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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, 2003.                                                                          
| 
|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.)

3031 Research Drive

Richmond, California 94806


(510) 222-9700


(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, 2003 was approximately $257,829,000.

The number of shares of common stock outstanding
as of March 8, 2004 was 34,457,581.



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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 Security Holders                                  
|ADDITIONAL BUSINESS RISKS
|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 and Reports on Form 8-K                     
|SIGNATURES               
|EXHIBIT INDEX            
|EXHIBIT 23.1             
|EXHIBIT 31.1             
|EXHIBIT 32.1             



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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 2004 Annual Meeting
are incorporated herein by reference into Part III of this
report.



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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. 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, BAY 43-9006, is
currently in Phase III clinical development with our
collaborator, Bayer Pharmaceuticals Corporation. BAY 43-9006
targets both tumor cell proliferation and angiogenesis.

BAY 43-9006 is a novel, orally available signal
transduction inhibitor and is one of a new class of anticancer
treatments that target growth signaling in cancer. BAY 43-9006
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, BAY 43-9006 is the first small
molecule agent to enter clinical trials directed against the
enzyme RAF kinase to inhibit tumor cell proliferation. In
addition, BAY 43-9006 displays activity that inhibits VEGFR-2
and PDGFR-ß, two key proteins involved in angiogenesis.

We and Bayer are developing and will market BAY
43-9006 under our collaboration agreement. Together with Bayer,
we are conducting multiple clinical trials of BAY 43-9006. To
date, we have treated over 1,000 patients. In October 2003, we
announced the initiation of a pivotal Phase III clinical trial
after a Special Protocol Assessment, or SPA, with the FDA, in
patients with advanced renal cell carcinoma, also known as
kidney cancer. This decision was based on interim Phase II data,
which provided encouraging signs of tumor shrinkage and disease
stabilization in patients with advanced kidney cancer. The agent
is also being studied in multiple Phase II clinical trials for
the treatment of kidney, melanoma, liver and other cancers, as
well as in multiple Phase Ib trials evaluating its use in
combination with standard chemotherapy drugs. Two Phase II
trials were initiated in the third quarter of 2002 based on
preliminary Phase I data indicating that BAY 43-9006 was well
tolerated and showed early evidence of antitumor activity. In
addition, a Phase I clinical trial in Canada is being conducted
in patients with acute myelogenous leukemia, or AML, and
myelodysplastic syndrome, or MDS.





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In 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, a
small molecule cell cycle inhibitor targeting a cyclin-dependent
kinase expected to enter Phase I clinical trials in 2004.

Our Product Candidates

The development status of our product candidates
is listed below:

|                  |  |                                                                                                                          |  |                                                                                        |  |                   
|----------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | ------------------
|                  |  |                                                                                                                          |  |                                                                                        |  | Current           
|Product/Program   |  | Technology                                                                                                               |  | Indication                                                                             |  | Status            
|                  |  |                                                                                                                          |  |                                                                                        |  |                   
|BAY 43-9006       |  | Small Molecule Inhibitor of tumor cell
    proliferation and angiogenesis, targeting RAF kinase, VEGFR-2
    and PDGFR-ß |  | Single-agent trial for Kidney cancer                                                   |  | Phase III         
|                  |  |                                                                                                                          |  | Single-agent trials for Kidney, Melanoma, Liver
    and other cancers                  |  | Phase II          
|                  |  |                                                                                                                          |  | Combination trials with standard chemotherapies
    for Melanoma and Pancreatic cancer |  | Phase Ib Extension
|                  |  |                                                                                                                          |  | Six additional combination trials with standard
    chemotherapies                     |  | Phase Ib          
|                  |  |                                                                                                                          |  | Single-agent trial in Acute Myelogenous Leukemia,
    Myelodysplastic Syndrome         |  | Phase I           
|Cell Cycle Kinase |  | Small Molecule Inhibitor of
    Cyclin-Dependent Kinase                                                                  |  | Multiple Cancer Types                                                                  |  | Preclinical       

BAY
43-9006

BAY 43-9006 operates through dual mechanisms of
action by inhibiting proliferation of cancer cells and
inhibiting angiogenesis.

The RAS gene 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 on, it sends a
signal telling the cell to grow and divide. When a gene in the
RAS signaling pathway is mutated, the 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 RAS
activates 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 RAS gene 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. BAY
43-9006 is an orally active agent designed to block
inappropriate growth signaling in cancer by inhibiting RAF
kinase.

BAY 43-9006 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. BAY 43-9006
inhibits the signaling activities of these receptors. In
addition, the inhibition of RAF kinase has also been shown to
have anti-angiogenic effects.

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Clinical
Trials

Under our collaboration agreement with Bayer, we
are conducting multiple clinical trials of BAY 43-9006. In
addition with Bayer, we are jointly developing and intend to
commercialize BAY 43-9006, outside of Japan.

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 BAY 43-9006 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 BAY 43-9006 in kidney
cancer in a large Phase III clinical trial, with
improvement in overall survival as the primary endpoint. The
study also will assess time-to-disease progression, overall
response rate, safety, quality of life and the pharmacokinetics
of BAY 43-9006, or how concentrations of BAY 43-9006
in the body change over time. 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. We initiated our Phase III clinical trial
based on interim investigator-reported data from our
Phase II randomized discontinuation trial, which is ongoing.

Phase II in Multiple Tumor Types.We and Bayer, initiated two
single-agent Phase II clinical trials of BAY 43-9006
in the third quarter of 2002. One of these trials, a randomized
discontinuation study, included patients with advanced solid
tumors of multiple types, including kidney, melanoma, colorectal
and other cancers, such as pancreatic, ovarian, sarcoma, thyroid
and breast. Preliminary data from the discontinuation study was
presented at two scientific meetings in the fall of 2003.
Additional data from this study will be reported at future
scientific meetings.

The data presented at the American Association
for Cancer Research-National Cancer Institute-European
Organization for Research and Treatment of Cancer, or the
AACR-NCI-EORTC, conference in November 2003 included the first
50 participants with advanced and progressive kidney cancer
who were evaluable after 12 weeks of treatment. Of the
evaluable patients assessed by investigators, 42 percent,
or 21 patients, had reported tumor shrinkage of at least
25 percent. Twenty-six percent, or 13 patients, were
reported to have had their tumors stabilized within
25 percent of pretreatment size. Overall, 68 percent,
or 34 patients, of this cohort of study participants did
not demonstrate tumor progression by the 12-week evaluation
point, as determined by investigators. The remaining
32 percent, or 16 patients, discontinued study
treatment either because of progressive disease or adverse
effects. These early data are subject to confirmation and to a
final independent review at the conclusion of the study, along
with data from additional kidney cancer patients on the study,
at which time the final results will be released.

Almost all the patients with kidney cancer in
this trial had failed at least one prior systemic treatment and
had progressive disease on study entry. To date, the most
commonly reported drug-related events in the study include:
diarrhea, hypertension, rash and mild-to-moderate hand-foot
syndrome, which is characterized by painful lesions in the palms
of the hands and soles of the feet, all of which were shown to
be manageable and reversible.

The second Phase II clinical trial includes only
patients with liver cancer. This trial is fully enrolled and
ongoing. We expect to report data from this trial at future
scientific meetings.

Phase Ib in Combination with Chemotherapies in
Multiple Tumor Types.Together with
Bayer, we are conducting multiple Phase Ib clinical trials
evaluating BAY 43-9006 in combination with a range of standard
chemotherapies. To date, we have reported results from two of
these eight trials, specifically for the use of BAY 43-9006
in combination with paclitaxel and carboplatin and also with
gemcitabine.

Data from a Phase Ib trial of BAY 43-9006
were reported in June 2003 and updated in November 2003. The
multicenter, dose-escalating trial is designed to evaluate
different dosage levels of BAY 43-9006 administered in
combination with paclitaxel and carboplatin. In November, the
investigator reported data on 14 of the 46 melanoma
patients enrolled in the trial. BAY 43-9006 was well
tolerated when combined with full

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dose paclitaxel and carboplatin. Toxicities we
believe to be attributable to BAY 43-9006, including skin
rash and hand-foot syndrome, resolved themselves when treatment
was halted or BAY 43-9006 dosages were reduced. No
pharmacokinetic interaction between BAY 43-9006 and
paclitaxel or carboplatin was reported. Tumor shrinkages of
50 percent or greater, also called partial responses, were
observed in seven of thirteen evaluable patients with melanoma,
and disease stabilization was reported in five additional
melanoma patients, whose disease subsequently progressed within
two to five months. At the time of the report, one partial
responders disease progressed after ten months and six of
the seven other patients with partial responses were ongoing,
ranging from six to 15 months. One melanoma patients
disease progressed after two cycles. Additional melanoma
patients are being enrolled to study the combination of
BAY 43-9006 with paclitaxel and carboplatin.


A second study of BAY 43-9006 in combination
with chemotherapeutics was also reported in June 2003. In this
multicenter, dose-escalating Phase Ib trial,
BAY 43-9006 was administered continuously at three
different dose levels up to 400 mg twice daily, along with
gemcitabine given at the standard dose of
1000 mg/m2. The patients had advanced solid
tumors including pancreatic, colorectal, ovarian, esophageal,
gastric, sarcoma, nasopharyngeal and mesothelioma, for which no
standard therapy exists and who were deemed suitable for
treatment with gemcitabine chemotherapy. The safety results were
reported in 20 patients treated. Blood toxicities observed
in patients did not limit the dose the patient could receive and
were consistent with the side effects of gemcitabine when
administered alone. Other toxicities included decreased
appetite, fatigue, hand-foot syndrome, skin rash, nausea and
diarrhea. Of these, fatigue proved dose-limiting in one patient
treated at the highest dose. Preliminary pharmacokinetic
analysis revealed no significant interactions between
BAY 43-9006 and gemcitabine. Therefore, the primary
objective of the study was met since the drugs could be combined
at the standard dose of gemcitabine plus the recommended
Phase II dose of BAY 43-9006. In addition, there was
early evidence of anticancer activity. Data from
20 patients included one patient with a confirmed partial
response in previously treated ovarian cancer, and disease
stabilization of eight weeks or more in 11 patients with
tumor types including ovarian, pancreatic, colorectal,
esophageal, nasopharyngeal, and an unknown primary tumor.
Additional pancreatic cancer patients are currently being
evaluated.

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 during 2002 and the first
two quarters of 2003, including the 2002 and 2003 annual
meetings of the American Society of Clinical Oncology, or ASCO,
and the 2002 EORTC-NCI-AACR meeting.

The objective of the Phase I studies was to
test BAY 43-9006 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
BAY 43-9006 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 BAY 43-9006 in initial doses of
200 mg or more twice daily, 29 patients, or
25 percent, remained on BAY 43-9006 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.

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Phase I and Phase II in AML and MDS.Together with Bayer and the Canadian
National Cancer Institute, we are continuing a Phase I
clinical trial of BAY 43-9006 in AML and MDS patients. The first
phase of the study is a dose-escalation study that may be
followed by an expansion at the highest dose level.

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, a small molecule cell cycle
inhibitor targeting a cyclin-dependent kinase. We believe that
Warner-Lambert expects to enter Phase I clinical trials 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 BAY 43-9006. As the
first step in this realignment, in January 2003, we suspended
Phase II and Phase III clinical studies of our
p53-selective virus ONYX-015 for head and neck cancer, canceled
plans to initiate a Phase II trial in metastatic colorectal
cancer and suspended all manufacturing activity. In June 2003,
we announced the termination of all other internal research
activities, including the development of our RB-selective virus
ONYX-411 and our Armed Therapeutic VirusTM program.
Together these actions resulted in a reduction in force of
approximately 75 positions, most of which were associated
with the therapeutic virus program. We are continuing to
evaluate any opportunities that may arise to license or divest
our therapeutic virus technology. To further develop these
assets, we will continue to fund research at the University of
California, San Francisco related to our therapeutic viruses
under an existing agreement that continues through January 2007.
The principal investigator under this agreement is our
scientific founder, Dr. Frank McCormick. Future payments
under the agreement will total approximately $1.7 million.

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, BAY
43-9006, was identified.

Bayer has paid all the costs of research and
preclinical development of BAY 43-9006. Under our agreement with
Bayer, we are 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 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 BAY 43-9006
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 the Phase III study. In
addition, Bayer will advance us

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$10.0 million when a New Drug Application,
or NDA, is filed and a further $10.0 million following the
approval of BAY 43-9006 in any one of 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, if any, 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, an
inhibitor of a cyclin-dependent kinase. We believe that
Warner-Lambert expects to enter Phase I clinical trials with
this candidate in 2004.

Research and Development

The majority of our operating expenses to date
are related to research and development, or R&D. R&D
expenses consist of independent R&D costs and costs
associated with collaborative R&D. R&D expenses were
$33.6 million in 2003, $43.8 million in 2002, and
$39.9 million in 2001. We anticipate that a majority of our
operating expenses will continue to be related to R&D in
2004.

Marketing and Sales

We currently have no marketing, sales or
distribution capabilities, but we may build these capabilities
to promote any approved product in the United States. We also
may enter into relationships with one or more pharmaceutical
companies with established marketing, sales and distribution
capabilities and direct sales forces to market products we may
successfully commercialize.

