 2003 and 2002, respectively.

At December 31, 2004, the Company has net
operating loss carryforwards for federal and state income tax
purposes of approximately $235.9 million and
$106.2 million, respectively, which expire beginning in
2005 if not utilized. At December 31, 2004, the Company has
research and development credit carryforwards for federal income
tax purposes of approximately $5.6 million, which expire
beginning in 2008 if not utilized. At December 31, 2004,
the Company has research and development credit carryforwards
for state income tax purposes of approximately
$3.8 million, which do not expire.

Utilization of the net operating loss and tax
credit carryforwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by
the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration
of net operating loss and tax credit carryforwards before
utilization.

59



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note 12.     Guarantees,
Indemnifications and Contingencies



| |                                    
| | -----------------------------------
| | Guarantees and
    Indemnifications

The Company has entered into indemnity agreements
with certain of its officers and directors, which provide for
indemnification to the fullest extent authorized and permitted
by Delaware law and the Companys Bylaws. The agreements
also provide that the Company will indemnify, subject to certain
limitations, the officer or director for expenses, damages,
judgments, fines and settlements he or she may be required to
pay in actions or proceedings to which he or she is or may be a
party because such person is or was a director, officer or other
agent of the Company. The term of the indemnification is for so
long as the officer or director is subject to any possible
claim, or threatened, pending or completed action or proceeding,
by reason of the fact that such officer or director was serving
the Company as a director, officer or other agent. The rights
conferred on the officer or director shall continue after such
person has ceased to be an officer or director as provided in
the indemnity agreement. The maximum amount of potential future
indemnification is unlimited; however, the Company has a
director and officer insurance policy that limits its exposure
and may enable it to recover a portion of any future amounts
paid. The Company has not recorded any amounts as liabilities as
of December 31, 2004 as the value of the guarantee is not
estimable.



| |              
| | -------------
| | Contingencies

From time to time, the Company may become
involved in claims and other legal matters arising in the
ordinary course of business. Management is not currently aware
of any matters that could have a material adverse affect on the
financial position, results of operations or cash flows of the
Company.



|         |                                     
|-------- | ------------------------------------
|Note 13. | Quarterly Financial Data (Unaudited)

The following table presents unaudited quarterly
financial data of the Company. The Companys quarterly
results of operations for these periods are not necessarily
indicative of future results of operations.

|                                     |  |                                       |         |              |  |         |         |          |  |   |         |   |  |   |        |  
|------------------------------------ |  | ------------------------------------- | ------- | ------------ |  | ------- | ------- | -------- |  | - | ------- | - |  | - | ------ | -
|                                     |  |                                      
|                                     |  | 2004 Quarter Ended                   
|                                     |  |                                      
|                                     |  | December 31                           |         | September 30 |  | June 30 |         | March 31
|                                     |  |                                       |         |              |  |         |         |         
|                                     |  |                                      
|                                     |  | (In thousands, except per share data)
|Total revenues                       |  | $                                     | 500     |              |  | $       |        |          |  | $ |        |   |  | $ |       |  
|Net loss                             |  |                                       | (14,205 | )            |  |         | (11,264 | )        |  |   | (13,106 | ) |  |   | (8,181 | )
|Basic and diluted net loss per share |  |                                       | (0.40   | )            |  |         | (0.32   | )        |  |   | (0.38   | ) |  |   | (0.25  | )

|                                     |  |                                       |         |              |  |         |         |          |  |   |         |   |  |   |         |  
|------------------------------------ |  | ------------------------------------- | ------- | ------------ |  | ------- | ------- | -------- |  | - | ------- | - |  | - | ------- | -
|                                     |  |                                      
|                                     |  | 2003 Quarter Ended                   
|                                     |  |                                      
|                                     |  | December 31                           |         | September 30 |  | June 30 |         | March 31
|                                     |  |                                       |         |              |  |         |         |         
|                                     |  |                                      
|                                     |  | (In thousands, except per share data)
|Total revenues                       |  | $                                     |        |              |  | $       |        |          |  | $ |        |   |  | $ |        |  
|Net loss                             |  |                                       | (11,796 | )            |  |         | (11,079 | )        |  |   | (11,406 | ) |  |   | (10,688 | )
|Basic and diluted net loss per share |  |                                       | (0.40   | )            |  |         | (0.40   | )        |  |   | (0.48   | ) |  |   | (0.47   | )