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 BAY 43-9006
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 BAY 43-9006 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.

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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 BAY 43-9006 are owned by Bayer,
but licensed to us in conjunction with our collaboration
agreement with Bayer. As of December 31, 2003, we owned or
had licensed rights to 48 United States patents and 44 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 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.

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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 Investigational
    New Drug application, or 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 a marketing application to the
    FDA; and                                                                                              
|
| |  | FDA approval of the marketing application,
    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.

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 a marketing
application 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;             
|
| |  | recordkeeping;             

8



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| |   |                      
| | - | ---------------------
| |  | 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 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 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 BAY 43-9006 program and that have commercial
products or product candidates in clinical development include
Pfizer, Novartis, AstraZeneca

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PLC, OSI Pharmaceuticals, Inc., Genentech, Inc.
and Abgenix, Inc., among others. We believe Pfizer has a small
molecule compound in clinical development that targets MEK, an
enzyme that is also involved in the RAS signaling pathway. 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
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 is now
approved. Novartis and Pfizer, among others, are developing
small molecules targeting VEGF. 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 BAY 43-9006. We believe that other
companies have RAF kinase inhibitors in preclinical development.


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, 2003, we had 16 full-time
employees of whom 3 hold Ph.D. or M.D. degrees. Of our
employees, 3 are in research and development and 13 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 re-incorporated 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 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 Investor materials. In addition,
we intend to promptly disclose (1) the nature of any
amendment to our code of ethics that applies

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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 a total of approximately 50,000 square
feet of office and laboratory space in our primary facility in
Richmond, California. The lease expires in April 2005 with an
option to extend the lease for an additional five years.

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 7 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 Security Holders

No matters were submitted to a vote of the
Companys stockholders during the quarter ended
December 31, 2003.




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.

BAY 43-9006 is our only product candidate
currently in clinical development, and our ability to discover
and promote additional candidates to clinical development is
constrained. If BAY 43-9006 is not successfully commercialized,
we may be unable to identify and promote alternative product
candidates and our business would fail.

BAY 43-9006 is our only product candidate in
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 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
BAY 43-9006, 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 BAY 43-9006. If BAY
43-9006 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 BAY 43-9006, we will be unable
to commercialize BAY 43-9006, and our business may
fail.

In collaboration with Bayer, we are conducting
multiple clinical trials of BAY 43-9006. We have completed
Phase I single-agent clinical trials of BAY 43-9006. We are
currently conducting a number of Phase Ib clinical trials
of BAY 43-9006 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 concentrations in the body change
over time; to study pharmacodynamics, or how the drug

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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 are currently conducting
single-agent, open label Phase II clinical trials of BAY
43-9006 in kidney, melanoma, liver 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 without randomized
Phase II clinical trial data. In November 2003, we
announced interim investigator-reported data from
50 patients. The Phase II trial is still in progress,
early data is subject to confirmation, and final results,
including an independent review of the data, are not yet
available. Frequently, independently-reviewed data is less
favorable than investigator-reported data, and our independent
review could fail to confirm the interim results. We believe
that any clinical trial designed to test the efficacy of BAY
43-9006, 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 BAY 43-9006 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 BAY 43-9006 is not demonstrated,
or if previously unforeseen and unacceptable side effects are
observed, we may not proceed with further clinical trials of BAY
43-9006. If we do not proceed with additional clinical trials of
BAY 43-9006, we cannot seek regulatory approval of BAY 43-9006
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 BAY 43-9006. These adverse effects may impact the
interpretation of clinical trial results, which could lead to an
erroneous conclusion regarding the toxicity or efficacy of BAY
43-9006.

We are dependent upon our collaborative
relationship with Bayer to develop, manufacture and
commercialize BAY 43-9006 and to obtain regulatory approval.
There may be circumstances which delay or prevent the
development and commercialization of BAY 43-9006.

Our strategy for developing, manufacturing and
commercializing BAY 43-9006 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 these 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 BAY 43-9006.

Under the terms of the collaboration agreement,
we and Bayer are conducting multiple clinical trials of BAY
43-9006. We and Bayer must agree on the development plan for BAY
43-9006. 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
sales. We are currently funding 50 percent of development
costs for BAY 43-9006, 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 BAY 43-9006, 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
which is ultimately commercialized, but not to share in profits.
Bayer could, upon 60 days notice, elect at any time to
terminate its cofunding of the development of BAY 43-9006. If
Bayer terminates its cofunding of BAY 43-9006 development, Onyx
may be unable to fund the development costs on its own and may
be unable to find a new collaborator.

Bayer manages the development of BAY 43-9006,
including the FDA regulatory process and scope, size and
schedule of clinical development. We are dependent on
Bayers experience in filing and pursuing

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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 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 BAY 43-9006. At present, it is
anticipated that, if issued, the last to expire of the United
States patents 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 BAY 43-9006, 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 BAY 43-9006. If this
happened, Onyx, or the successor to Onyx, would receive a
royalty based on any sales of BAY 43-9006 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 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.

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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
BAY 43-9006, 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 BAY 43-9006 as projected or at all.

We rely on Bayer, academic institutions or
clinical research organizations to conduct, supervise or monitor
some or all aspects of clinical trials involving BAY 43-9006. 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 may suffer a delay in the completion of any
one of our clinical trials because of requests from the FDA to
revise the size or scope of the clinical trial. Failure to
commence or complete, or delays in, any of our planned clinical
trials would prevent us from commercializing BAY 43-9006, 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 BAY 43-9006, 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 BAY 43-9006
    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, together with approximately
$148.2 million in net proceeds from our public offering
closed in February 2004, will be sufficient to fund our current
development plans through 2006. 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 BAY 43-9006 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 BAY 43-9006
program in future periods. We may have to curtail our funding of
BAY 43-9006 if we cannot raise sufficient capital. If we do not
cofund development of BAY 43-9006, we will receive a royalty on
future sales of any product that is ultimately commercialized,
instead of a share of profits.

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The efficacy of RAF and angiogenesis
inhibition in the treatment of human cancer has not been
established.

BAY 43-9006 is designed to act as a RAF
inhibitor, blocking inappropriate growth signals in tumor cells
by inhibiting RAF kinase, an enzyme involved in cancer cell
growth. BAY 43-9006 is the first small molecule RAF inhibitor to
reach the stage of clinical testing, and there is currently no
direct evidence that the inhibition of RAF is an effective
treatment for cancer in humans. BAY 43-9006 also inhibits VEGF
and PDGF receptors, two key receptors involved in angiogenesis.
In addition, the inhibition of RAF kinase has also been shown to
have anti-angiogenic effects. BAY 43-9006 has been shown to
inhibit angiogenesis and tumor growth in preclinical models.
However, preclinical models to study anticancer activity of
compounds are not necessarily predictive of sufficient clinical
efficacy of these compounds in the treatment of human cancer to
warrant a full commercial development program. BAY 43-9006 has
also been tested in Phase I and Phase II human
clinical trials, but the number of patients in these trials, and
the design of the trials, were insufficient to draw
statistically significant conclusions as to clinical efficacy of
the compound. RAF inhibition, a method of action of BAY 43-9006,
may ultimately fail as an effective treatment of cancer in
humans, or BAY 43-9006 may not inhibit RAF sufficiently to be
effective. If RAF inhibition is not an effective treatment of
cancer in humans, BAY 43-9006 may have no commercial value as a
drug candidate, which could seriously harm our business.

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

Our net loss for the year ended December 31,
2001 was $27.6 million, for the year ended
December 31, 2002 was $45.8 million, and for the year
ended December 31, 2003 was $45.0 million. As of
December 31, 2003, we had an accumulated deficit of
approximately $203.9 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 BAY 43-9006 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 BAY 43-9006, 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 BAY 43-9006
for clinical trials and to support any commercial requirements.
We lack the resources, experience and capabilities to
manufacture BAY 43-9006 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.

15



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##### Table of Contents



We have the right to copromote BAY 43-9006,
but we do not have marketing or sales experience or
capabilities.

We have the right under our collaboration
agreement with Bayer to copromote BAY 43-9006 in the United
States in conjunction with Bayer. In order to copromote BAY
43-9006, we will need to 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,
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 January 2003, we restructured our operations
to reflect an increased priority on the development of BAY
43-9006 and, in June 2003, announced that we discontinued our
therapeutic virus program. As a result of these restructurings,
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 BAY
43-9006, but are not actively involved in new product candidate
discovery. If we resume our research and development of other
product candidates, we will either need to rehire these
individuals or hire individuals with similar skills. If we
cannot rehire these individuals or others with similar skills in
a timely fashion, we will be unable to resume these 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, BAY 43-9006 or any future product candidates that we
may develop may not gain market acceptance among physicians,
patients, healthcare payers and the medical community. 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;                                     
|
| |  | availability of third-party reimbursement;                                                      
|
| |  | 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 BAY 43-9006 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.

16



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##### Table of Contents



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 BAY 43-9006 program and that have commercial
products or product candidates in clinical development include
Pfizer, Novartis, AstraZeneca, OSI Pharmaceuticals, Genentech,
and Abgenix, among others. We believe Pfizer has a small
molecule compound in clinical development that targets MEK, an
enzyme that is also involved in the RAS signaling pathway. 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 is now
approved. Novartis and Pfizer, among others, are developing
small molecules targeting VEGF receptors. 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 BAY 43-9006. We believe that
other companies have RAF kinase inhibitors in preclinical
development.

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
BAY 43-9006. 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 BAY 43-9006 receives regulatory
approval but cannot compete effectively in the marketplace, our
business will suffer.

17



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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 BAY 43-9006 or any other product candidate.

We expect to rely on Bayer to manage
communications with regulatory agencies, including filing
investigational new drug applications and generally directing
the regulatory approval process for BAY 43-9006. 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 BAY 43-9006. 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 BAY 43-9006. Delays in obtaining
regulatory approvals may:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | adversely affect the successful commercialization
    of BAY 43-9006;
|
| |  | 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, including our competitors, could have an
adverse effect on our ability to obtain or maintain regulatory
approval for BAY 43-9006.

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 BAY 43-9006, 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 last to expire of the United
States patents related to BAY 43-9006 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 BAY 43-9006 are also pending
throughout the world. As of December 31, 2003, we owned or
had licensed rights to 48 United States patents and 44 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
virus program. Additionally, we have corresponding patents or
patent applications pending or granted in certain foreign
jurisdictions.

18



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##### Table of Contents



We are a party to various license agreements that
give us rights to use specified technologies in our development
processes. If we are not able to continue to license this
technology on commercially reasonable terms, our product
development may be delayed. In addition, we generally do not
control the patent prosecution of in-licensed technology and,
accordingly, are unable to exercise the same degree of control
over this intellectual property as we exercise over our
internally developed technology.

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 BAY 43-9006 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 BAY 43-9006.

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 BAY 43-9006 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

19



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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.

We deal with hazardous materials and must
comply with environmental laws and regulations, which can be
expensive and restrict how we do business.

Our activities involve the controlled storage,
use, and disposal of hazardous materials, including infectious
agents, corrosive, explosive and flammable chemicals and various
radioactive compounds. We are subject to federal, state, and
local laws and regulations governing the use, manufacture,
storage, handling, and disposal of these hazardous materials.
Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards
prescribed by these laws and regulations, we cannot eliminate
the risk of accidental contamination or injury from these
materials.

In the event of an accident, state or federal
authorities may curtail our use of these materials and we could
be liable for any civil damages that result, which may exceed
our financial resources and may seriously harm our business.
While we believe that the amount of insurance we carry is
sufficient for typical risks regarding our handling of these
materials, it may not be sufficient to cover pollution
conditions or other extraordinary or unanticipated events.
Additionally, an accident could damage, or force us to shut
down, our operations. In addition, if we develop a manufacturing
capacity, we may incur substantial costs to comply with
environmental regulations and would be subject to the risk of
accidental contamination or injury from the use of hazardous
materials in our manufacturing process.

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, 2001 and ending
December 31, 2003, the closing sales price for one share of
our common stock reached a high of $29.67 and a low of $3.50.
Factors affecting our stock price include:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | interim or final results of, or speculation
    about, clinical trials from BAY 43-9006;                       
|
| |  | 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.                                                                  

20



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Existing stockholders have significant
influence over us.

Our executive officers, directors and
five-percent stockholders own, in the aggregate, approximately
23 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.

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. We may in the future be the
target of similar 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 10 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;                                                                                      

21



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##### Table of Contents





| |   |                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | special meetings of the stockholders may be
    called only by the chairman of the board, the chief executive
    officer, the board or 10 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 executive
officers employment is terminated within 13 months of
a change in 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
|               |  |             
|               |  |              |       |     
|               |  | 2003         |       | 2002
|               |  |              |       |     
|               |  | High         |       | Low  |  | High |       | Low
|               |  |              |       |      |  |      |       |    
|First Quarter  |  | $            | 8.60  |      |  | $    | 4.65  |     |  | $ | 5.23 |  |  | $ | 3.77 | 
|Second Quarter |  |              | 14.13 |      |  |      | 7.27  |     |  |   | 8.40 |  |  |   | 4.70 | 
|Third Quarter  |  |              | 23.92 |      |  |      | 12.01 |     |  |   | 5.50 |  |  |   | 3.60 | 
|Fourth Quarter |  |              | 29.67 |      |  |      | 22.13 |     |  |   | 7.19 |  |  |   | 3.59 | 

On March 8, 2004, the last reported sales
price of our common stock on NASDAQ was $36.53 per share.

Holders

There were approximately 306 holders of
record of our common stock as of March 8, 2004.

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, 2003

|                                                           |  |                      |           |                      |  |                           |      |  |  |  |           |    
|---------------------------------------------------------- |  | -------------------- | --------- | -------------------- |  | ------------------------- | ---- |  |  |  | --------- | ---
|                                                           |  | 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 |  |                      | 1,983,684 |                      |  | $                         | 7.65 |  |  |  | 1,487,230 | (2)



---



|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(1) | We have no equity compensation plans not approved
    by security holders.                                  
|   
|(2) | Of these securities, 68,014 shares remain
    available for purchase under our Employee Stock Purchase Plan.

22



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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, 2003, 2002 and 2001 and the Balance
Sheet data as of December 31, 2003 and 2002 have been
derived from our audited financial statements included elsewhere
in this report. The Statement of Operations data for the years
ended December 31, 2000 and 1999 and the Balance Sheet data
as of December 31, 2001, 2000 and 1999 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,              
|                                                                  |                            |                                      
|                                                                  |                            | 2003                                  |         | 2002   |  | 2001 |         | 2000   |  | 1999
|                                                                  |                            |                                       |         |        |  |      |         |        |  |     
|                                                                  |                            |                                      
|                                                                  |                            | (In thousands, except per share data)
|Statement of Operations Data:                                     |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Total revenue                                                     |                            | $                                     |        |        |  | $    | 2,715   |        |  | $    | 15,846  |        |  | $ | 24,180  |        |  | $ | 13,324  |       
|Operating expenses:                                               |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                                  | Research and development   |                                       |         | 33,638 |  |      |         | 43,792 |  |      |         | 39,927 |  |   |         | 26,879 |  |   |         | 23,627 | 
|                                                                  | General and administrative |                                       |         | 6,360  |  |      |         | 6,004  |  |      |         | 6,652  |  |   |         | 7,508  |  |   |         | 5,341  | 
|                                                                  | Restructuring              |                                       |         | 5,530  |  |      |         |       |  |      |         | 812    |  |   |         |       |  |   |         |       | 
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Loss from operations                                              |                            |                                       | (45,528 | )      |  |      | (47,081 | )      |  |      | (31,545 | )      |  |   | (10,207 | )      |  |   | (15,644 | )     
|Interest and other income and expense, net                        |                            |                                       | 559     |        |  |      | 1,294   |        |  |      | 3,973   |        |  |   | 2,728   |        |  |   | 842     |       
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Net loss                                                          |                            | $                                     | (44,969 | )      |  | $    | (45,787 | )      |  | $    | (27,572 | )      |  | $ | (7,479  | )      |  | $ | (14,802 | )     
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Basic and diluted net loss per share                              |                            | $                                     | (1.73   | )      |  | $    | (2.23   | )      |  | $    | (1.50   | )      |  | $ | (0.50   | )      |  | $ | (1.29   | )     
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Shares used in computing basic and diluted net
    loss per share |                            |                                       | 25,953  |        |  |      | 20,535  |        |  |      | 18,385  |        |  |   | 14,896  |        |  |   | 11,503  |       
|                                                                  |                            |                                       |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       

|                                                 |  |                |          |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|------------------------------------------------ |  | -------------- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | - |  | - | ------- | -
|                                                 |  |               
|                                                 |  | December 31,  
|                                                 |  |               
|                                                 |  | 2003           |          | 2002 |  | 2001 |          | 2000 |  | 1999
|                                                 |  |                |          |      |  |      |          |      |  |     
|                                                 |  |               
|                                                 |  | (In thousands)
|Balance Sheet Data:                              |  |                |          |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|Cash, cash equivalents and marketable securities |  | $              | 105,400  |      |  | $    | 39,833   |      |  | $    | 58,466   |   |  | $ | 81,994  |   |  | $ | 14,463  |  
|Total assets                                     |  |                | 109,138  |      |  |      | 46,241   |      |  |      | 65,782   |   |  |   | 88,597  |   |  |   | 21,628  |  
|Working capital                                  |  |                | 92,826   |      |  |      | 28,727   |      |  |      | 48,669   |   |  |   | 74,209  |   |  |   | 6,773   |  
|Advance from collaboration partner               |  |                | 20,000   |      |  |      | 5,000    |      |  |      |         |   |  |   |        |   |  |   |        |  
|Long-term debt, noncurrent portion               |  |                |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   | 183     |  
|Accumulated deficit                              |  |                | (203,880 | )    |  |      | (158,911 | )    |  |      | (113,124 | ) |  |   | (85,552 | ) |  |   | (78,073 | )
|Total stockholders equity                       |  |                | 73,519   |      |  |      | 28,784   |      |  |      | 55,085   |   |  |   | 76,896  |   |  |   | 7,662   |  

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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

2003 was an important year for Onyx as we
realigned our resources and placed an increased priority on the
development of BAY 43-9006. With our collaborator Bayer, we
began a pivotal Phase III clinical trial for the treatment of
patients with advanced kidney cancer. As a result, we received a
$15.0 million creditable milestone-based payment from Bayer
upon the initiation of the first Phase III clinical trial in the
program.

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 discontinued this program and
terminated all internal research activities. As a first step, in
January 2003, we suspended the development of the lead product
candidate in the therapeutic virus program, ONYX-015, including
clinical trials and manufacturing activities. The January and
June actions resulted in a reduction in force of approximately
75 positions, most of which were associated with the therapeutic
virus program. During 2003, we recorded aggregate charges of
$5.5 million associated with both restructurings. These
charges consisted 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. While we anticipate that the
restructuring activities in January and June 2003 will reduce
our future operating expenses, we expect that these savings will
be fully offset by our share of the increased codevelopment
costs for BAY 43-9006 as the compound progresses through Phase
III clinical trials.

In February 2003, we raised net proceeds of
$9.9 million in a private placement primarily with
Deerfield Management Company, Inc. We sold 2,105,263 shares of
our common stock at a price of $4.75 per share.

In July and August 2003, we raised net cash
proceeds of $73.7 million in a public offering of our
common stock. We sold 5,179,000 shares at $15.25 per share
pursuant to an effective registration statement previously filed
with the Securities and Exchange Commission.

Subsequent to year end, in February 2004, we
raised net cash proceeds of $148.2 million in another public
offering of our common stock. We sold 4,685,693 shares at $33.75
per share pursuant to an effective registration statement
previously filed with the Securities and Exchange Commission.

Proceeds from these offerings will be used
primarily for working capital purposes, with a priority on the
clinical development and commercialization activities of BAY
43-9006, general administrative support and general corporate
purposes, including possible acquisition of products or
technologies.

We have not been profitable since inception and
expect to incur substantial and increasing losses for the
foreseeable future, primarily due to expenses associated with
the development and commercialization of BAY 43-9006. We expect
that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. As of December 31, 2003,
our accumulated deficit was approximately $203.9 million.

Our business is subject to significant risks,
including the risks inherent in our development efforts, the
results of the BAY 43-9006 clinical trials, our dependence on
collaborative parties, uncertainties associated with obtaining
and enforcing patents, the lengthy and expensive regulatory
approval process and competition

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from other products. 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 from the sale of proposed products
in the foreseeable future. We expect that all of our revenues in
the foreseeable future, if any, 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 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
estimations used in 2003 included estimated charges related to
our restructuring and 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.

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
60 percent in 2003, relates to our cost sharing arrangement
with Bayer and represent 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, 2003, 2002 and 2001

Total Revenue.Total
revenue was $15.8 million in 2001, $2.7 million in
2002 and zero in 2003. Total revenue in both 2001 and 2002
primarily included amounts received for collaboration revenue
from Warner-Lambert. 2001 revenue of $15.8 million
reflected reimbursement for the therapeutic virus program
research and development activities and for small molecule
research funding. 2002 total revenue of $2.7 million
reflected research funding for the therapeutic virus
collaboration. The small molecule research collaboration
concluded in 2001, and the therapeutic virus collaboration was
terminated in 2002. Our 2003 revenue was zero. Currently, we do
not expect to record any revenue in 2004.

Research and Development Expenses.Research and development expenses were
$33.6 million in 2003, a net decrease of
$10.2 million, or 23 percent, from 2002. In 2003,
expenses for our therapeutic virus program decreased by
$19.1 million from 2002 levels as a result of the January
and June 2003 restructuring that discontinued the therapeutic
virus program development activities and terminated all internal
research activities. The decrease in the therapeutic virus
expenses was partially offset by increased expenses related to
Onyxs share of the codevelopment costs with Bayer for BAY
43-9006. The increase in BAY 43-9006 expenses amounted to
$8.9 million in 2003 over 2002. BAY 43-9006 development
costs reflect multiple ongoing Phase I clinical trials,
Phase II clinical trials initiated in the second half of
2002 and a Phase III clinical trial initiated in the fourth
quarter of 2003. Research and development expenses were
$43.8 million in

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2002, a net increase of $3.9 million, or
10 percent, from 2001. In 2002, expenses related to the
codevelopment of BAY 43-9006 with Bayer increased over 2001
levels by $6.2 million due to multiple ongoing Phase I
clinical trials initiated in July 2000 and Phase II
clinical trials initiated in the second half of 2002.
Earlier-stage small molecule research programs, which were
terminated in 2001, accounted for reductions in expenses of
$2.8 million from 2001 levels. Future cost savings from the
discontinuation of our therapeutic virus program are expected to
be offset by increased costs associated with advancing the
clinical development of BAY 43-9006.


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. Success in development results
in increasing expenditures, and the timing for completion of
these steps is uncertain.

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. The
actual timing of completion of those phases could differ
materially from the estimates provided in the table. 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   |      | 2003                                                  |   | 2002 |      | 2001
|                                        |  |                                                                                                                                   |      |                |       |                        |      |                                                       |   |      |      |     
|                                        |  |                                                                                                                                   |      |                |       |                        |      |                                                      
|                                        |  |                                                                                                                                   |      |                |       |                        |      | (In millions)                                        
|BAY 43-9006                             |  | Small Molecule Inhibitor of tumor cell
    proliferation and angiogenesis, targeting RAF Kinase, VEGFR-2
    and PDGFR-ß          |      |                | Bayer |                        |      | Phase I  2004Phase II  UnknownPhase III  Unknown   |   | $    | 20.8 |      |   | $ | 11.9 |  |   | $ | 5.7  | 
|Therapeutic Virus Program               |  | p53-Selective Replicating Virus
    RB-Selective Replicating Virus
    RB-Selective Replicating Virus Armed with Anticancer Genes |      |                |      |                        |      | Phase II/ III  (1)Preclinical  (1)Preclinical  (1) |   |      | 12.8 |      |   |   | 31.9 |  |   |   | 31.5 | 
|Cell Cycle Kinases(2)                   |  | Small Molecule Inhibitor of Cyclin-Dependent
    Kinase                                                                           |      | Warner-Lambert |       | Preclinical  2004     |      |                                                       |   |      |     |      |   |   |     |  |   |   | 1.0  | 
|Other (3)                               |  | Other Small Molecule Research                                                                                                     |      |                |      |                        |      |                                                       |  |      |      |      |  |   |      |  |  |   |      |  | 1.7 | 
|                                        |  |                                                                                                                                   |      |                |       |                        |      |                                                       |   |      |      |      |   |   |      |  |   |   |      |  |     | 
|Total Research and Development Expenses |  | $                                                                                                                                 | 33.6 |                |       | $                      | 43.8 |                                                       |   | $    | 39.9 |     
|                                        |  |                                                                                                                                   |      |                |       |                        |      |                                                       |   |      |      |     



---



|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(1) | Program discontinued during the second quarter of
    2003. See Note 2 to our Financial Statements.
|   
|(2) | Warner-Lambert is responsible for research and
    development costs.                              
|   
|(3) | Programs discontinued in 2001.                                                                     

The overall completion dates of our major
research and development programs are estimates based on current
information. 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

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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. These risks and
uncertainties make the reliable estimate of overall completion
dates and total costs to complete development highly
speculative. For additional discussion of factors affecting
overall completion dates and total costs, see the
Additional Business Risks section of this report.


General and Administrative Expenses.General and administrative expenses
were $6.4 million in 2003, an increase of $356,000, 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. General and administrative expenses were
$6.0 million in 2002, a decrease of $648,000, or
10 percent, from 2001. The decrease was primarily related
to a decline in employee-related expenses as a result of a
restructuring and staff reductions at the end of 2001. We
anticipate that general and administrative expenses in 2004 may
increase slightly from 2003 expenses due to additional hiring.

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 and
terminating all internal research activities. The decision was
part of a business realignment that placed an increased priority
on the development of BAY 43-9006. As a first step in this
realignment, in January 2003, we suspended the development of
ONYX-015, including clinical trials and manufacturing
activities. Together these actions resulted in a reduction in
force of approximately 75 positions, most of which were
associated with the therapeutic virus program. During 2003, we
recorded aggregate charges of $5.5 million associated with
the January and June 2003 restructurings. 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. We anticipate that the
restructuring activities in January and June 2003 will reduce
our future operating expenses; however, these savings are
expected to be fully offset by our share of the increased
codevelopment costs for BAY 43-9006 as the compound progresses
through Phase III clinical trials.