60



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##### Table of Contents






EXHIBIT INDEX

|        |            |                         |  |                                                                                                                                                                                                                                                                                                                            
|------- | ---------- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |                        
|Number  |            | Description of Document
|        |            |                        
|        | 3.1(1)     |                         |  | Restated Certificate of Incorporation of the
    Company.                                                                                                                                                                                                                                                                  
|       
|        | 3.2(1)     |                         |  | Bylaws of the Company.                                                                                                                                                                                                                                                                                                     
|       
|        | 3.3(2)     |                         |  | Certificate of Amendment to Amended and Restated
    Certificate of Incorporation.                                                                                                                                                                                                                                         
|       
|        | 4.1(1)     |                         |  | Reference is made to Exhibits 3.1, 3.2 and
    3.3.                                                                                                                                                                                                                                                                        
|       
|        | 4.2(1)     |                         |  | Specimen Stock Certificate.                                                                                                                                                                                                                                                                                                
|       
|        | 4.4(1)     |                         |  | Amended and Restated Information and Registration
    Rights Agreement dated May 30, 1994 and as amended through
    May 16, 1995.                                                                                                                                                                                         
|       
|        | 10.1(1)*   |                         |  | Collaboration Agreement between Bayer Corporation
    (formerly Miles, Inc.) and the Company dated April 22, 1994.                                                                                                                                                                                                         
|       
|        | 10.1(i)(1) | *                       |  | Amendment to Collaboration Agreement between
    Bayer Corporation and the Company dated April 4, 1996.                                                                                                                                                                                                                    
|       
|        | 10.2(1)*   |                         |  | Research, Development and Marketing Collaboration
    Agreement between Warner-Lambert Company and the Company, dated
    May 2, 1995.                                                                                                                                                                                     
|       
|        | 10.2(i)(1) |                         |  | Waiver of Certain Rights under the Research,
    Development and Marketing Agreement by Warner-Lambert Company
    dated as of March 28, 1996.                                                                                                                                                                             
|       
|        | 10.5(4)*   |                         |  | Technology Transfer Agreement dated
    April 24, 1992 between Chiron Corporation and the Company,
    as amended in the Chiron Onyx HPV Addendum dated
    December 2, 1992, in the Amendment dated February 1,
    1994, in the Letter Agreement dated May 20, 1994 and in the
    Letter Agreement dated March 29, 1996.
|       
|        | 10.6(1)    |                         |  | Scientific Advisory Board Consulting Agreement
    between Dr. Frank McCormick and the Company, as of
    March 29, 1996.                                                                                                                                                                                                  
|       
|        | 10.6(i)(1) |                         |  | Letter Agreement for Consulting Services between
    Dr. Frank McCormick and the Company dated April 17,
    1996.                                                                                                                                                                                                         
|       
|        | 10.9(1)+   |                         |  | Letter Agreement between Dr. Gregory Giotta
    and the Company dated May 26, 1995.                                                                                                                                                                                                                                        
|       
|        | 10.13(1)+  |                         |  | 1996 Equity Incentive Plan.                                                                                                                                                                                                                                                                                                
|       
|        | 10.14(1)+  |                         |  | 1996 Non-Employee Directors Stock Option
    Plan.                                                                                                                                                                                                                                                                        
|       
|        | 10.15(1)+  |                         |  | 1996 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                         
|       
|        | 10.16(3)   |                         |  | Lease by and between Hall Properties, Inc. and
    the Company dated September 9, 1992, the First Amendment
    thereto dated April 21, 1993 and the Second Amendment
    thereto dated May 11, 1996.                                                                                                                      
|       
|        | 10.17(1)+  |                         |  | Form of Indemnity Agreement to be signed by
    executive officers and directors of the Company.                                                                                                                                                                                                                           
|       
|        | 10.19(5)   |                         |  | Letter Agreement between Dr. Allan Balmain
    and the Company dated August 26, 1996, as amended
    March 13, 1997.                                                                                                                                                                                                       
|       
|        | 10.20(6)*  |                         |  | Amended and restated Research, Development and
    Marketing Collaboration Agreement dated May 2, 1995 between
    the Company and Warner-Lambert Company.                                                                                                                                                                 
|       
|        | 10.21(6)*  |                         |  | Research, Development and Marketing Collaboration
    Agreement dated July 31, 1997 between the Company and
    Warner-Lambert Company.                                                                                                                                                                                    
|       
|        | 10.23(6)*  |                         |  | Amendment to the Amended and Restated Research,
    Development and Marketing Collaboration Agreement, dated
    December 15, 1997, between the Company and Warner-Lambert
    Company.                                                                                                                                    
|       
|        | 10.24(7)*  |                         |  | Amendment to Collaboration Agreement between
    Bayer Corporation and the Company dated February 1, 1999.                                                                                                                                                                                                                 
|       
|        | 10.25(8)   |                         |  | Scientific Advisory Board Consulting Agreement
    effective September 10, 1999 between Allan Balmain and the
    Company including the First Amendment to Deed of Trust and
    Second Amended and Restated Promissory Note.                                                                                              
|       
|        | 10.26(9)*  |                         |  | Collaboration Agreement between the Company and
    Warner-Lambert Company dated October 13, 1999 and effective
    September 1, 1999.                                                                                                                                                                                     