There were no restructuring expenses in fiscal
year 2002. In October 2001, we formally adopted and announced a
restructuring plan aimed at reducing future operating costs. We
recognized $812,000 of restructuring charges in the last quarter
of 2001. Of the $812,000, $412,000 related to the impairment of
certain long-lived assets, $255,000 related to employee
termination costs, and $145,000 related to office closure costs.
We reduced the size of our workforce by approximately
40 positions, primarily impacting the research and
administrative functions. Employee termination costs consisted
of wage continuation and advance notice pay. Office closure
costs included losses on operating leases and asset impairments
including leasehold improvements related to vacated facilities
and equipment related to research and development programs not
expected to continue.

Interest Income and (Expense), net.We had net interest income of $834,000
in 2003, a decrease of $325,000 from 2002, primarily due to
lower average interest rates. We had net interest income of
$1.2 million in 2002, a decrease of $2.1 million from
2001, primarily due to lower average cash and investment
balances.

Other Income (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.

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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. 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 2003 and 2001.

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, 2003, 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 are
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 2004. 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 12
of the Notes to the Financial Statements included in Item 8
of this Form 10-K for further information.

Related Party Transactions

In March 2001, we issued and sold 460,872 shares
of common stock to Warner-Lambert in a private placement, at a
price of $10.849 per share, for aggregate proceeds of
$5.0 million. We record related party revenue under our
collaboration agreements with Warner-Lambert. Please read
Note 2 of the Notes to the Financial Statements included in
Item 8 of this Form 10-K for further information.

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

We have a loan with a former employee of which
approximately $275,000 was outstanding at December 31, 2003
and 2002. This loan bears interest at 5.98% per annum; however,
we have forgiven $71,000 of interest over the term of the loan
through December 31, 2003.

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 and
revenue from collaborative research and development agreements
to fund our operations.

At December 31, 2003, we had cash, cash
equivalents and marketable securities of $105.4 million,
compared to $39.8 million at December 31, 2002, and
$58.5 million at December 31, 2001. 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

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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 BAY 43-9006. This payment will be repayable to
Bayer from Onyxs share of any profits and royalties. These
sources of cash were partially offset by cash used in operations
of $37.8 million and capital expenditures of $157,000. The
decrease in cash, cash equivalents and marketable securities of
$18.7 million in 2002 was primarily attributable to cash
used in operating activities of $42.2 million and capital
expenditures of $742,000. These uses of cash were partially
offset by the private placement of common stock we completed in
May 2002, which raised net proceeds of $19.0 million. In
addition, we received a $5.0 million creditable
milestone-based payment from Bayer in August 2002 upon
initiation of Phase II clinical trials of BAY 43-9006. This
payment will be repayable to Bayer from Onyxs share of any
profits and royalties.


Our cash used in operations was
$37.8 million in 2003, $42.2 million in 2002 and
$26.8 million in 2001. The cash was used primarily for
cofunding clinical development costs with Bayer for BAY 43-9006
and to fund development expenses including manufacturing and
clinical trial costs for ONYX-015. Expenditures for capital
equipment amounted to $157,000 in 2003, as compared to $742,000
in 2002, and $2.4 million in 2001. We currently expect to
make expenditures for capital equipment and leasehold
improvements of up to $1.0 million in 2004.

We believe that our existing capital resources
and interest thereon, together with approximately
$148.2 million in net proceeds from our public offering
closed in February 2004, will be sufficient to fund our current
and planned operations through 2006. 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 BAY 43-9006 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 2006. 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.

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 |  | $                      | 967 |           |  | $     | 709 |       |  | $       | 243 |  |  | $ | 6 |  |  | $ | 9 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

We have leases for 50,000 square feet of office
and laboratory space in our main facility and 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 as a result of a reduction in force. In
September 2002, we entered into a sublease agreement for this
facility through September 2010, which is also the lease
expiration date for this space. We are currently seeking a
subtenant for a portion of our primary facilities. Any amounts
we may receive under this additional subleasing arrangement have
not been considered in the table above.

29



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##### Table of Contents



Recently Issued Accounting Standards

In July 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards, or SFAS, 146, Accounting for Costs
Associated with Exit or Disposal Activities, which
addresses accounting for restructuring, discontinued operations,
plant closing, or other exit or disposal activities. SFAS 146
requires companies to recognize costs associated with exit or
disposal activities when they are incurred. Previous guidance in
Emerging Issues Task Force, (EITF) No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring) required that a
liability for an exit cost be recognized at the date of a
companys commitment to an exit or disposal plan. SFAS 146
is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. We adopted SFAS 146 on
January 1, 2003 and recorded our January and June 2003
restructurings in accordance with the provisions of SFAS 146.

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45
elaborates on the existing disclosure requirements for most
guarantees, including residual value guarantees issued in
conjunction with operating lease agreements. It also clarifies
that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair value of the
obligation it assumes under that guarantee and must disclose
that information in its interim and annual financial statements.
The initial recognition and measurement provisions apply on a
prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements are
effective for financial statements of interim or annual periods
ending after December 15, 2002. Our adoption of FIN 45 did
not have a material impact on our financial position or results
of operations.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities. FIN 46, as amended, requires a
variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to
receive a majority of the entitys residual returns or
both. A variable interest entity is a corporation, partnership,
trust, or any other legal structure used for business purposes
that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its
activities. A variable interest entity often holds financial
assets, including loans or receivables, real estate or other
property. A variable interest entity may be essentially passive
or it may engage in research and development or other activities
on behalf of another company. The consolidation requirements of
FIN 46 apply immediately to variable interest entities created
after January 31, 2003. The consolidation requirements
apply to older entities in the quarter ending March 31,
2004. Certain of the disclosure requirements apply to all
financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established.
Our adoption of FIN 46 did not have a material impact on our
financial position or results of operations.




Item
7A.     Quantitative and Qualitative
Disclosures about Market Risk

Interest Rate Risk

Our exposure to market rate risk for changes in
interest rates relates primarily to our investment portfolio. We
do not use derivative financial instruments in our investment
portfolio. By policy, we place 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
classify our cash equivalents or marketable securities as fixed
rate if the rate of return on an instrument remains fixed over
its term. As of December 31, 2003, all of our cash
equivalents and marketable securities were classified as fixed
rate.

30



---



##### Table of Contents



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

|                                  |  |          |               |                 |  |          |      |          |  |                 |      |          |  |  |               |  |  |   |      |  |  |  |      |  
|--------------------------------- |  | -------- | ------------- | --------------- |  | -------- | ---- | -------- |  | --------------- | ---- | -------- |  |  | ------------- |  |  | - | ---- |  |  |  | ---- | -
|                                  |  |          |               |                
|                                  |  | 2003     |               | 2002           
|                                  |  |          |               |                
|                                  |  |          |               | Average         |  |          |      | Average 
|                                  |  |          |               | Fair Value      |  | Interest |      |          |  | Fair Value      |      | Interest
|                                  |  | Maturity |               | ($ in millions) |  | Rate     |      | Maturity |  | ($ in millions) |      | Rate    
|                                  |  |          |               |                 |  |          |      |          |  |                 |      |         
|Cash equivalents, fixed rate      |  |          | 0  3 months  |                 |  | $        | 55.2 |          |  |                 | 1.04 | %        |  |  | 0  3 months  |  |  | $ | 11.0 |  |  |  | 1.85 | %
|Marketable securities, fixed rate |  |          | 0  19 months |                 |  | $        | 50.1 |          |  |                 | 1.49 | %        |  |  | 0  15 months |  |  | $ | 28.8 |  |  |  | 2.18 | %

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 38 to 58 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

Evaluation of disclosure controls and
procedures:The Companys
principal executive and 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 principal executive and financial
officer concluded that the Companys disclosure controls
and procedures were sufficiently effective as of
December 31, 2003 to ensure that information required to be
disclosed by the Company in this Annual Report on Form 10-K
was recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and Form 10-K.

Changes in internal controls over financial
reporting:There were no changes in
the Companys internal controls over financial reporting
during the three months ended December 31, 2003 that have
materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.

Limitation on the effectiveness of controls:A control system, no matter how well
conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Because of inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that
all control issues, if any, within a company have been detected.




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 2004 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 2004 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 2004 Definitive Proxy
Statement.

31



---



##### Table of Contents






Item
13.     Certain Relationships and
Related Transactions

The information required under this item is
hereby incorporated by reference from our 2004 Definitive Proxy
Statement.




Item
14.     Principal Accountant Fees
and Services

The information required under this item is
hereby incorporated by reference from our 2004 Definitive Proxy
Statement.




PART IV.




Item
15.     Exhibits, Financial
Statement Schedules and Reports on Form 8-K

(a)(1) Index to Financial
Statements



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | The Financial Statements required by this item
    are submitted in a separate section beginning on page 38 of this
    Report.



| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Report of Ernst & Young LLP, Independent
    Auditors 
     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.

(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(1)      |  | 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.                                                                       
|10.3(1)*    |  | Compound Library Access Agreement between
    Warner-Lambert Company and the Company dated May 2, 1995.                                                                                                              
|10.4(2)*    |  | Research and License Agreement between Eli Lilly
    & Company and the Company dated May 15, 1995 and the
    Collaborative Research and License Agreement between Eli Lilly
    and the Company dated June 12, 1996.

32



---



##### Table of Contents



|           |  |                                                                                                                                                                                                                                                                                                                            
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit    |  |                                                                                                                                                                                                                                                                                                                            
|Number     |  | Description of Document                                                                                                                                                                                                                                                                                                    
|           |  |                                                                                                                                                                                                                                                                                                                            
|10.5(3)*   |  | 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(2)   |  | 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(4)   |  | Letter Agreement between Dr. Allan Balmain
    and the Company dated August 26, 1996, as amended March 13,
    1997.                                                                                                                                                                                                       
|10.20(5)*  |  | Amended and restated Research, Development and
    Marketing Collaboration Agreement dated May 2, 1995 between
    the Company and Warner-Lambert Company.                                                                                                                                                                 
|10.21(5)*  |  | Research, Development and Marketing Collaboration
    Agreement dated July 31, 1997 between the Company and
    Warner-Lambert Company.                                                                                                                                                                                    
|10.23(5)*  |  | 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(6)*  |  | Amendment to Collaboration Agreement between
    Bayer Corporation and the Company dated February 1, 1999.                                                                                                                                                                                                                 
|10.25(7)   |  | 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(8)*  |  | Collaboration Agreement between the Company and
    Warner-Lambert Company dated October 13, 1999 and effective
    September 1, 1999.                                                                                                                                                                                     
|10.27(8)   |  | Stock Put and Purchase Agreement between the
    Company and Warner-Lambert Company dated October 13, 1999 and
    effective September 1, 1999.                                                                                                                                                                            
|10.28(8)   |  | Stock Purchase Agreement between the Company and
    the investors dated January 18, 2000.                                                                                                                                                                                                                                 
|10.29(9)   |  | 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(5)*  |  | Second Amendment to the Amended and Restated
    Research, Development and Marketing Agreement between
    Warner-Lambert and the Company dated May 2, 1995.                                                                                                                                                               
|10.32(5)*  |  | Second Amendment to Research, Development and
    Marketing Collaboration Agreement between Warner-Lambert and the
    Company dated July 31, 1997.                                                                                                                                                                        
|10.33(10)  |  | Employment Offer Letter between Leonard E. Post,
    Ph.D. and the Company dated July 28, 2000.                                                                                                                                                                                                                            
|10.34(11)* |  | Process Development and Manufacturing Agreement
    between XOMA (US) LLC and Onyx Pharmaceuticals, Inc., dated
    January 29, 2001.                                                                                                                                                                                      
|10.35(12)  |  | Form of Executive Change in Control Severance
    Benefits Agreement.                                                                                                                                                                                                                                                      
|10.36(13)* |  | Amendment #1 to the Collaboration Agreement
    between the Company and Warner-Lambert dated August 6, 2001.                                                                                                                                                                                                               

33



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##### Table of Contents



|           |  |                                                                                                                                                                          
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit    |  |                                                                                                                                                                          
|Number     |  | Description of Document                                                                                                                                                  
|           |  |                                                                                                                                                                          
|10.37(13)* |  | Amendment #3 to the Research, Development and
    Marketing Collaboration Agreement between the Company and
    Warner-Lambert dated August 6, 2001.                     
|10.38(13)* |  | 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(14)  |  | Stock and Warrant Purchase Agreement between the
    Company and the investors dated May 6, 2002.                                                                        
|10.40(15)* |  | Amendment No. 1 to the Process Development
    and Manufacturing Agreement between the Company and XOMA
    (US) LLC dated April 15, 2002.                               
|10.41(16)* |  | Amendment to the Collaboration Agreement between
    the Company and Warner-Lambert Company dated September 16,
    2002.                                                
|10.42(17)  |  | Stock Purchase Agreement between the Company and
    the investors dated February 13, 2003.                                                                              
|23.1       |  | Consent of Ernst & Young LLP, Independent
    Auditors.                                                                                                                  
|24.1       |  | Power of Attorney. Reference is made to page 36.                                                                                                                         
|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.



| |     |                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------
| | (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,
    1996.     
|
| | (3) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 2001.           
|
| | (4) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    1997.    
|
| | (5) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 2002.           
|
| | (6) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    1999.    
|
| | (7) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 1999.
|
| | (8) | Filed as an exhibit to Onyxs Current Report
    on Form 8-K filed on March 1, 2000.                         
|
| | (9) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 1999.           



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

34



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##### Table of Contents



(b) Reports on Form 8-K



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 31, 2003, the Company filed a
    Current Report on Form 8-K to furnish under Item 5 its
    October 25, 2003 public announcement that the Company,
    together with Bayer Pharmaceuticals Corporation, or Bayer, had
    initiated a BAY 43-9006 Phase III clinical trial in the
    treatment of kidney cancer. Bayer and Onyx also reported that
    the U.S. Food and Drug Administration has recently completed and
    agreed upon a Special Protocol Assessment, or SPA, for the Phase
    III trial. The Company and Bayer also announced interim BAY
    43-9006 Phase II clinical study results.
|
| | On November 4, 2003, the Company filed a
    Current Report on Form 8-K to furnish under Item 12
    its October 30, 2003 public announcement of financial
    results for the third quarter and nine months ended
    September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                            

35



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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 Richmond, County of Contra Costa,
State of California, on the 12th day of March, 2004.



| |                           
| | --------------------------
| | 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 12, 2004
|                                          
|/s/ MARILYN E. WORTZMANMarilyn E. Wortzman |  | Vice President, Finance
    (Principal Accounting Officer)                                                       |  | March 12, 2004
|                                          
|/s/ PAUL GODDARDPaul Goddard               |  | Director                                                                                                         |  | March 12, 2004
|                                          
|Antonio Grillo-López                       |  | Director                                                                                                         |  |               
|                                          
|/s/ MAGNUS LUNDBERGMagnus Lundberg         |  | Director                                                                                                         |  | March 12, 2004
|                                          
|/s/ GEORGE A. SCANGOSGeorge A. Scangos     |  | Director                                                                                                         |  | March 12, 2004

36



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##### Table of Contents



|                                     |  |          |  |                |  | 
|------------------------------------ |  | -------- |  | -------------- |  | 
|                                     |  |          |  |               
|Signature                            |  | Title    |  | Date          
|                                     |  |          |  |               
|                                    
|/s/ NICOLE VITULLONicole Vitullo     |  | Director |  | March 12, 2004
|                                    
|/s/ WENDELL WIERENGAWendell Wierenga |  | Director |  | March 12, 2004

37



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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

Onyx Pharmaceuticals, Inc.


We have audited the accompanying balance sheets
of Onyx Pharmaceuticals, Inc. as of December 31, 2003 and
2002, and the related statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2003. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the 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, 2003
and 2002, and the results of its operations and its cash flows
for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States.



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

Palo Alto, California

February 13, 2004, except for Note 14
as to which the


date is February 24, 2004


38



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.

BALANCE SHEETS

|                                         |                                                                                                                                                                              |                             |         |          |         |   |        |          |        | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------- | -------- | ------- | - | ------ | -------- | ------ | 
|                                         |                                                                                                                                                                              |                            
|                                         |                                                                                                                                                                              | December 31,               
|                                         |                                                                                                                                                                              |                            
|                                         |                                                                                                                                                                              | 2003                        |         | 2002    
|                                         |                                                                                                                                                                              |                             |         |         
|                                         |                                                                                                                                                                              |                            
|                                         |                                                                                                                                                                              | (In thousands, except share
|                                         |                                                                                                                                                                              | and per share amounts)     
|ASSETS                                  
|Current Assets:                          |                                                                                                                                                                              |                             |         |          |         |   |        |         
|                                         | Cash and cash equivalents                                                                                                                                                    |                             | $       | 55,312   |         |   | $      | 11,014   |       
|                                         | Marketable securities                                                                                                                                                        |                             |         | 50,088   |         |   |        | 28,819   |       
|                                         | Receivable from collaboration partner                                                                                                                                        |                             |         | 584      |         |   |        |         |       
|                                         | Other current assets                                                                                                                                                         |                             |         | 2,461    |         |   |        | 1,351    |       
|                                         |                                                                                                                                                                              |                             |         |          |         |   |        |         
|                                         |                                                                                                                                                                              | Total current assets        |         |          | 108,445 |   |        |          | 41,184 | 
|Property and equipment, net              |                                                                                                                                                                              |                             | 285     |          |         |   | 2,834  |         
|Notes receivable from related party      |                                                                                                                                                                              |                             |        |          |         |   | 275    |         
|Other assets                             |                                                                                                                                                                              |                             | 408     |          |         |   | 1,948  |         
|                                         |                                                                                                                                                                              |                             |         |          |         |   |        |         
|                                         |                                                                                                                                                                              | $                           | 109,138 |          |         | $ | 46,241 |         
|                                         |                                                                                                                                                                              |                             |         |          |         |   |        |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current Liabilities:                     |                                                                                                                                                                              |                             |         |          |         |   |        |         
|                                         | Accounts payable                                                                                                                                                             |                             | $       | 299      |         |   | $      | 736      |       
|                                         | Payable to collaboration partner                                                                                                                                             |                             |         | 13,632   |         |   |        | 6,785    |       
|                                         | Accrued restructuring                                                                                                                                                        |                             |         | 325      |         |   |        | 31       |       
|                                         | Accrued liabilities                                                                                                                                                          |                             |         | 494      |         |   |        | 768      |       
|                                         | Accrued clinical trials and related expenses                                                                                                                                 |                             |         | 147      |         |   |        | 2,977    |       
|                                         | Accrued compensation                                                                                                                                                         |                             |         | 722      |         |   |        | 1,160    |       
|                                         |                                                                                                                                                                              |                             |         |          |         |   |        |         
|                                         |                                                                                                                                                                              | Total current liabilities   |         |          | 15,619  |   |        |          | 12,457 | 
|Advance from collaboration partner       |                                                                                                                                                                              |                             | 20,000  |          |         |   | 5,000  |         
|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; 29,586,022 and 21,614,624 shares issued and
    outstanding as of December 31, 2003 and 2002, respectively |                             |         | 30       |         |   |        | 22       |       
|                                         | Additional paid-in capital                                                                                                                                                   |                             |         | 277,577  |         |   |        | 187,633  |       
|                                         | Receivable from stock option exercises                                                                                                                                       |                             |         | (235     | )       |   |        |         |       
|                                         | Accumulated other comprehensive income                                                                                                                                       |                             |         | 27       |         |   |        | 40       |       
|                                         | Accumulated deficit                                                                                                                                                          |                             |         | (203,880 | )       |   |        | (158,911 | )     
|                                         |                                                                                                                                                                              |                             |         |          |         |   |        |         
|                                         |                                                                                                                                                                              | Total stockholders equity  |         |          | 73,519  |   |        |          | 28,784 | 
|                                         |                                                                                                                                                                              |                             |         |          |         |   |        |         
|                                         |                                                                                                                                                                              | $                           | 109,138 |          |         | $ | 46,241 |         
|                                         |                                                                                                                                                                              |                             |         |          |         |   |        |         

See accompanying notes.

39



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

|                                                                  |                                     |                                          |         |         |        |      |         |         |        |   |         |         |        | 
|----------------------------------------------------------------- | ----------------------------------- | ---------------------------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                                  |                                     |                                         
|                                                                  |                                     | Year Ended December 31,                 
|                                                                  |                                     |                                         
|                                                                  |                                     | 2003                                     |         | 2002    |        | 2001
|                                                                  |                                     |                                          |         |         |        |     
|                                                                  |                                     |                                         
|                                                                  |                                     | (In thousands, except per share amounts)
|Revenue:                                                          |                                     |                                          |         |         |        |      |         |         |        |   |         |        
|                                                                  | Contract revenue from related party |                                          | $       |        |        |      | $       | 2,715   |        |   | $       | 15,631  |       
|                                                                  | Grant and other revenue             |                                          |         |        |        |      |         |        |        |   |         | 215     |       
|                                                                  |                                     |                                          |         |         |        |      |         |         |        |   |         |        
|                                                                  |                                     | Total revenue                            |         |         |       |      |         |         | 2,715  |   |         |         | 15,846 | 
|Operating expenses:                                               |                                     |                                          |         |         |        |      |         |         |        |   |         |        
|                                                                  | Research and development            |                                          |         | 33,638  |        |      |         | 43,792  |        |   |         | 39,927  |       
|                                                                  | General and administrative          |                                          |         | 6,360   |        |      |         | 6,004   |        |   |         | 6,652   |       
|                                                                  | Restructuring                       |                                          |         | 5,530   |        |      |         |        |        |   |         | 812     |       
|                                                                  |                                     |                                          |         |         |        |      |         |         |        |   |         |        
|                                                                  |                                     | Total operating expenses                 |         |         | 45,528 |      |         |         | 49,796 |   |         |         | 47,391 | 
|                                                                  |                                     |                                          |         |         |        |      |         |         |        |   |         |        
|Loss from operations                                              |                                     |                                          | (45,528 | )       |        |      | (47,081 | )       |        |   | (31,545 | )      
|Interest income and (expense), net                                |                                     |                                          | 834     |         |        |      | 1,159   |         |        |   | 3,223   |        
|Other income (expense)  related party                            |                                     |                                          | (275    | )       |        |      | (100    | )       |        |   | 750     |        
|Other income                                                      |                                     |                                          |        |         |        |      | 235     |         |        |   |        |        
|                                                                  |                                     |                                          |         |         |        |      |         |         |        |   |         |        
|                                                                  | Net loss                            |                                          | $       | (44,969 | )      |      | $       | (45,787 | )      |   | $       | (27,572 | )     
|                                                                  |                                     |                                          |         |         |        |      |         |         |        |   |         |        
|Basic and diluted net loss per share                              |                                     | $                                        | (1.73   | )       |        | $    | (2.23   | )       |        | $ | (1.50   | )      
|                                                                  |                                     |                                          |         |         |        |      |         |         |        |   |         |        
|Shares used in computing basic and diluted net
    loss per share |                                     |                                          | 25,953  |         |        |      | 20,535  |         |        |   | 18,385  |        
|                                                                  |                                     |                                          |         |         |        |      |         |         |        |   |         |        

See accompanying notes.

40



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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, 2000 |                                                                                                            |                                                                           | 17,962,332 |            |   | $       | 18 |               |   | $           | 162,430 |               |     | $      |     |      |   | $ |   |   |     | $ | (85,552  | ) |         | $ | 76,896 |        
|                              | Exercise of stock options at prices ranging from
    $0.7139 to $10.875 per share                          |                                                                           |            | 70,456     |   |         |    |              |   |             |         | 479           |     |        |      |     |   |   |    |  |     |   |          |  |         |   |        | 479     |        
|                              | Issuance of common stock to Warner-Lambert, net
    of costs of $19                                        |                                                                           |            | 460,872    |   |         |    | 1             |   |             |         | 4,980         |     |        |      |     |   |   |    |  |     |   |          |  |         |   |        | 4,981   |        
|                              |                                                                                                            | Stock-based compensation, related to non-employee
    stock option grants |            |            |  |         |    |               |  |             |         |               | (55 | )      |      |      |  |   |    |   |    |   |          |   |        |   |        |         | (55     | )
|                              | Issuance of common stock pursuant to employee
    stock purchase plan                                      |                                                                           |            | 36,269     |   |         |    |              |   |             |         | 258           |     |        |      |     |   |   |    |  |     |   |          |  |         |   |        | 258     |        
|                              | Comprehensive loss:                                                                                        |                                                                           |            |            |   |         |    |               |   |             |         |               |     |        |      |      |   |   |    |   |     |   |          |   |         |   |        |         |        
|                              |                                                                                                            | Change in unrealized gain on investments                                  |            |            |  |         |    |               |  |             |         |               |    |        |      |      |  |   |    |   | 98  |   |          |   |        |   |        |         | 98      |  
|                              |                                                                                                            | Net loss                                                                  |            |            |  |         |    |               |  |             |         |               |    |        |      |      |  |   |    |   |    |   |          |   | (27,572 | ) |        |         | (27,572 | )
|                              |                                                                                                            |                                                                           |            |            |   |         |    |               |   |             |         |               |     |        |      |      |   |   |    |   |     |   |          |   |         |   |        |        
|                              | Comprehensive loss                                                                                         |                                                                           |            |           |   |         |    |              |   |             |         |              |     |        |      |     |   |   |    |  |     |   |          |  |         |   |        | (27,474 | )      
|                              |                                                                                                            |                                                                           |            |            |   |         |    |               |   |             |         |               |     |        |      |      |   |   |    |   |     |   |          |   |         |   |        |        
|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 |        
|                              |                                                                                                            |                                                                           |            |            |   |         |    |               |   |             |         |               |     |        |      |      |   |   |    |   |     |   |          |   |         |   |        |        

See accompanying notes.