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##### Table of Contents



|        |            |                         |  |                                                                                                                                                                          
|------- | ---------- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |                        
|Number  |            | Description of Document
|        |            |                        
|       
|        | 10.27(9)   |                         |  | Stock Put and Purchase Agreement between the
    Company and Warner-Lambert Company dated October 13, 1999
    and effective September 1, 1999.                          
|       
|        | 10.28(9)   |                         |  | Stock Purchase Agreement between the Company and
    the investors dated January 18, 2000.                                                                               
|       
|        | 10.29(10)  |                         |  | Third Amendment to Lease by and between the
    Metcalf Family Living Trust Dated June 11, 1993 and the
    Company effective February 24, 2000.                         
|       
|        | 10.31(6)*  |                         |  | Second Amendment to the Amended and Restated
    Research, Development and Marketing Agreement between
    Warner-Lambert and the Company dated May 2, 1995.             
|       
|        | 10.32(6)*  |                         |  | Second Amendment to Research, Development and
    Marketing Collaboration Agreement between Warner-Lambert and the
    Company dated July 31, 1997.                      
|       
|        | 10.33(11)+ |                         |  | Employment Offer Letter between Leonard E.
    Post, Ph.D. and the Company dated July 28, 2000.                                                                          
|       
|        | 10.34(12)* |                         |  | Process Development and Manufacturing Agreement
    between XOMA (US) LLC and Onyx Pharmaceuticals, Inc., dated
    January 29, 2001.                                    
|       
|        | 10.35(13)+ |                         |  | Form of Executive Change in Control Severance
    Benefits Agreement.                                                                                                    
|       
|        | 10.36(14)* |                         |  | Amendment #1 to the Collaboration Agreement
    between the Company and Warner-Lambert dated August 6, 2001.                                                             
|       
|        | 10.37(14)* |                         |  | Amendment #3 to the Research, Development
    and Marketing Collaboration Agreement between the Company and
    Warner-Lambert dated August 6, 2001.                     
|       
|        | 10.38(14)* |                         |  | Amendment #3 to the Amended and Restated
    Research, Development and Marketing Collaboration Agreement
    between the Company and Warner-Lambert dated August 6, 2001.
|       
|        | 10.39(15)  |                         |  | Stock and Warrant Purchase Agreement between the
    Company and the investors dated May 6, 2002.                                                                        
|       
|        | 10.40(16)* |                         |  | Amendment No. 1 to the Process Development
    and Manufacturing Agreement between the Company and XOMA (US)
    LLC dated April 15, 2002.                               
|       
|        | 10.41(17)* |                         |  | Amendment to the Collaboration Agreement between
    the Company and Warner-Lambert Company dated September 16,
    2002.                                                
|       
|        | 10.42(18)  |                         |  | Stock Purchase Agreement between the Company and
    the investors dated February 13, 2003.                                                                              
|       
|        | 10.43(19)  |                         |  | Sublease between the Company and Siebel Systems
    dated August 5, 2004.                                                                                                
|       
|        | 23.1       |                         |  | Consent of Independent Registered Public
    Accounting Firm.                                                                                                            
|       
|        | 24.1       |                         |  | Power of Attorney. Reference is made to the
    signature page.                                                                                                          
|       
|        | 31.1       |                         |  | Certification required by Rule 13a-14(a) or Rule
    15d-14(a).                                                                                                          
|       
|        | 32.1       |                         |  | Certifications required by Rule 13a-14(b) or Rule
    15d-14(b) and Section 1350 of Chapter 63 of
    Title 18 of the United States Code (18 U.S.C. 1350).               



---



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| | * | Confidential treatment has been received for
    portions of this document.

+  Indicates management contract or
compensatory plan or arrangement.



|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Filed as an exhibit to Onyxs Registration
    Statement on Form SB-2 (No. 333-3176-LA).                     
|   
|(2) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2000.     
|   
|(3) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    1996.     
|   
|(4) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 2001.           
|   
|(5) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    1997.    
|   
|(6) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 2002.           
|   
|(7) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    1999.    
|   
|(8) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 1999.
|   
|(9) | Filed as an exhibit to Onyxs Current Report
    on Form 8-K filed on March 1, 2000.                         



|     |                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------
|(10) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 1999.           
|    
|(11) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2000.



|     |                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------
|(12) | Filed as an exhibit to Onyxs Current Report
    on Form 8-K filed on February  23, 2001.                         
|    
|(13) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2001.         
|    
|(14) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2001.     
|    
|(15) | Filed as an exhibit to Onyxs Registration
    Statement on Form S-3 filed on June 5, 2002
    (No. 333-89850).   
|    
|(16) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2002.          
|    
|(17) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2002.     
|    
|(18) | Filed as an exhibit to Onyxs Registration
    Statement on Form S-3 filed on March 25, 2003
    (No. 333-104025).
|    
|(19) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2004.