41



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |         |        |         |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | ------- | ----- | ------- | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                             |                                                                                 |                                                  
|                                                             |                                                                                 | Year Ended December 31,                          
|                                                             |                                                                                 |                                                  
|                                                             |                                                                                 | 2003                                              |                                           | 2002    |       | 2001   
|                                                             |                                                                                 |                                                   |                                           |         |       |        
|                                                             |                                                                                 |                                                  
|                                                             |                                                                                 | (In thousands)                                   
|Cash flows from operating activities                         |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             | Net loss                                                                        |                                                   | $                                         | (44,969 | )     |         | $       | (45,787 | )      |         | $       | (27,572 | )     
|                                                             | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                   |                                           |         |       |         |         |         |        |         |         |         |       
|                                                             |                                                                                 | Depreciation and amortization                     |                                           |         | 1,124 |         |         |         | 1,849  |         |         |         | 1,986  |        
|                                                             |                                                                                 | Income from the sale of assets to a related party |                                           |         |      |         |         |         |       |         |         |         | (750   | )      
|                                                             |                                                                                 | Loss on impairment of investment                  |                                           |         | 275   |         |         |         | 100    |         |         |         |       |        
|                                                             |                                                                                 | Noncash restructuring charges                     |                                           |         | 2,341 |         |         |         |       |         |         |         | 674    |        
|                                                             |                                                                                 | (Gain) loss on sale of property and equipment     |                                           |         | (9    | )       |         |         | (79    | )       |         |         | 60     |        
|                                                             |                                                                                 | Forgiveness of notes receivable                   |                                           |         | 16    |         |         |         | 16     |         |         |         | 16     |        
|                                                             |                                                                                 | Stock-based compensation to consultants           |                                           |         | 1,501 |         |         |         | 326    |         |         |         | (55    | )      
|                                                             | Changes in assets and liabilities:                                              |                                                   |                                           |         |       |         |         |         |        |         |         |         |       
|                                                             |                                                                                 | Receivable from collaboration partners            |                                           |         | (584  | )       |         |         |       |         |         |         | 2,254  |        
|                                                             |                                                                                 | Other current assets                              |                                           |         | (345  | )       |         |         | (468   | )       |         |         | (266   | )      
|                                                             |                                                                                 | Other assets                                      |                                           |         | 32    |         |         |         | 52     |         |         |         | (2,072 | )      
|                                                             |                                                                                 | Accounts payable                                  |                                           |         | (437  | )       |         |         | 65     |         |         |         | (1,385 | )      
|                                                             |                                                                                 | Accrued liabilities                               |                                           |         | (305  | )       |         |         | (280   | )       |         |         | (77    | )      
|                                                             |                                                                                 | Accrued clinical trials and related expenses      |                                           |         | 4,017 |         |         |         | 2,952  |         |         |         | 3,701  |        
|                                                             |                                                                                 | Accrued compensation                              |                                           |         | (438  | )       |         |         | 488    |         |         |         | (744   | )      
|                                                             |                                                                                 | Deferred revenue                                  |                                           |         |      |         |         |         | (1,465 | )       |         |         | (2,551 | )      
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             |                                                                                 |                                                   | Net cash used in operating activities     |         |       | (37,781 | )       |         |        | (42,231 | )       |         |        | (26,781 | )
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|Cash flows from investing activities                         |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             | Purchases of marketable securities                                              |                                                   |                                           | (61,568 | )     |         |         | (35,382 | )      |         |         | (34,394 | )     
|                                                             | Maturities of marketable securities                                             |                                                   |                                           | 40,286  |       |         |         | 25,403  |        |         |         | 22,462  |       
|                                                             | Capital expenditures                                                            |                                                   |                                           | (157    | )     |         |         | (742    | )      |         |         | (2,400  | )     
|                                                             | Proceeds from sale of fixed assets                                              |                                                   |                                           | 302     |       |         |         | 136     |        |         |         | 17      |       
|                                                             | Notes receivable from related parties                                           |                                                   |                                           |        |       |         |         | 44      |        |         |         | 3       |       
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             |                                                                                 |                                                   | Net cash used in investing activities     |         |       | (21,137 | )       |         |        | (10,541 | )       |         |        | (14,312 | )
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|Cash flows from financing activities                         |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             | Advance from collaboration partner                                              |                                                   |                                           | 15,000  |       |         |         | 5,000   |        |         |         |        |       
|                                                             | Payments on long-term debt                                                      |                                                   |                                           |        |       |         |         |        |        |         |         | (183    | )     
|                                                             | Net proceeds from issuances of common stock                                     |                                                   |                                           | 88,216  |       |         |         | 19,218  |        |         |         | 5,718   |       
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             |                                                                                 |                                                   | Net cash provided by financing activities |         |       | 103,216 |         |         |        | 24,218  |         |         |        | 5,535   |  
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|Net increase (decrease) in cash and cash
    equivalents     |                                                                                 |                                                   | 44,298                                    |         |       |         | (28,554 | )       |        |         | (35,558 | )      
|Cash and cash equivalents at beginning of year               |                                                                                 |                                                   | 11,014                                    |         |       |         | 39,568  |         |        |         | 75,126  |        
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             |                                                                                 |                                                   | Cash and cash equivalents at end of year  |         | $     | 55,312  |         |         | $      | 11,014  |         |         | $      | 39,568  |  
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|Supplemental disclosure of cash flow
    information:        |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             | Interest paid during the year                                                   |                                                   | $                                         |        |       |         | $       |        |        |         | $       | 2       |       
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|Supplemental disclosure of noncash investing
    activities: |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             | Sale of assets to a related party in exchange for
    preferred stock           |                                                   | $                                         |        |       |         | $       |        |        |         | $       | 750     |       
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        
|                                                             | Receivable from stock option exercises                                          |                                                   | $                                         | 235     |       |         | $       |        |        |         | $       |        |       
|                                                             |                                                                                 |                                                   |                                           |         |       |         |         |         |        |         |         |        

See accompanying notes.

42



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2003


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 we
receive from our 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.

The Company received certain revenue from United
States government grants that supported the Companys
efforts in defined research projects. These grants generally
provided for reimbursement of approved costs incurred as defined
in the various grants. Revenue of $183,000 was recognized in
2001. Revenue associated with these grants was recognized as
costs under each grant were incurred. These grants were
terminated in 2001 and no further revenue was recognized.

The Company did not record any revenue in 2003
and does not expect to record any revenue in 2004.



| |                 
| | ----------------
| | 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.

43



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)



| |                  
| | -----------------
| | 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-party costs, salaries and employee benefits,
supplies and materials, and allocations of various overhead and
occupancy costs. Research and development expenses under the
collaborative research and development agreements through 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 BAY 43-9006
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, 2003 and 2002, 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, 2003, 2002
and 2001. 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. 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.

44



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

Leasehold improvements are amortized over the
lesser of the lease term or the estimated useful lives of the
related assets, generally three to ten years.



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

At December 31, 2003 and 2002, other
long-term assets included $375,000 and $650,000, respectively,
in long-term private equity investments. The Company holds
certain private equity investments related to the sale and
license of certain assets to Syrrx, Inc. (Syrrx)
during November 2001 (See Note 8). 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 123, Accounting for Stock-Based
Compensation, 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 $1.5 million for the year ended
December 31, 2003 and $326,000 for the year ended
December 31, 2002. The Company recognized a credit to
compensation expense related to option grants to non-employees
of $55,000 for the year ended December 31, 2001 primarily
due to the decline in the Companys stock price in
comparison to prior period stock prices.

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 under the

45



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

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:

Options granted at fair value:

|                                   |  |                         |           |      |  |      |           |  |  |  |           | 
|---------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                   |  |                        
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2003                    |           | 2002 |  | 2001
|                                   |  |                         |           |      |  |     
|Risk-free interest rate            |  |                         | 2.34%     |      |  |      | 2.90%     |  |  |  | 4.29%     | 
|Expected life                      |  |                         | 3.0 years |      |  |      | 2.9 years |  |  |  | 5.9 years | 
|Expected volatility                |  |                         | 0.89      |      |  |      | 0.86      |  |  |  | 0.94      | 
|Expected dividends                 |  |                         | None      |      |  |      | None      |  |  |  | None      | 
|Weighted average option fair value |  |                         | $3.48     |      |  |      | $2.67     |  |  |  | $2.17     | 

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,        
|                                                                                                                                                |                                                        |                                
|                                                                                                                                                |                                                        | 2003                            |         | 2002  |   | 2001
|                                                                                                                                                |                                                        |                                 |         |       |   |     
|                                                                                                                                                |                                                        |                                
|                                                                                                                                                |                                                        | (In thousands, except per share
|                                                                                                                                                |                                                        | amounts)                       
|Net loss  as reported                                                                                                                          |                                                        | $                               | (44,969 | )     |   | $    | (45,787 | )     |   | $ | (27,572 | )    
|Deduct: Total stock-based employee compensation
    determined under the fair value based method for all awards, net
    of related tax effects |                                                        |                                 | (1,277  | )     |   |      | (1,747  | )     |   |   | (1,164  | )    
|                                                                                                                                                |                                                        |                                 |         |       |   |      |         |       |   |   |         |      
|Pro forma net loss                                                                                                                              |                                                        | $                               | (46,246 | )     |   | $    | (47,534 | )     |   | $ | (28,736 | )    
|                                                                                                                                                |                                                        |                                 |         |       |   |      |         |       |   |   |         |      
|Loss per share:                                                                                                                                 |                                                        |                                 |         |       |   |      |         |       |   |   |         |      
|                                                                                                                                                | Basic and diluted net loss per share 
    as reported |                                 | $       | (1.73 | ) |      | $       | (2.23 | ) |   | $       | (1.50 | )
|                                                                                                                                                | Basic and diluted net loss per share 
    pro forma   |                                 | $       | (1.78 | ) |      | $       | (2.31 | ) |   | $       | (1.56 | )

No options were granted at below fair value for
the years ended December 31, 2003, 2002 and 2001.

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 128, Earnings Per
Share. Basic and diluted net loss per share have been
computed using the weighted-average number of shares of

46



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

common stock outstanding during the period. The
following potentially dilutive outstanding securities were not
considered in the computation of diluted net loss per share
because they would be antidilutive:

|               |  |                |       |      |  |      |       |  |  |  |       | 
|-------------- |  | -------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|               |  |               
|               |  | December 31,  
|               |  |               
|               |  | 2003           |       | 2002 |  | 2001
|               |  |                |       |      |  |     
|               |  |               
|               |  | (In thousands)
|Stock options  |  |                | 1,984 |      |  |      | 2,750 |  |  |  | 2,513 | 
|Stock warrants |  |                | 743   |      |  |      | 743   |  |  |  |      | 
|               |  |                |       |      |  |      |       |  |  |  |       | 
|               |  |                | 2,727 |      |  |      | 3,493 |  |  |  | 2,513 | 
|               |  |                |       |      |  |      |       |  |  |  |       | 



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

Comprehensive loss is comprised of net loss and
other comprehensive income. Other comprehensive income includes
certain changes in stockholders equity that are excluded
from net loss. Other comprehensive income 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.



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | 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 and one former collaborator, Warner-Lambert,
accounted for 100 percent of revenue for the year ended
December 31, 2002.



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

The Company uses the liability method to account
for income taxes as required by SFAS 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
    Standards

In July 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which addresses accounting for restructuring,
discontinued operations, plant closing, or other exit or
disposal activities. SFAS 146 requires companies to
recognize costs associated with exit or disposal activities when
they are incurred. Previous guidance in Emerging Issues Task
Force, (EITF) No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) required that a liability for an exit cost
be recognized at the date of a companys commitment to an
exit or disposal plan. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after
December 31, 2002. The Company adopted SFAS 146 on
January 1, 2003 and recorded its January and June 2003
restructurings in accordance with the provisions of SFAS 146.

47



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45
elaborates on the existing disclosure requirements for most
guarantees, including residual value guarantees issued in
conjunction with operating lease agreements. It also clarifies
that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair value of the
obligation it assumes under that guarantee and must disclose
that information in its interim and annual financial statements.
The initial recognition and measurement provisions apply on a
prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements are
effective for financial statements of interim or annual periods
ending after December 15, 2002. The adoption of FIN 45
did not have a material impact on the Companys financial
position or results of operations.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities. FIN 46, as amended,
requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of
loss from the variable interest entitys activities or
entitled to receive a majority of the entitys residual
returns or both. A variable interest entity is a corporation,
partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors
that do not provide sufficient financial resources for the
entity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables,
real estate or other property. A variable interest entity may be
essentially passive or it may engage in research and development
or other activities on behalf of another company. The
consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003.
The consolidation requirements apply to older entities in the
quarter ending March 31, 2004. Certain of the disclosure
requirements apply to all financial statements issued after
January 31, 2003, regardless of when the variable interest
entity was established. The Companys adoption of
FIN 46 did not have a material impact on the Companys
financial position or results of operations.



|        |                         
|------- | ------------------------
|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, BAY
43-9006, was identified.

Bayer has paid all the costs of research and
preclinical development of BAY 43-9006. 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 related product
sales in Japan. The Company currently intends to copromote the
product, when it is commercialized, 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 BAY 43-9006 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 related 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 and 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 the Phase III study. These payments

48



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

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 BAY 43-9006 in any
one of the 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 the product on a royalty-bearing basis. If Onyx
does not continue to bear 50 percent of product development
costs, Bayer would retain exclusive, worldwide rights to BAY
43-9006 and would pay royalties to Onyx based on net sales.

Onyxs share for funding the clinical
development costs, which commenced in the third quarter of 2000,
was $20.8 million for 2003, $11.9 million for 2002,
and $5.7 million for 2001.



| |                       
| | ----------------------
| | 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. 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, if any, make regulatory
filings and manufacture for sale any approved collaboration
compounds. The Company would receive milestone payments on
clinical development and registration of any resulting products
and would receive royalties on worldwide sales of the marketed
products. Warner-Lambert has identified a small molecule lead
compound, an inhibitor of a cyclin-dependent kinase. We believe
that Warner-Lambert expects to enter Phase I clinical
trials with this candidate in 2004.

No revenue or expenses were recognized under this
agreement for the years ended December 31, 2003 and 2002.
Revenues recognized were $2.2 million and expenses were
$1.4 million for the year ended December 31, 2001
under this agreement.



| |                                                   
| | --------------------------------------------------
| | ONYX-015 and Armed Therapeutic Virus
    Products

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. Under terms of the agreement, the Company
received the right to require Warner-Lambert to purchase an
equity investment of $5.0 million in both 2000 and 2001.
The Company exercised the first of its two rights in February
2000 by issuing 279,470 of its common shares to Warner-Lambert,
and the Company exercised its second right in March 2001 by
issuing 460,872 of its common shares to Warner-Lambert (See
Note 8).

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 11).

Revenue recognized under this agreement was zero,
$2.7 million and $12.0 million for the years ended
December 31, 2003, 2002 and 2001, respectively. 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

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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

as revenue. The fiscal 2001 amount included
$10.4 million for research and clinical development funding
and $1.6 million related to the amortization of the
$5.0 million up-front payment. Expenses related to this
program were zero, $2.4 million and $14.2 million for
the years ended December 31, 2003, 2002 and 2001,
respectively.



| |                       
| | ----------------------
| | Inflammation Agreement

In July 1997, the Company entered into a research
and development collaboration agreement with Warner-Lambert to
discover and commercialize small molecule drugs for the
treatment of acute and chronic inflammatory disorders. The
research term under the agreement ended in August 2001.

No revenue or expenses were recognized under this
agreement for the years ended December 31, 2003 and 2002.
Revenues recognized were $1.4 million and expenses were
$1.7 million for the year ended December 31, 2001
under this agreement.

Note 3.     XOMA
(US) LLC

In January 2001, the Company entered into a
process development and manufacturing relationship with XOMA
(US) LLC. Under the terms of the agreement, XOMA was
developing a large-scale production process and was
manufacturing ONYX-015 for clinical trials and commercial
production. The Company paid XOMA a $2.0 million up-front
payment that was being amortized over five years. As part of the
Companys restructuring activities in 2003 (See
Note 11), the agreement with XOMA was terminated and
$2.5 million in restructuring charges was recorded,
including a termination fee of $1.0 million, a
$1.0 million write-off of the unamortized up-front payment
and $500,000 of other obligations under the contract. In
addition, in 2003 the Company recorded $1.1 million for
milestone payments paid to XOMA related to the agreement.

Note 4.     Investments

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

|                                               |                                |                |        |            |  |            |    |       |  |   |     |     |   |   |        |        | 
|---------------------------------------------- | ------------------------------ | -------------- | ------ | ---------- |  | ---------- | -- | ----- |  | - | --- | --- | - | - | ------ | ------ | 
|                                               |                                |               
|                                               |                                | 2003          
|                                               |                                |               
|                                               |                                |                |        | Estimated 
|                                               |                                | Adjusted       |        | Unrealized |  | Unrealized |    | Fair 
|                                               |                                | Cost           |        | Gains      |  | (Losses)   |    | 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 |       
|                                               |                                |                |        |            |  |            |    |       |  |   |     |     |   |   |        |       

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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

|                                               |                                |                |        |            |  |            |    |       |  |   |    |    |   |   |        |        | 
|---------------------------------------------- | ------------------------------ | -------------- | ------ | ---------- |  | ---------- | -- | ----- |  | - | -- | -- | - | - | ------ | ------ | 
|                                               |                                |               
|                                               |                                | 2002          
|                                               |                                |               
|                                               |                                |                |        | Estimated 
|                                               |                                | Adjusted       |        | Unrealized |  | Unrealized |    | Fair 
|                                               |                                | Cost           |        | Gains      |  | (Losses)   |    | Value
|                                               |                                |                |        |            |  |            |    |      
|                                               |                                |               
|                                               |                                | (In thousands)
|U.S. government investments:                   |                                |                |        |            |  |            |    |       |  |   |    |    |   |   |        |       
|                                               | Maturing within 1 year         |                | $      | 1,267      |  |            | $  | 1     |  |   | $  |   |   |   | $      | 1,268  | 
|                                               | Maturing between 1 and 2 years |                |        | 1,257      |  |            |    |      |  |   |    | (1 | ) |   |        | 1,256  | 
|                                               |                                |                |        |            |  |            |    |       |  |   |    |    |   |   |        |       
|Total government investments                   |                                |                | 2,524  |            |  |            | 1  |       |  |   | (1 | )  |   |   | 2,524  |       
|                                              
|Corporate debt investments:                    |                                |                |        |            |  |            |    |       |  |   |    |    |   |   |        |       
|                                               | Maturing within 1 year         |                |        | 26,255     |  |            |    | 45    |  |   |    | (5 | ) |   |        | 26,295 | 
|                                               |                                |                |        |            |  |            |    |       |  |   |    |    |   |   |        |       
|Total corporate investments                    |                                |                | 26,255 |            |  |            | 45 |       |  |   | (5 | )  |   |   | 26,295 |       
|                                               |                                |                |        |            |  |            |    |       |  |   |    |    |   |   |        |       
|Total available-for-sale marketable securities |                                | $              | 28,779 |            |  | $          | 46 |       |  | $ | (6 | )  |   | $ | 28,819 |       
|                                               |                                |                |        |            |  |            |    |       |  |   |    |    |   |   |        |       

Note 5.     Property
and Equipment

Property and equipment consist of the following:

|                                               |  |                |        |      |  |   |         |  
|---------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------- | -
|                                               |  |               
|                                               |  | December 31,  
|                                               |  |               
|                                               |  | 2003           |        | 2002
|                                               |  |                |        |     
|                                               |  |               
|                                               |  | (In thousands)
|Machinery and equipment                        |  | $              | 826    |      |  | $ | 9,223   |  
|Furniture and fixtures                         |  |                | 463    |      |  |   | 677     |  
|Leasehold improvements                         |  |                | 2,451  |      |  |   | 4,354   |  
|                                               |  |                |        |      |  |   |         |  
|                                               |  |                | 3,740  |      |  |   | 14,254  |  
|Less accumulated depreciation and amortization |  |                | (3,455 | )    |  |   | (11,420 | )
|                                               |  |                |        |      |  |   |         |  
|                                               |  | $              | 285    |      |  | $ | 2,834   |  
|                                               |  |                |        |      |  |   |         |  

Depreciation expense was $924,000,
$1.4 million and $1.6 million for the years ended
December 31, 2003, 2002 and 2001, respectively.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets. Machinery
and equipment have two to five years estimated lives; furniture
and fixtures have five years, and leasehold improvements have a
useful life equal to the lesser of the lease term or the
estimated useful lives of the related assets, generally three to
ten years.

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. The Company 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. 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 from property and equipment to other current assets for
equipment that remained held-for-sale at December 31, 2003.
In early 2004, the Company invited numerous companies to bid on
equipment held-for-sale. Bidding on this equipment concluded in
February 2004. Any remaining equipment not sold to these
companies will be sold to an auction company. The Company
anticipates completing the sale and disposal of these assets
prior to the end of the second quarter of 2004.

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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

Note 6.     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 BAY 43-9006 based on the Companys
continued cofunding of development costs. In August 2002, the
Company received a $5.0 million development payment from
Bayer for the initiation of Phase II clinical trials of BAY
43-9006. Pursuant to its collaboration agreement, these amounts
are repayable to Bayer from Onyxs share of profits and
royalties, if any. These amounts are included in the caption
Advance from collaboration partner in the
accompanying balance sheet as of December 31, 2003.

Note 7.     Facility
Lease

The Company occupies a total of approximately
50,000 square feet of office and laboratory space in its
primary facility in Richmond, California. The lease expires in
April 2005 with an option to extend the lease for an additional
five years.

The Company also has a lease for
9,000 square feet of space and had a lease for
3,000 square feet of space in a secondary facility in
Richmond, California. The Company determined that it no longer
required these facilities as a result of a reduction in force in
December 2001, and the Company included an estimated write-off
of the future obligations under these leases in
Restructuring expenses in 2001(See Note 11).
The lease for 9,000 square feet of space in 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. The lease for the 3,000 square feet of
space in this facility expired in October 2003 and had renewal
options at the end of the lease term for three years and four
years. In March 2002, the Company entered into a sublease
agreement for this space through October 2003. The Company did
not exercise its renewal option for the 3,000 square foot
facility.

Minimum annual rental commitments, net of
sublease income, under all operating leases at December 31,
2003 are as follows (in thousands):

|                         |            |   |     |     | 
|------------------------ | ---------- | - | --- | --- | 
|Year ending December 31: |            |   |     |    
|                         | 2004       |   | $   | 709 | 
|                         | 2005       |   |     | 241 | 
|                         | 2006       |   |     | 3   | 
|                         | 2007       |   |     | 3   | 
|                         | 2008       |   |     | 3   | 
|                         | Thereafter |   |     | 8   | 
|                         |            |   |     |    
|                         |            | $ | 967 |    
|                         |            |   |     |    

Rent expense, net of sublease income and
restructuring, for the years ended December 31, 2003, 2002
and 2001 was approximately $577,000, $661,000 and $848,000,
respectively.

Note 8.     Related
Party Transactions

The Company has a loan receivable from a former
employee of which approximately $275,000 was outstanding at
December 31, 2003 and 2002. This loan bears interest at
5.98% per annum; however, the Company has forgiven $71,000 of
interest over the term of the loan through December 31,
2003. This loan is due in 2004 and is therefore recorded in
current assets at December 31, 2003.

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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

In March 2001, the Company issued 460,872 shares
of common stock to Warner-Lambert in a private placement, at a
price of $10.849 per share, for aggregate proceeds of
$5.0 million. The Company recorded related party revenue
under its collaboration agreements with Warner-Lambert (See
Note 2).

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. 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.

In May 2002, the Company issued 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. The Company also issued
warrants to purchase 743,229 shares of common stock at an
exercise price of $9.59 per share. The fair value of the
warrants was $4.4 million and was accounted for as a stock
issuance cost. A member of the Companys board of directors
is a managing member of Domain Associates, L.L.C., one of the
participants in the private placement.

Note 9.     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 10.     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 each of
May 2002, June 2000 and May 1998, an additional
75,000 shares were reserved for issuance under the Purchase
Plan at each meeting. 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 30,827 in 2003, 30,726 in 2002 and 36,269 in
2001. Since inception, a total of 256,986 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 June 2003, May 2002, May 2001, June 2000, May
1999, May 1998 and May 1997, an additional 600,000, 400,000,
900,000, 400,000, 300,000, 300,000 and 600,000 shares,
respectively, were reserved 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

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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

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 annual meetings
of stockholders in June 2003, May 2001 and June 2000, an
additional 100,000, 75,000 and 75,000 shares, respectively, were
reserved 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, 2000 |                   |                  | 341,052   |                           |   |                | 1,794,656 |           |   | $ | 10.16 |      
|                              | Shares authorized |                  |           | 975,000                   |   |                |           |          |   |   |       |      | 
|                              | Options granted   |                  |           | (1,141,415                | ) |                |           | 1,141,415 |   |   | $     | 7.72  | 
|                              | Options exercised |                  |           |                          |   |                |           | (70,456   | ) |   | $     | 6.76  | 
|                              | Options forfeited |                  |           | 352,887                   |   |                |           | (352,887  | ) |   | $     | 13.50 | 
|                              |                   |                  |           |                           |   |                |           |           |   |   |       |      
|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  |      
|                              |                   |                  |           |                           |   |                |           |           |   |   |       |      

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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

The following table summarizes information about
options outstanding and exercisable at December 31, 2003:

|                         |       |                     |         |            |  |                |     |             |  |                |       |      |  |  |         |           |  |   |       |      | 
|------------------------ | ----- | ------------------- | ------- | ---------- |  | -------------- | --- | ----------- |  | -------------- | ----- | ---- |  |  | ------- | --------- |  | - | ----- | ---- | 
|                         |       |                    
|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
|                         |       |                     |         |            |  |                |     |             |  |               
|$ 1.07 - $ 4.18          |       |                     | 252,941 |            |  |                | 7.4 |             |  | $              | 3.63  |      |  |  | 252,941 |           |  | $ | 3.63  |     
|$ 4.20 - $ 4.87          |       |                     | 176,652 |            |  |                | 8.2 |             |  | $              | 4.65  |      |  |  | 153,319 |           |  | $ | 4.69  |     
|$ 4.92 - $ 5.00          |       |                     | 238,948 |            |  |                | 9.0 |             |  | $              | 5.00  |      |  |  | 238,948 |           |  | $ | 5.00  |     
|$ 5.02 - $ 5.88          |       |                     | 210,104 |            |  |                | 6.7 |             |  | $              | 5.48  |      |  |  | 210,104 |           |  | $ | 5.48  |     
|$ 6.00 - $ 7.38          |       |                     | 212,193 |            |  |                | 7.0 |             |  | $              | 6.74  |      |  |  | 212,193 |           |  | $ | 6.74  |     
|$ 7.44 - $ 8.15          |       |                     | 199,586 |            |  |                | 6.4 |             |  | $              | 7.72  |      |  |  | 199,586 |           |  | $ | 7.72  |     
|$ 8.38 - $10.00          |       |                     | 326,415 |            |  |                | 7.3 |             |  | $              | 9.82  |      |  |  | 326,415 |           |  | $ | 9.82  |     
|$10.20 - $12.00          |       |                     | 203,396 |            |  |                | 4.6 |             |  | $              | 11.42 |      |  |  | 203,396 |           |  | $ | 11.42 |     
|$12.06 - $25.19          |       |                     | 158,449 |            |  |                | 6.6 |             |  | $              | 15.47 |      |  |  | 138,449 |           |  | $ | 15.84 |     
|$27.14 - $27.14          |       |                     | 5,000   |            |  |                | 9.9 |             |  | $              | 27.14 |      |  |  |        |           |  | $ | 0.00  |     
|                         |       |                     |         |            |  |                |     |             |  |                |       |      |  |  |         |           |  |   |       |     
|                         | Total |                     |         | 1,983,684  |  |                |     | 7.1         |  |                | $     | 7.65 |  |  |         | 1,935,351 |  |   | $     | 7.58 | 
|                         |       |                     |         |            |  |                |     |             |  |                |       |      |  |  |         |           |  |   |       |     

At December 31, 2003, December 31,
2002, and December 31, 2001, 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,
|                                     |  | 2003        
|                                     |  |             
|Stock options available for issuance |  |              | 1,419,216 | 
|Stock options outstanding            |  |              | 1,983,684 | 
|Employee stock purchase plan         |  |              | 68,014    | 
|                                     |  |              |           | 
|Total                                |  |              | 3,470,914 | 
|                                     |  |              |           | 

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 this
transaction, which 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, 2003, 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, 2003, there are
outstanding warrants to purchase an aggregate of 743,229 shares
of the Companys common stock. The warrants were issued in
connection with a private placement financing in May 2002 (See
Note 8). The exercise price of these warrants is $9.59 per
share. The $4.4 million fair value of

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ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

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. The
Company has reserved 743,229 common shares for future issuance
for these warrants, which will expire in May 2009, unless
earlier exercised.

Note
11.     Restructuring

In June 2003, the Company announced the
discontinuation of its therapeutic virus program and the
termination of all internal research activities. The decision
was part of a business realignment that placed an increased
priority on the development of BAY 43-9006, Onyxs lead
product candidate that is being developed jointly with Bayer. As
a first step in this realignment, in January 2003, the Company
suspended the development of ONYX-015, including clinical trials
and manufacturing activities. Together these actions resulted in
a reduction in force of approximately 75 positions, most of
which were associated with the therapeutic virus program. During
2003, the Company recorded an aggregate charge of
$5.5 million associated with the January and June 2003
restructurings. 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. 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.

In October 2001, the Company formally adopted and
announced a restructuring plan aimed at reducing future
operating costs to allow the Company to focus on its highest
priority products in development. The Company recognized
$812,000 of restructuring and other charges. Of the $812,000,
$412,000 related to the impairment of certain long-lived assets,
$255,000 related to employee termination costs, and $145,000
related to office closure costs. The Company reduced the size of
its workforce by approximately 40 positions, primarily
impacting the research and administrative functions and
consisted of wage continuation and advance notice pay. Office
closure costs included losses on operating leases. Asset
impairments included leasehold improvements related to vacated
facilities and equipment related to research and development
programs not expected to continue.

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. For
the year ended December 31, 2002, the accrual for
restructuring was $31,000 and consisted entirely of office
closure costs. Restructuring expense in fiscal year 2002 was
zero.

56



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

Note 12.     Income
Taxes

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

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

|                                     |  |                |         |      |  |   |         |  
|------------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                                     |  |               
|                                     |  | December 31,  
|                                     |  |               
|                                     |  | 2003           |         | 2002
|                                     |  |                |         |     
|                                     |  |               
|                                     |  | (In thousands)
|Net operating loss carryforwards     |  | $              | 62,400  |      |  | $ | 52,700  |  
|Tax credit carryforwards             |  |                | 4,900   |      |  |   | 5,390   |  
|Capitalized research and development |  |                | 6,100   |      |  |   | 3,200   |  
|Deferred revenue                     |  |                | 8,000   |      |  |   |        |  
|Other                                |  |                | 300     |      |  |   | 2,510   |  
|                                     |  |                |         |      |  |   |         |  
|Total deferred tax assets            |  |                | 81,700  |      |  |   | 63,800  |  
|Valuation allowance                  |  |                | (81,700 | )    |  |   | (63,800 | )
|                                     |  |                |         |      |  |   |         |  
|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 $17.9 million, $14.7 million and
$14.6 million in 2003, 2002 and 2001, respectively.

At December 31, 2003, the Company has net
operating loss carryforwards for federal and state income tax
purposes of approximately $173.4 million and
$59.9 million, respectively, which expire beginning in 2004
if not utilized. At December 31, 2003, the Company has
research and development credit carryforwards for federal income
tax purposes of approximately $3.1 million, which expire
beginning in 2008 if not utilized. At December 31, 2003,
the Company has research and development credit carryforwards
for state income tax purposes of approximately
$2.4 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.

Note
13.     Guarantees, Indemnifications
and Contingencies

Guarantees
and Indemnifications

The Company has entered into indemnity agreements
with certain 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 believes the fair value of these
indemnification agreements

57



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##### Table of Contents



ONYX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS 
(Continued)

is minimal. Accordingly, the Company has no
liabilities recorded for these agreements as of
December 31, 2003.

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
14.     Subsequent Events

On February 6, 2004, the Company sold
4,637,000 shares of common stock at a price of $33.75 per
share in an underwritten public offering pursuant to an
effective registration statement previously filed with the
Securities and Exchange Commission. The Company received an
aggregate of approximately $146.6 million of net cash proceeds
from this public offering. On February 24, 2004, the
underwriters for the offering purchased an additional 48,693
shares of the Companys common stock to cover
over-allotments at a price of $33.75 per share. The Company
received an aggregate of approximately $1.5 million of net
cash proceeds from the sale of these additional shares.

Note
15.     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.

|                                     |  |                                       |         |          |  |         |         |         |  |   |         |   |  |   |         |  
|------------------------------------ |  | ------------------------------------- | ------- | -------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                     |  |                                      
|                                     |  | Year ended December 31, 2003         
|                                     |  |                                      
|                                     |  | Dec. 31                               |         | Sept. 30 |  | June 30 |         | Mar. 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   | )

|                                     |  |                                       |         |          |  |         |         |         |  |   |         |   |  |   |        |  
|------------------------------------ |  | ------------------------------------- | ------- | -------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------ | -
|                                     |  |                                      
|                                     |  | Year ended December 31, 2002         
|                                     |  |                                      
|                                     |  | Dec. 31                               |         | Sept. 30 |  | June 30 |         | Mar. 31
|                                     |  |                                       |         |          |  |         |         |        
|                                     |  |                                      
|                                     |  | (In thousands, except per share data)
|Total revenues                       |  | $                                     |        |          |  | $       | 1,178   |         |  | $ | 707     |   |  | $ | 830    |  
|Net loss                             |  |                                       | (13,297 | )        |  |         | (10,818 | )       |  |   | (11,879 | ) |  |   | (9,793 | )
|Basic and diluted net loss per share |  |                                       | (0.62   | )        |  |         | (0.50   | )       |  |   | (0.58   | ) |  |   | (0.53  | )

58



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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(1)     |                         |  | 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.                                                                                                                                                                             
|        | 10.3(1)*   |                         |  | Compound Library Access Agreement between
    Warner-Lambert Company and the Company dated May 2, 1995.                                                                                                                                                                                                                    
|        | 10.4(2)*   |                         |  | Research and License Agreement between Eli
    Lilly & Company and the Company dated May 15, 1995
    and the Collaborative Research and License Agreement between Eli
    Lilly and the Company dated June 12, 1996.                                                                                                      
|        | 10.5(3)*   |                         |  | 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(2)   |                         |  | 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(4)   |                         |  | Letter Agreement between Dr. Allan Balmain
    and the Company dated August 26, 1996, as amended
    March 13, 1997.                                                                                                                                                                                                       
|        | 10.20(5)*  |                         |  | Amended and restated Research, Development and
    Marketing Collaboration Agreement dated May 2, 1995 between
    the Company and Warner-Lambert Company.                                                                                                                                                                 
|        | 10.21(5)*  |                         |  | Research, Development and Marketing Collaboration
    Agreement dated July 31, 1997 between the Company and
    Warner-Lambert Company.                                                                                                                                                                                    
|        | 10.23(5)*  |                         |  | Amendment to the Amended and Restated Research,
    Development and Marketing Collaboration Agreement, dated
    December 15, 1997, between the Company and Warner-Lambert
    Company.                                                                                                                                    



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##### Table of Contents



|        |            |                         |  |                                                                                                                                                                                                                              
|------- | ---------- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |                        
|Number  |            | Description of Document
|        |            |                        
|        | 10.24(6)*  |                         |  | Amendment to Collaboration Agreement between
    Bayer Corporation and the Company dated February 1, 1999.                                                                                                                   
|        | 10.25(7)   |                         |  | 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(8)*  |                         |  | Collaboration Agreement between the Company and
    Warner-Lambert Company dated October 13, 1999 and effective
    September 1, 1999.                                                                                       
|        | 10.27(8)   |                         |  | Stock Put and Purchase Agreement between the
    Company and Warner-Lambert Company dated October 13, 1999
    and effective September 1, 1999.                                                                              
|        | 10.28(8)   |                         |  | Stock Purchase Agreement between the Company and
    the investors dated January 18, 2000.                                                                                                                                   
|        | 10.29(9)   |                         |  | 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(5)*  |                         |  | Second Amendment to the Amended and Restated
    Research, Development and Marketing Agreement between
    Warner-Lambert and the Company dated May 2, 1995.                                                                 
|        | 10.32(5)*  |                         |  | Second Amendment to Research, Development and
    Marketing Collaboration Agreement between Warner-Lambert and the
    Company dated July 31, 1997.                                                                          
|        | 10.33(10)  |                         |  | Employment Offer Letter between Leonard E.
    Post, Ph.D. and the Company dated July 28, 2000.                                                                                                                              
|        | 10.34(11)* |                         |  | Process Development and Manufacturing Agreement
    between XOMA (US) LLC and Onyx Pharmaceuticals, Inc., dated
    January 29, 2001.                                                                                        
|        | 10.35(12)  |                         |  | Form of Executive Change in Control Severance
    Benefits Agreement.                                                                                                                                                        
|        | 10.36(13)* |                         |  | Amendment #1 to the Collaboration Agreement
    between the Company and Warner-Lambert dated August 6, 2001.                                                                                                                 
|        | 10.37(13)* |                         |  | Amendment #3 to the Research, Development
    and Marketing Collaboration Agreement between the Company and
    Warner-Lambert dated August 6, 2001.                                                                         
|        | 10.38(13)* |                         |  | 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(14)  |                         |  | Stock and Warrant Purchase Agreement between the
    Company and the investors dated May 6, 2002.                                                                                                                            
|        | 10.40(15)* |                         |  | Amendment No. 1 to the Process Development
    and Manufacturing Agreement between the Company and XOMA
    (US) LLC dated April 15, 2002.                                                                                   
|        | 10.41(16)* |                         |  | Amendment to the Collaboration Agreement between
    the Company and Warner-Lambert Company dated September 16,
    2002.                                                                                                    
|        | 10.42(17)  |                         |  | Stock Purchase Agreement between the Company and
    the investors dated February 13, 2003.                                                                                                                                  
|        | 23.1       |                         |  | Consent of Ernst & Young LLP,
    Independent Auditors.                                                                                                                                                                      
|        | 24.1       |                         |  | Power of Attorney. Reference is made to
    page 36.                                                                                                                                                                         
|        | 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.                              
|
| | (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,
    1996. 
|
| | (3) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 2001.       
|
| | (4) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    1997.
|
| | (5) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 2002.       
|
| | (6) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    1999.



---



##### Table of Contents





| |     |                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------
| | (7) | Filed as an exhibit to Onyxs Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 1999.
|
| | (8) | Filed as an exhibit to Onyxs Current Report
    on Form 8-K filed on March 1, 2000.                         
|
| | (9) | Filed as an exhibit to Onyxs Annual Report
    on Form 10-K for the year ended December 31, 1999.           



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